Feature: Taking aim at the mainstream market

What does the average small to mid-sized business know about the latest in whiz-bang storage technology? Not much. That will be changing soon, however, if the vendors of these systems have anything to do with it.

To date, the rarified science of such things as storage area networks, or SANs, has pretty much happened, well sans the mainstream business, if you'll pardon the French. It's been almost exclusively the domain of the very large enterprise.

And buyers within those companies, which is a relatively small category in actual numbers, have been very, very good to storage vendors, to the tune of nearly US$50 billion this year alone. That's 92 percent of total worldwide revenue for storage hardware, software, and services--from what amounts to maybe a few thousand enterprises.

But, the times they are a-changin'. Large-enterprise storage revenues will hit only $59.9 billion in 2006, according to research firm AMI Partners Inc. in New York City. That may sound like a lot of money, but it's a measly 5 percent compound annual growth rate over the next four years, as AMI projects it--nowhere near the glory days of the recent past, for what had been one of the hottest performing segments of the IT business.

What's happening here? We all know big enterprise IT spending has slowed, but haven't we all been told that the amount of data such firms need to store was accelerating at a rapid pace? Where's all that growth? Well, it turns out the big guys had a considerable amount of--guess what?--unused capacity, which will take up some of that slack for a while.

But, now another wave of storage growth is now upon us, according to AMI Partners. They say it will come from none other than all those small to mid-sized businesses, or SMBs, long known as the core of our economy. In a recent report, AMI projects this segment will experience a 43 percent compound annual growth rate in storage spending from 2002 through 2006.

And here you all thought IT growth went totally AWOL.

Granted, that will get SMB storage spending to only $18.5 billion in four years (from a paltry $4.5 billion this year), compared to a projected $59.9 billion that large businesses will spend in 2006. But still, says AMI, the SMB market is where the action is. It will comprise, they say, 24 percent of worldwide storage spending by 2006. And in large part, it's untapped ground from the standpoint of available solutions that meet the unique needs of this market.

"We believe the storage space is at the cusp of significant developments and can support a myriad of competitors in the short to mid-term," says AMI's Ryan Brock, senior consultant. Further, he points to significant opportunity for new solutions or new companies, especially at the lower end of this market: "We've drawn the conclusion that practically all the latest generation storage-area networking (SAN) and most network-attached storage (NAS) solutions are priced beyond the reach of even the top-tier SBs [small businesses]."

AMI's research on IT spending patterns shows that most SMBs are generally reluctant to spend in excess of $25,000 for any single solution. "This represents a significant challenge to the majority of today's storage vendors, as the average price of a solution seldom falls below $100,000 and generally exceeds $500,000," states AMI in its recent report.

Where Demand Is Coming From

What will drive the growth in SMB storage? AMI says this: "The fundamental forces behind the growth of the data storage market remain strong and unyielding. Small and medium-sized businesses continue to create and accumulate massive amounts of digitized media that require storage, access and manipulation."

In particular, SMBs are priming the market for storage growth by deploying business automation applications such as ERP, supply chain management, CRM and sales force automation. According to the AMI study, the number of U.S.-based SMBs using one or more business process automation software solutions more than doubled in the last 12 months, from 490,000 to more than one million.

"SMBs also are becoming more likely to utilize media-intensive applications such as imaging and document management solutions, e-business, streaming media and e-learning, all of which are potential precursors to storage deployment," says AMI's Brock.

The SMB designation generally is defined as companies having from 1 to 999 employees. Others define it as firms with $1 million to $100 million in annual revenues. Either way, it cuts a wide swath: some 5.3 million firms in the U.S. alone, according to Inc. Magazine. But it's highly fragmented and thus challenging for vendors to pursue, according to AMI.

A big requirement for vendors addressing this market is a shift in sales and distribution. In the SMB space, resellers rule. In a Channels Study published recently by Boulder, Colo.-based Enterprise Management Associates Inc., SMB was the stated market focus of 78 percent of the resellers responding, the highest ranking of all choices (followed by 62 percent who said "Verticals").

The Smell of Opportunity

To say there's a mad dash as yet to the SMB market by the established storage-industry players might be overstating it a bit. Then again, many would question their ability to turn their battleships that fast.

Make no mistake, the smart money is looking "down market." The question at this point may be, how far? One need only do a search on the word "midrange" across any database of recent storage-vendor press releases to see there's a trend here. It's become the buzzword du jour. But, to the big storage companies, at least up till now, "midrange" seems to apply only the very upper end of the SMB market--those that can actually afford these high-priced hardware/software solutions. In other words, only the lower end of their expensive current offerings now seems on-target for this market, and those only for the largest of the "MBs." The vast ocean of "SBs" have been largely unserved by the offerings of storage vendors up to now.

Who are some of the vendors starting to position themselves for the SMB market? Analysts note such players as Cisco Systems Inc., the recent EMC Corp.-Dell Computer Corp. partnership, and storage software firms Legato Systems Inc. and Veritas Software Corp. Other newer players to watch that are focusing on the SMB market include XIOtech Corp. (acquired by Seagate Technology LLC), as well as 3ParData Inc., BlueArc Corp., YottaYotta Inc., Aristos Logic Corp., 3ware Inc. and Scale Eight Inc.

One thing is clear: the rate of new startups bursting onto this scene will hardly slow. "There's a price/performance gap in storage solutions between the enterprise and small business big enough to drive an aircraft carrier through," says Gary Doan, CEO of still-stealthy startup Intradyn in Minneapolis. The biggest opportunity for these startups? Early signs point to the backup and recovery aspects of data storage.

And we'll see a lot more startup activity in this area. Much of it is being driven by price/performance advances about to come from such technologies as the serial ATA drive, which is ushering in low-cost disk-based backup (partially displacing expensive, cumbersome, unreliable tape). And some of the established players aren't sitting still either, notably Network Appliance Inc. and Quantum Corp. If they did, they'd be watching some of their lunch getting eaten.

Advice for the SMB Storage Buyer

AMI Partners offers some tips for small to mid-sized companies looking for solutions from the established storage vendors. In fact, Andy Bose, founder of AMI and former IDC vice president, also had some strong words of caution for the storage vendors themselves: "Companies that do well selling complex solutions to large enterprises often fail to relate to the unique needs of the smaller company and struggle to successfully navigate the highly fragmented SMB market." His firm says a "market segmentation" strategy is the answer, in order to target the SMBs most in need of storage solutions. "Only a fraction [of those 5.3 million U.S. SMBs] are reasonable targets" for such advanced storage solutions, Bose told the vendors.

So, what to do if you're one of those "SMBs" that's really in need of a serious, big-company style storage solution?

AMI senior analyst Ryan Brock says there are four things any small or mid-sized business should consider--besides price, of course--before talking to storage vendors: First, relevancy: Do you have a good understanding of why your business needs such a solution? Second, fit: Is the solution you're looking at one that was built to meet the needs of a business of your size and type? (I.e., if it began life a large as a large-enterprise solution, can it scale down?) Third, ROI: Can you feel secure that the solution will pay off? And, finally, manageability: Can you be assured that deploying the solution, and maintaining it, will not be a burden to your business? But bet on this: If you're an SMB, get ready for the onslaught. You'll soon be hearing plenty from storage and storage-networking vendors. So, now's a good time to start getting educated about your own growing data storage and data-backup/recovery needs.

Then, maybe you'll be able to make some sense out of the barrage of sales pitches sure to be coming your way.

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