Alliances Expand Storage Utility Market

Storage vendors and networking companies have been pairing up over the past few weeks to meet demand for pay-as-you-go storage.

Hewlett-Packard Co. and Qwest Communications International Inc. (www.qwest.com) made the biggest splash with their late September announcement. The partnership was HP’s first formal step into the storage-as-a-utility market, which in the past it has publicly talked about only in vague terms.

Earlier this month, Storage Technology Corp. (StorageTek, www.storagetek.com) entered a similar arrangement with another Colorado-based company, Level 3 Communications Inc. (www.level3.com). The announcement was StorageTek’s second pay-as-you-go storage deal. Also this month, the only pure-play storage service provider in the market to date, StorageNetworks Inc. (SNI, www.storagenetworks.com), unveiled its service packaging. SNI, which leases dark fiber lines, announced an agreement with storage vendor EMC Corp. in late summer.

All the companies offer variants on a common theme: They plan to sell and host storage capacity based on a company’s need. This differs from the traditional model of buying a bulk of storage in advance based on projections of how much data the company will generate one day.

John McArthur, a storage analyst with International Data Corp. (IDC, www.idc.com), says other large players are sniffing around the storage utility market. "As a discrete service, [storage service providing] is in its infancy," McArthur says. "We saw a little bit of activity three, four years ago when a number of small companies without any kind of robust infrastructure started providing PC backup services over the Internet. Now what we’re seeing is real data center-class companies offering it."

The initial driver for the storage utility market among enterprise customers will be a need for robust disaster recovery, McArthur predicts. The storage service providers are targeting Internet startups and application service providers, but McArthur says the off-site hosting packages of the providers could lead to a second enterprise foothold in sectors such as retail and banking, where seasonal requirements lead to spikes in storage capacity requirements.

HP and Qwest estimate their three-year agreement will bring Qwest $200 million in revenue in the first year and $1.5 billion over the life of the deal.

HP brings to the table its HP SureStore E storage hardware and storage management solutions and its storage consulting experience. Qwest contributes access to its Qwest Macro Capacity Fiber Network, consisting of 18,500 miles in the United States, and its seven existing and seven planned data centers -- called CyberCenters. Together the companies plan to offer backup and advanced recovery services, storage utility services for Internet service providers, disaster-ready services and storage professional services.

StorageTek officials say the arrangement with Level 3 could bring StorageTek $400 million in revenue over the next two to three years. StorageTek will deliver three levels of service -- tape utility, disk utility and backup and restore utility -- from Level 3’s data centers. Level 3 has 21 data centers, which it calls Gateways. StorageTek’s services are available from the San Francisco Gateway, and the companies plan to add the offerings at the New York, Denver, Dallas and Seattle Gateways during the fourth quarter of this year.

SNI, which is in the process of building a dozen Storage Points of Presence in 12 U.S. cities, organized its service offerings into three categories: data replication services, backup and restore services and storage hosting.

John Clavin, senior vice president for marketing and corporate development at SNI, says he is happy to see HP and Qwest joining the storage utility market. "We truly believe having some competitors in a new space validates the space, particularly when they’re credible organizations."