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.

Butt and Madden agreed that SSPs are currently facing a lack of credibility among large customers. But Madden said he expects that to be cured in time, as more users take the plunge.

"One way or another, the SSP model will take hold, for the same compelling reasons that the broader ASP model is catching on," Madden said.

Ironically, thee battlefield in the storage rental market is expected to be between SSPs and the storage vendors from which they sometimes lease disk space. As demand increases, Madden said, vendors such as EMC Corp. and IBM will also likely begin offering capacity rentals, joining pure-play SSPs such as StorageNetworks, StorageWay Inc. in Fremont, Calif., and San Jose-based CreekPath Systems Inc., none of which sell storage equipment.

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