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Dermot McCormack, chief technology officer,

After launching more than 200 Web sites and helping lead three prominent Internet companies through the start-up phase, Dermot McCormack knows a few things about how to make it in the New Economy. One of his favorite rules: Focus on your core competency and outsource the rest.

McCormack, the chief technology officer at, the premier purveyor of online gift currency, put that tenet to practice most recently in the summer of 2000 when he led his company’s investigation into the new world of storage service providers (SSPs).

Built on the popular application service provider (ASP) model, SSPs are springing up around the country, offering to take on the hassle and responsibility of monitoring, maintaining, and scaling data storage needs for their clients. Their services range from simply providing additional storage capacity on an as-needed basis, to archive and retrieval services, to application-specific data enhancement services.

These services are driving the emergence of the SSP market, industry analysts say. According to Adam Couture, senior analyst at Dataquest Gartner, in Lowell, Mass., this market barely existed 18 months ago. Total revenue for storage utilities in 1999 was a mere $10 million, Couture notes. That figure is expected to grow to $7.3 billion in 2003.

Why now? Several pressures in the IT arena are driving the market, says Couture. “Combine the boom in data levels across the board with the shortage of storage expertise in the workforce,” he says. “Then add in the confusion and lack of standards surrounding some of the most advanced storage architectures, like SANs [storage area networks], and it becomes clear the time is right for this model.”

Many SSPs are positioning themselves as “storage utilities”–in other words, as a “plug-in-the-wall, take-it-for-granted, bill-me-monthly” service akin to telecom or electricity utilities.

Storage on Demand

New York-based Flooz, like the vast majority of companies these days, is experiencing massive data growth. And while its staff is growing at a rapid clip as well, “I knew it was time to think about the opportunity costs [associated with managing] all our data storage in-house,” says McCormack. “Sure, we could invest five or six engineers into designing, building, and maintaining a new storage infrastructure, but then we’d be taking talent away from some other core project.”

Instead, Flooz chose to ink an agreement with StorageNetworks Inc., an SSP headquartered in Fremont, Calif. “At the time we began looking, it was clear that StorageNetworks was far and above the leader in what they do,” says McCormack. “There simply weren’t many offerings in this space, though I understand that there are now.”

At a Glance:
The company: New York-based, a purveyor of online gift currency, has 90+ employees.

The challenge: Find a way to ensure that this rapidly growing business has access to a top-quality, highly reliable data storage infrastructure, without expending exorbitant internal resources.

The solution: Outsource storage services to StorageNetworks Inc. at its co-location site with Exodus Communications Inc., where Flooz servers currently reside.

The StorageNetworks facility housing Flooz’s data is located in Weehawken, N.J., co-located at an Exodus Communications Inc. Internet datacenter, which hosts Flooz’s Web and data servers. “Our storage is in a cage right next to the cage where the servers are, and where we’d have put the SAN if we had had to do it ourselves,” explains McCormack of the set up.

There’s an obvious advantage to the SSP of sharing the same site with the datacenter: It doesn’t have to lay lots of fibre between the datacenter and wherever the SSP is located. The datacenter, too, has an advantage. It can offer the SSP model as another attractive feature of its service. And don’t forget the customer, who tends to feel that it’s neater and more manageable to have it all in one place. You don’t have to worry about any line breakages between the servers in one place and the storage in another when everything is co-located.

In return for a monthly fee, StorageNetworks houses Flooz’s data in a massively parallel and redundant SAN. In addition to providing them with high availability and reliability, StorageNetworks allows utilization of best-of-breed technologies from EMC Corp. and Sun Microsystems Inc., backed by a “four 9s” (99.99%) service level agreement (SLA).

With the 1999-2000 holiday season fast approaching, just as important is the deal’s capacity-on-demand feature, McCormack says. “In spike periods, we can add another terabyte of capacity in a day or two, as needed. If we had to do that ourselves, it would take a lot longer than that and cost a lot more money.”


