THE DATA STORE IS OPEN FOR BUSINESS

Just 32 months ago, if you can believe it, the world breathed a collective sigh of relief as Y2K passed without a blip. But rather than a millennium-wide reprieve from computer network paranoia, the world has moved from one potential catastrophe to the next. 21st century companies, whose survival depends largely upon the electronic information they generate, manipulate or sell, are being forced once again to choose between spending capital to improve their businesses or to protect them. At the same time, the amount of data feeding these businesses is growing exponentially.

This combination of paranoia and pixels has enterprises of all sizes looking for better ways to store their mission-critical data. Infonetics Research reported last month that revenues for the FibreChannel storage area network (SAN) hardware market grew 36% in the second half of last year, and it projected a year-over-year increase of $124 million for 2002. The primary drivers? Disaster recovery and business continuity.

However, FibreChannel SAN solutions are costly and are used primarily by large enterprises. The real growth in the data storage market will come for the small- to medium-sized business (SMB) market, according to AMI-Partners. And the opportunity to capture a sizable chunk of that market could go to service providers.

AMI expects worldwide spending on data storage by SMBs will grow at a compound rate of 43% over the next four years and reach $18.5 billion by 2006. The SMB market would by then account for approximately 24% of the overall $79 billion storage market, up from its current 8%. The growing interest has not gone unnoticed by service providers, which are looking to offer managed services to a market that has historically been unable to afford dedicated storage solutions.

“I don't have to read the projections,” said Steve Zimba, director of storage and business continuity services at BellSouth. “I'm hearing it directly from our customer base.”

The business fallout from the terrorist attacks of September 11 can be overstated, and some have already grown suspect of reports that appear to link every business plan failure or increased demand to that day. But the effects cannot be ignored, particularly when it comes to business continuity.

“September 11th showed companies that disaster really could happen. And it's not just that you might lose a few servers — you might lose your whole network, and you might lose your work force as well,” said Liz McPhillips, senior analyst at Probe Research. “The worst has happened, and people have opened their eyes.”

The results of a survey released last week by AT&T indicate that 73% of companies with business continuity plans have reviewed them since September 11. However, one in four SMBs still haven't implemented business continuity plans (see figure).

Analysts agree that from a survivability standpoint, the events of September 11 brought storage to the forefront of business owners' minds. But it wasn't the only reason. “There were other factors, such as service providers going out of business, that had people looking elsewhere for redundancy,” said Paul DiGiacomo, product management director with AT&T Managed Storage Services.

Whatever the impetus, the desire on the part of businesses to protect their assets is very real. Unfortunately for some, so are the new budgets they must use to appease that desire.

“There is a bit of a mismatch in the market right now between the hype that was created by things like 9/11 and the reality of the economy,” Zimba said.

This is the business problem service providers must solve if they are going to capture some of that $79 billion market. Most traditional service providers are well on their way: for example, BellSouth is working with a number of vendors to offer a managed storage service to its existing customers of other hosted services. In March, the carrier began offering a tape backup service using gigabit Ethernet, focusing on customers with a minimum of 2.5 terabytes of primary data.

Although BellSouth is working on solutions for a sub-2.5 terabyte market, it may require more time and a big investment to bring the right solutions to market. “To take the current infrastructure down to a price point that the SMB market would want to buy is not possible,” Zimba said.

Planned for early next year — just in time for the expected boom, provided a turnaround in the economy is imminent — that infrastructure may include a lesser form of transport such as 100 Mb/s Ethernet, T-1 or a virtual private network. BellSouth is also looking at market trials for the residential market and hopes to launch a service there sometime next year.

The hard part is designing a cost-effective solution that smaller companies can afford and feel comfortable with. According to DiGiacomo, AT&T salespeople rarely talk about managed storage services because it is always part of a bigger solution.

Even with the projected growth in the storage market, the bundling of storage services makes it difficult to gauge the merits of those projections. To complicate matters, service providers could include the cost of bandwidth in the service, further muddying the amount of revenue related directly to storage, particularly as they perfect IP-based technologies that allow the transport of storable data with other network traffic.

