In-Depth

Storage Companies Look to Services for Growth

Vendors are increasing their focus on services to complement hardware and software products—and increase revenue

• By Jon William Toigo
• 10/16/2003

For example, McData has been busily integrating Nishan Systems and Sanera Systems into its corporate culture since acquiring them in late August for $83M and $102M respectively. The Sanera acquisition gave McData a leg up to 256 ports in its switch line, while the Nishan component enabled the company to pursue an IP storage play by leveraging Nishan’s iFCP switch and gateway know-how.

You may have read many analysts reportage on the move as an effort to keep up with the Joneses at Cisco Systems and Brocade Communications Systems, but it may well have been as much an effort to keep up with the real sleeper in the Fibre Channel Director switch space, CNT, whom Cisco Systems has remarked is its only real competitor going forward.

CNT’s acquisition of InRange for about $190M earlier this summer positioned the quiet Minnesota company (and long time mainframe channel extension vendor) with 256 port switches and a road map for going even larger. However, as readers of this column know, I do not see as lengthy a future ahead for Fibre Channel SANs as do some analysts on the supply side, so what really resonated with me was the $80 million in consulting revenue and $100 million in maintenance services revenue that accrued to CNT from the InRange buy.

Talk to any number of storage vendors today and you will hear a common refrain. Customers have ratcheted back their purchasing of both new products and existing inventory—part of doing more with less. So, within many vendor shops, increased focus is being placed on developing services to complement hardware and software products—and, in some cases, with little relevance to products at all.

CNT is no exception. Ed Walsh, the company’s Vice President of Strategy, Marketing, and Alliances, reports that services accounted for as much as $185 million of the $435 million in revenues garnered by the company last year. To Walsh, who formerly helmed a major IT reseller/integrator shop, services are a natural play.

Secrets to CNT’s success aren’t really so secret. Walsh says the company has responded to customer preferences for one-time service contracts with no protracted commitment: a changing attitude that is hurting a lot of subscription-based services companies including large research and analysis firms and Big Five (or is it Four now, or Three) IT consulting firms. He says most of CNT’s consulting services are deliverables based and fixed-fee in nature. Moreover, $65 million of CNT’s consulting service revenues are “pure consulting work” and not directly related to the sale or support of CNT’s (or Inrange’s) products.

To many IT managers, CNT’s thriving business in storage services may not be very apparent. Many of the company’s consulting contracts are undertaken on an OEM basis. IBM Global Services and EMC use them, but the real “jewel of the crown,” according to Walsh, is the company’s relationship with a large managed storage services provider and recognizable name in the telco industry. When customers of this storage service provider place a call to their vendor, they are actually talking to CNT’s call center to get the help they need.

CNT, like most vendors, has always had a services component, of course. Systems engineers (SEs) support both direct and channel sales efforts by providing pre-sales assessments of customer requirements, deployment support, training, and maintenance. According to Walsh, however, the company determined a few years ago that 98 percent of the “break-fix” work being performed in the field by SEs could have been performed more readily (and more cost-effectively) via a network connection. Since that time, the company has grown a remote management services offering that leverages its core competency in remote network-based storage solutions.