Fast-growing, speed-hungry, newly capitalized Internet-based businesses have been the earliest adopters of storage utilities, says Dataquest’s Couture. They generally need to ramp up complex systems quickly, and they often don’t have an infrastructure already in place. In addition, by outsourcing their storage to an SSP on a “pay-as-you-go, pay-as-you-grow” basis, these companies can reserve precious capital for other essential tasks such as product development.

Ongoing Cost of Data Storage
Source: Cahners In-Stat Group

Corporate datacenters, on the other hand, have been cautious to date about moving to SSPs. The reasons: lingering fears about loss of control of critical data combined with doubts about data security in off-site hosting facilities and the deep investments already made in in-house storage architectures.

As a result, Dataquest estimates that by 2003, fully 85% of SSP client rosters will still be made up of Internet-related businesses using an SSP co-located at an Internet datacenter–like Exodus–and only 15% will be traditional corporate datacenter customers.

New entrants in the SSP market are cropping up every day. Some of the earliest contenders were formed by storage executives who have broken away from such established storage industry companies as Storage Technology Corp. (StorageTek), EMC, Compaq Computer Corp., and Exabyte Corp. Among the new SSP companies are: Arsenal Digital Solutions Inc., of Raleigh, N.C.; CreekPath Systems Inc., of Boulder, Colo.; Managed Storage International (MSI), of Westminster, Colo.; StorageNetworks; StorageWay Inc., of Fremont, Calif.; and S4R Inc., of Carlsbad, Calif.

The cost of off-site storage utility services, according to Couture, is currently hovering around $50,000 per managed terabyte of data stored per month. “I have seen vendors offering it as low as $30,000,” he says. “But you must always ask what level of service and reliability you’re getting for those fees.”

The Private Alternative

Other new or established storage companies are considering ways of providing storage services that don’t rely on co-location with Internet datacenters, Couture says. These companies are focusing on ways to service established corporate datacenter customers. Compaq, for instance, as well as newcomer Storability Inc., of Southborough, Mass., are targeting large customers who are unwilling to move their data outside the walls of the enterprise.

What these companies offer, in essence, is a “private storage utility,” Couture says, where data is managed at the customer site. Rather than locally managing data that is remote from the customer’s corporate location, they can offer remote management of data stored locally at the customer’s site, explains Kirby Wadsworth, vice president of marketing for Storability, which is currently beta testing its service at several customer sites. Wadsworth will not name the beta sites.

This model is almost inevitably higher priced than the standard off-site SSP, Couture says, and for that reason is less appealing to many newer and smaller companies.

He adds that while fees for private storage utilities are hard to pin down because they vary so much from company to company, the reasons this type of offering could be more expensive are clear. It costs much more for an SSP to tailor service to an enterprise’s needs and build something specific to that enterprise than it does to offer a more generic option in a centralized location. In addition, more personnel generally will be required to monitor and service each enterprise, especially if that firm requires someone at its site all the time. Finally, enterprises tend to have much larger storage needs than start-ups.

According to Compaq executives, however, pricing for its on-site Private Storage Utility services is competitive with the remote SSP model, costing from $35 to $55 per gigabyte per month. That service includes rental of Compaq hardware and software installed at the customer site as well as remote management from one of Compaq’s 20 worldwide operations management centers.

New to the Neighborhood

Given the youth of the SSP companies themselves–none is more than a couple of years old–it may be no wonder other start-ups are the most willing to give the newcomers a try.

Take the case of Tom Fristoe, founder of a brand-new Internet-based channel marketing organization called TenToe Inc. Based in Pleasanton, Calif., TenToe was incorporated in March 2000 and is currently about half way through its product development process. One of Fristoe’s key decisions during start-up was how to spend his seed money most wisely. In April, he signed a contract to outsource his storage management to StorageWay.

