Storage Rental Market About to Get Bigger

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While they still lack the credibility needed to entice many large corporate users,
storage service providers (SSP) that offer data storage capacity on a rental basis
continue to grow and will likely be joined by more competitors in the coming months,
according to a recent study by consulting firm Summit Strategies Inc.

Dot-com ventures and other start-up companies that are short on money and technical
expertise and have unpredictable growth rates are the most likely customers for SSPs,
said Boston-based Summit. The finding reinforces comments made earlier this year by
users and analysts when storage rental companies were first emerging in the market.

Paying monthly per-gigabyte rental fees to an SSP gives users the potential to scale
their storage capacities as business needs dictate, in a manner similar to the way more-
established application service providers (ASP) work with their customers.

"I see the hosted-storage model as almost a subset of the whole ASP model," said
Summit analyst John Madden, the author of the study. Both approaches offer users the
prospect of increased simplicity and lower IT costs compared with running applications
or storage farms internally, he added.

TechTarget.com Inc., a Needham, Mass.-based company that operates a range of IT-
oriented informational Web sites, is a case in point. TechTarget rents its data storage
from StorageNetworks Inc., an SSP in Waltham, Mass. The year-old company struck the
arrangement in order to get its business up and running more quickly.

"It was one less thing our IT guys had to worry about," said Greg Strakosch,
TechTarget's CEO. "They had a very full plate building [our] Web infrastructure from
scratch." Since opening in September last year, the dot-com venture has doubled the
amount of storage capacity it rents from StorageNetworks to the current level of 2TB.

But while there's little disagreement that the SSP market is growing rapidly, some
analysts contend that handing over management of sensitive data to an SSP is a step
many companies aren't ready to take.

Gartner Group Inc. in Stamford, Conn., estimates that storage devices will make up
55% of server hardware costs for typical users next year, and Cambridge, Mass.-based
Forrester Research Inc. estimates that there will be at least a fivefold growth in
storage sales during the next few years. By 2004, according to Forrester analyst Joe
Butt, the 100 largest companies in the world will have an average storage capacity that
exceeds 150TB.

But most of the storage growth "will be sopped up by internal installations or [by]
ASPs" that are hosting key corporate applications for users, Butt said. Demand for
storage rentals "will continue to rise, but it will be a slow rise, because [users] are
going to be dealing with it in-house," he added.

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