December 26, 2000, 2:17 PM — WHY BUY when you can rent? CIOs will find themselves facing this question from a new breed of outsourcers offering rentable storage. These companies, sometimes called storage utility providers or storage service providers (SSPs), let customers rent the storage capacity they need. Customers are billed every month or every quarter, "sort of like a phone bill," says Doug Chandler, a senior analyst at Framingham, Mass.-based IDC (a sister company to CIO Communications). Storage utility providers typically own the storage devices and maintain them on their premises; customers access their stored data via a network connection. In the traditional storage outsourcing model customers buy the storage devices, house them onsite and hire outsourcers to manage them onsite or remotely. The new storage utility model's appeal lies in its flexibility and in the fact that companies don't need to make an up-front investment in storage devices.
IDC predicts that the storage utility model of outsourcing will grow sevenfold over the next few years, from roughly $100 million in revenues in 1999 to about $700 million in 2003. At first, the storage utility model will appeal most to dotcom companies that need to ramp up quickly, and also to cost-conscious small and midsize companies that don't want to buy or manage storage devices themselves. But don't expect the services to be an immediate hit with the Fortune 500, Chandler says. Why? Because many CIOs at large companies, concerned about security and performance, feel uncomfortable handing over the storage reins to someone who will run it offsite. And as the storage market becomes more and more commoditized and prices drop, there will be less financial pressure for them to turn to outsourcing, Chandler says, much the same way the drop in PC prices has taken some of the momentum out of the desktop management outsourcing market.