It is becoming clear, however, that service providers are well positioned to be the vendors of choice for the SMB market. “I don't think a company that doesn't have a network is going to be successful,” McPhillips said.

Companies such as storage software developers Storage Networks and StorageTek as well as storage service provider Arsenal Digital Solutions are all aiming at this market niche. Another is Network Appliance: Although the company is getting beyond the start-up phase with 10 years under its belt, it is taking its suite of enterprise networked storage solutions to service providers as both an in-house solution as well as for managed storage services.

“Service providers have the assets, the base of customers and are already selling circuits into them, so it is natural for them to ask how important [backup] applications are,” said Lynn North, director of business development for telecommunications at Network Appliance.

However, businesses that are concerned enough to back up their data are beginning to raise their expectations of how long it should take to restore that data. That's one reason BellSouth is working on disk mirroring and other more real-time solutions than it currently offers.

“The recoverability from tape has always been the Achilles' heel to disaster recovery,” North said. A report coming out this week from Accenture puts the average recovery time for direct attached (un-networked) storage using tape as a medium at about 78 hours; Network Appliance says it can restore the same amount of data in three minutes.

That's the kind of performance these smaller players will have to bring to the managed services market if they are to compete with the likes of EMC, IBM and Hewlett-Packard, which have been busy bringing down the cost of storage. Also, Cisco Systems got serious about storage last month by announcing it will buy Andiamo Systems, a provider of networked storage services.

According to AMI, there are 7.5 million small businesses and more than 100,000 medium-sized businesses in the U.S. alone. Storage companies can address them directly or through the service providers. Either way, the big players, with their big professional services organizations, expect to be involved.

“We have always been big on outsourcing, and storage is a natural extension of that,” said Joe Cronin, global telecommunications industry director at IBM. “It's a great opportunity for generating revenue if you do it right.”

And there's the rub. “The challenge of managing a storage environment for a small or medium business is no trivial task. It requires technology and business skills that the typical carrier really doesn't have in its core business,” Cronin said.

Carriers might argue that they have been offering hosted services for years and have the know-how to do it. But they seldom bring services to market without the help of their vendors and consultants. IBM, which is both, envisions a third scenario for offering managed storage services: carriers reselling storage services hosted in an IBM data center.

Although EMC has recently introduced some lower-end storage solutions such as the Clariion CX600, it remains a big player for big customers. EMC is part of BellSouth's Storage-Enabled Network initiative launched last October to offer managed storage services to large enterprise customers using dense wave division multiplexing and gigabit Ethernet.

“Basic economics are driving the interest in managed storage,” said Kay Benaroch, senior manager of the telecom strategy group at EMC. “The total cost of ownership of both SANs and network attached storage is better than half the cost over time of a typical direct-attached approach.”

Also driving the market is an expansion of the services businesses deem critical in the wake of September 11. “Applications people didn't previously think of as critical before September 11th suddenly became critical,” said Ken Steinhardt, director of technology at EMC.

Whatever the drivers, all the players in the networked storage space will find themselves in an environment that Benaroch calls “co-opitition” as they partner and compete with one another for one of the bright spots of capital investment, at least for as long as the honeymoon lasts. “I'm not trying to entice more people into this market because eventually I would compete with them,” said AT&T's DiGiacomo. “But for telecom service providers, this market is great.”

9/11 ONE YEAR LATER

Telephony's Sept. 9 issue will revisit Verizon's recovery efforts at Ground Zero and examine how businesses have changed the way they manage their networks.

CAUSE AND EFFECT OF SEPTEMBER 11

25% of businesses still don't have a business continuity plan.

19% of companies haven't tested their plans in the last five years.

73% of companies with plans have reviewed or evaluated them.

54% of companies have developed evacuation plans for threatened facilities.

45% of businesses have instituted an employee communication or training program.

30% of companies have planned for the potential loss of human life.

Look out Chicago: Midwest companies were least likely to say their plans were adequate

Source: Study commissioned by AT&T, conducted by Digital