Storage: Round 2 shows growing demand for hosted services

Storage service providers, which came and went in the past decade, are back with new services for new needs.

Sean Power, director of strategic technology at Berlitz International Inc. in Princeton, N.J., saw his data center grow to the point where the majority of his IT workers were supporting storage and servers instead of supporting employees in about 500 field offices. "We were having to build internal resources while not providing services to our customers," he says. "We were becoming [storage] specialists."

So in February, Berlitz shuttered the doors of its primary data center after engaging a service provider to run its infrastructure from a hosted site in Boston.

While the move may have been seen as passe by some in the IT industry, harkening back to the dot-com era, analysts say there is a new and growing demand for hosted services, especially when it comes to storage. That's because while storage systems are being recognized as strategic, they're also growing out of control.

The change at Berlitz has boosted service while cutting costs. "We were barely covering U.S. operations and couldn't cover global operations," Power says of his IT staff of about 100 workers. "Now we have a much higher level of service than we were ever willing to pay for, at a slightly lower cost."

Berlitz, which franchises more than 500 language learning centers in 60 countries, has completed most of a change from an in-house storage-area network to a service hosted by VeriCenter Inc. in Houston. The move to a service provider saved Berlitz about 10% in total operating costs, but more important, it kept Power from having to open as many as three new data centers to serve growing offices in Europe and Asia. Power was also able to redeploy his IT staff.

Now, he says, VeriCenter has become crucial to the business, storing key data such as Social Security numbers, course materials, grades and financial information. "We entrust the lifeblood of our business to VeriCenter," Power says.

What's Different?

Back in the late 1990s, the majority of storage service providers (SSP) focused on delivering primary storage -- or storage that acts as the external disk drives to mission-critical transactional databases -- as an outsourced service. One of the proponents of that so-called utility storage model was Waltham, Mass.-based Storage Networks Inc., which spent hundreds of millions of dollars on the highest-end storage arrays for its data centers.

But while the company was able to woo some Fortune 100 customers to store referential data, such as e-mail and files, at off-site facilities, clients weren't willing to hand over primary, mission-critical data to a third-party service provider, according to Dave Russell, an analyst at Gartner Inc. in Stamford, Conn.

In 2002, with sales dropping, Storage Networks, like other pure-play SSPs, tried adding storage management software to its portfolio of products and services, but that move couldn't save it from being forced to shut down in 2003. Other SSPs, such as Storability Software in Southboro, Mass., successfully made the leap from hosted service provider to storage management software vendor.

For pure-play SSPs, Russell says, the problem was simply a lack of trust. While the economics existed to support the SSP model five years ago, companies ultimately weren't willing to allow primary data systems to reside outside their four walls or mission-critical data to be stored on the same box or the one next to that of a potential competitor.

Still, Storage Networks' erstwhile motto, "Delivering the future of data storage," may not have been wrong but simply ill-timed.

Five years ago, when SSPs were at their peak, they were appealing to start-up dot-com and Internet companies that had limited infrastructures and very little cash to invest but needed to get up and running quickly, according to Doug Chandler, an analyst at market research company IDC in Framingham, Mass.

While Chandler says he believes that the future of SSPs is murky, over time more companies will likely become comfortable with the model of hosted storage because they're recognizing that storage is much more of a strategic need than it used to be. And in many cases, companies are adding capacity so rapidly that it outstrips their ability to manage it internally.

The result is that many companies are looking for help at the strategic level, with challenges such as storage architecture and planning, as well as at the tactical level, with tasks like data backup.

Pure-play hosted storage providers such as VeriCenter are emerging again, but they're offering a mix of services, from monitoring storage systems to archiving e-mail and backing up and restoring file systems.

Various Flavors

Over the past two years, major vendors such as IBM, Hewlett-Packard Co. and Iron Mountain Inc. have introduced online storage backup services targeted more at disaster recovery and business continuity. The vendors are able to draw on their vast number of regional data centers to host storage for those purposes.

The services, much like SunGard Data Systems Inc.'s Availability Services, are also being offered by telecommunications companies such as AT&T Corp. and Nippon Telegraph and Telephone Corp.

There are also more than a dozen smaller vendors offering online backup and recovery, including continuous data protection products that can take snapshots of data every time it changes and back that up across the Internet. LiveVault Corp., Asigra Inc., Scale Eight Inc., EVault Inc., IPR International LLC and AmeriVault Corp. are all part of that niche.

Many SSPs today don't even own their own data centers but instead lease space from public data centers or telecommunications providers with room to spare.

Incentra Solutions Inc.'s Managed-Storage International division in Broomfield, Colo., for example, doesn't even lease its own data center space. Instead, it buys the hardware and software, hires the support staff and then wholesales the service to partners, which in turn rebrand it and sell it as a product.

Incentra says it performs 190,000 backup jobs a month and stores 1.4 petabytes of customer data.

"We track storage provisioning, perform reporting and billing, and monitor [service-level agreement] performance," says Tom Sweeney, CEO of Incentra, which was spun off from Storage Technology Corp. in 2000.

Incentra's all-inclusive service offering, which includes management and monitoring of customer data, as well as storage and backup services, costs from $5,000 to $200,000 a month, depending on the amount of data being maintained.

Carlos Santana is senior manager for IT at MMM Healthcare Inc., a small health maintenance organization in Puerto Rico with about 90,000 members. He has been using AmeriVault for three years to back up his company's file servers, e-mail and Oracle and SQL production databases. This helps his company comply with the Health Insurance Portability and Accountability Act's requirement for redundant off-site copies of data and for disaster recovery purposes.

"Its expensive in terms of recurring cost, but it's worth it. If you take into consideration the amount of money you have to invest to do it yourself, it kind of evens out. But it's not cheap. It's a couple thousand dollars a month," says Santana, whose 3TB of data is backed up to Waltham, Mass.-based AmeriVault's data center.

Focus on Security

Santana says he chose an outsourced service because of the capital costs involved in building out an internal architecture to support his company's fast-growing storage needs. "We also don't have a lot of time to get into that business," he says.

Still, Santana says he wasn't persuaded to use the third-party backup provider until the vendor proved its ability to encrypt his data and keep it that way until MMM Healthcare wanted it back. "They have the highest level of security. They don't even know the password to decrypt the data," he says. "They know how much data I have, but [they] can't see it."

AmeriVault says it has more than 500 customers and 2,000 virtual private network connections as well as eight data centers around the U.S. where it hosts storage and other IT services. It says business has grown at least 25% each year since it opened six years ago.

Another online backup provider, LiveVault in Marlboro, Mass., claims that its revenue grew the equivalent of 226% year over year for the third quarter of 2004. Spokesman Jim McManus says the amount of new data the company took on during the past quarter alone exceeded what it projected for the first two years it offered the service. LiveVault claims to manage more than 1 petabyte of data.

But despite the apparent growth in the popularity of SSPs, switching to a service provider doesn't always make an IT manager's life easier. Managing a service provider relationship "does not always reduce the amount of work one has," says Berlitz's Power. "There's still effort to coordinate those services, and it's not insubstantial."

Copyright © 2005 IDG Communications, Inc.

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