Lessons Learned About SSPs
What to consider when choosing a storage service provider:

Infrastructure: Does the company have a completely installed, well-architected physical presence at a reliable and convenient co-location site with your Internet data service provider?

Management: Will the company be managing the storage of your data using on-site staff, or will it monitor the facility remotely?

Security: What kind of security is in place? What kind of encryption is being used? Will your data share equipment with other companies?

Cost: What is the cost per terabyte to manage the storage? What level of service does that cover? What reliability guarantees are in place?

Contract: What is the typical length of a contract? If it’s longer than 12 months, what concessions will be made to you as the cost of storage media continues to drop?

Exit clause: How will the transfer of data be managed if you decide to switch SSPs, or take your data back in-house, or if your current SSP goes under?

Source: Dataquest/Gartner and Datamation reporting

“Our data storage needs at this point are unknowable,” says Fristoe. “But we do know that when we go live in [late October or November 2000] we’ll need a 100% guarantee that a bigger block of storage will be available instantly if we need it. We can’t afford to make a mistake that scares off our own customers right out of the gate.”

StorageWay was attractive in part because of its co-location at an Exodus Internet datacenter, Fristoe says. Indeed, Internet datacenters are themselves the most enthusiastic supporters of the SSP model. Many have signed on as partners with SSPs either as customers themselves or to resell storage utility services.

Alltel Information Services, for instance, is a Little Rock, Ark.-based provider of infrastructure services to Web-based companies. According to Susan Rodgers, senior segment manager, when parent company Alltel Corp. launched its Internet datacenter business unit earlier in 2000, it signed with one of the newest entrants in the SSP market, Arsenal Digital Solutions Inc., to provide capacity-on-demand and other data storage services to its own customers.

In September 2000, “we deployed the service to one of our first customers,” says Rodgers. “It’s a typical B2C [business-to-consumer] start-up that didn’t have or want all the expertise in-house. By hosting with us, they’ve killed two birds with one stone. It’s less of a headache for them and it makes our service that much more attractive.”

Know Your Provider

In such a new industry, choosing the right SSP requires close attention to several critical details, the early adopters say (see “Lessons Learned About SSPs”). Scrutinize the contract closely, they advise. The rapid pace of change in the storage industry and the dropping cost of storage equipment mean short-term contracts are the most attractive, says Dataquest’s Couture.

Companies should also scrutinize the financial stability of these new businesses, advises Flooz’s McCormack. “There’s so much fluff and vapor out there,” he says. “You do have to look under the covers.” SSPs ought to have clear answers to questions about where and how data will be migrated if the company goes under, or if the customer chooses to move its data.

“Above all, you have to be very clear in talking with your SSP candidates about what level of service you require from them,” says Steve Prather, vice president of network services at ViaWest Internet Service Inc., based in Denver. “It’s more than ‘what capacity can you provide?’ You have to know what kind of response time and reliability levels are acceptable for your business.”

ViaWest, a regional ISP operating in four states, signed on in March 2000 with MSI, a spin-off of StorageTek. The company evaluated other SSPs, including StorageNetworks and CreekPath Systems of Boulder, Colo. MSI currently provides ViaWest with managed back-up service at its co-location site in Denver, though talks are underway to expand the deal to include capacity-on-demand services and customer-specific storage solutions.

Besides being able to provide competent answers to reliability and service questions, MSI’s corporate lineage was important to ViaWest. “There is only so much storage expertise out there,” says Prather. “It’s better for you if you know who has it.”

So what does the future hold for storage service providers? “SSPs promise a true utility, so in theory the Internet datacenter should be able to provide a place to plug in, and the customer shouldn’t care who the provider is,” says Steve Duplessie, senior analyst at the Enterprise Storage Group in Milford, Mass. “In reality, though, with all the branding that is going on, the SSP will be in the mix for the foreseeable future.” //

Stephanie Wilkinson is a freelance writer specializing in business and technology. She can be reached at

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