Should you bank on storage services?

Summary:You know me--you see me here twice a week. Would you trust me to host your corporate data?

You know me--you see me here twice a week. Would you trust me to host your corporate data? OK, then, would you trust a company with which you have no ties, but which makes storage hosting its business?

Two recent events brought storage service providers (SSPs) to my attention. First, Quantum, the disk drive manufacturer, completed the sale of its Hard Disk Drive Group to Maxtor on Friday, leaving the company with DLT and Storage Systems groups. Quantum will reinvent itself as an SSP. Second, an IDC research report notes that big hardware manufacturers are getting into the SSP game.

I've been noticing a fair number of companies lately that are leaving off selling goods to begin marketing services instead. In some cases the company was in the wrong business to begin with. Aventail, for instance, used to have a VPN product that relied on the SOCKS protocol. As SOCKS lost favor, Aventail retrenched, becoming a managed services provider.

That's not Quantum's problem, however. Quantum, along with Seagate, Maxtor, and Western Digital, was among the top disk drive makers for desktop PCs--a fiercely competitive market. Disk drive prices have gone down as their capacities have gone up, and gaining market share in that environment was difficult.

But if Quantum thinks it's going to do better as an SSP, it has another think coming.

The market for storage service providers is completely unproven. To date, according to the IDC report, only a tiny volume of actual cash for services has changed hands. In part, that's because outsourced storage is a relatively new service, but there are more substantial obstacles.

No one has yet made a compelling case to me for storage services. True, you pay less for the service on a monthly basis, and buying your own hardware means you have to maintain it. But if you outsource your storage, you have no capital equipment to write down. You're also trusting another organization to maintain the availability and security of your information assets. I wouldn't worry too much about availability at an SSP, because that's probably among its top priorities, but I'd be far less comfortable leaving my corporate secrets in somebody else's protection.

IDC thinks otherwise. Its research projects an annual growth rate of 139 percent in storage utility spending over the next several years. Yet even its report notes that worries about availability, security, and payback are serious barriers to these vendors' success.

The fact that large manufacturing companies plan to get into this market should make smaller players nervous. The large companies have diverse revenue streams that should allow them to endure a slowdown in their service business--a slowdown that could force less well-funded organizations out of business.

Not that I'm anticipating a slowdown--the business outlook has never been rosier, has it?

If you plan to outsource your data storage, select a vendor whose fiscal stability makes it likely to endure an economic downturn. Begin with a pilot project of non-strategic data. Make sure you verify your vendor's availability measures, and get it guaranteed in a service-level agreement. And once you get your hosted data project off the ground, drop me an e-mail and let me know how it's going.

Do storage service providers have a future? Talk Back below. Lee Schlesinger is executive editor of ZDNet's Business & Technology Channel.

Topics: Storage, Banking, Hardware

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