Storage Rental Market Emerges

FRAMINGHAM (04/03/2000) - First, application service providers roared onto the scene to ease users' software maintenance burdens. Now, service providers are moving into the storage arena, promising to rid users of their storage management headaches.

For a hefty monthly fee, storage service providers own, manage and operate storage infrastructures for their clients at remote data centers, similar to the way application service providers rent applications to customers. San Diego-based Centripetal Inc. will launch its storage service this month, joining Waltham, Massachusetts-based StorageNetworks Inc. in a market that's still in its infancy.

So far, storage service providers are drawing mostly small e-commerce companies as customers, because venture capitalists would rather have dot-coms turn a profit or invest in strategic initiatives than create in-house storage infrastructures, said Adam Couture, an analyst at Dataquest in Lowell, Massachusetts.

Dataquest predicts that the storage service provider (SSP) market will explode from $10 million last year to $8 billion in 2003. But analysts said it will still be a challenge for SSPs to move beyond dot-coms and gain the trust of larger corporations that have their own technology infrastructure.

One issue is that the vendors offering this service don't have track records, said Jim Porter, an analyst at Disk/Trend Inc. in Mountain View, California.

"They don't know if they'll be around in two or three years. ... God knows what happens to the data" if the vendor goes out of business, he said.

Jerry Lynch, director of operations at the Online Computer Library Center in Dublin, Ohio, said he's "fascinated" by SSPs but needs site security guarantees, uninterruptible power-supply protection and "enough of the right names" involved.

Some heavyweight vendors are dipping into the SSP arena. Storage Technology Corp. in Louisville, Colorado, last week, with Great Hill Partners LLC, launched Managed Storage International, a separate firm that will offer data storage services such as storage-on-demand and server and PC backup.

But the overall lack of experienced SSPs has left some users nixing the idea.

Brian Dunnam, director of systems engineering at DotPlanet.com Inc. in Duluth, Georgia, entered into contracts with two SSPs, which he declined to name, canceling one contract and not extending the other.

"We have a very dynamic environment that changes on a moment's notice," so the SSPs had a difficult time managing the storage environment, Dunnam said. The Web-hosting firm now manages its storage in-house.

But other customers said they like turning over their storage management woes to someone else.

Jordan Olin, chief technology officer at Maynard, Massachusetts-based Computer.com, moved the company's storage to StorageNetworks in preparation for this year's Super Bowl ad campaign. The online retailer stores member information, commerce transactions and logs at a StorageNetworks data center in Waltham, Massachusetts.

But using an SSP is pricey. Olin said Computer.com pays 20 percent to 40 percent more per month than when its storage was in-house. According to StorageNetworks, the average monthly cost for managed storage per terabyte is $50,000. Computer.com now has 200GB of physically mirrored storage.

Yet Olin said the idea of a company watching over his data storage is a relief.

Before, "we didn't run fast equipment, and we didn't have an expansive storage infrastructure. [Now] we don't have any hassles to manage it," he said.

Eventually, large corporations may be forced to turn to SSPs because of problems with staffing, scalability and management costs for storage, said analyst Michael Peterson, president of Santa Barbara, California-based Strategic Research Corp. "[Corporations] may be leery, but they'll have no choice" if these trends continue, he said.

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