Our forefathers may have been happy to stash their cash in an old sock under the mattress, but today a person would be considered pretty eccentric if they did not get a bank to look after their money.
However, when it comes to electronic data, the majority of IT users are still in the sock-and-mattress age, storing their organisation’s lifeblood on their own systems and praying that these are secure, sufficiently capacious and adequately backed up. But just as the development of a reliable and accessible banking system persuaded people that storing their own cash was an unnecessary risk, so advances in storage and communications technology have enabled more and more businesses – and more recently consumers – to consider paying an expert to take care of their data.
Online storage services have been available for a decade or so, but they have only recently taken off.
Ed Jones, managing director of storage management software vendor Thinking Safe, said: “With the convergence of stronger and cheaper bandwidth, more freely available data centre space and advanced IP-based backup software, the market has gone mainstream. Trust is also a key factor, with more people trusting the internet infrastructure to be safe and secure. A managed service can be used much like electricity; plug it into the wall and it is soon available while users only pay for what they use.”
The principle is simple enough. “Agents installed on the systems holding data identify new or changed data,” Jones said. “Once identified, the data is compressed and encrypted before being sent to the local backup store. Then it’s replicated offsite to a remote data centre to create a disaster recovery point,” Jones said.
The last stage – offsite replication in case the service provider’s own storage systems go down – is less likely to be offered by services aimed at consumers or SMEs. Small users are more likely to be accessing the service via an internet connection, while larger customers may have a direct link to the service provider for extra speed and resilience.
Applications offered include backup, archiving, live replication/failover, managed email and application hosting – the first two being volume services, while the rest are higher-value, more niche applications.
Bob Tarzey, service director at analyst firm Quocirca, said: “Backup and archive is the main usage for online storage as live data still tends to be with the application, which may itself be hosted or on-demand.”
Most service providers charge by volume of data and how long it is stored for (for example, per gigabyte per month), although some low-end services are based on a flat rate annual subscription. Prices have fallen and continue to fall as the cost of storage decreases and competition grows. A single laptop user may pay just a few pounds a month while the bill for a corporation may run into thousands of pounds.
Stefan Hasse, head of business management at managed services reseller InTechnology, said: “End-user costs don’t vary much; it’s a competitive market and SLAs [Service Level Agreements] are similar.”
As prices fall, the appeal of online storage is widening, said Andrew Wilson, UK sales and marketing director at Hitachi Data Systems.
“Increasing IT costs are a real concern to SMEs and growing data volumes contribute to this,” Wilson explained. “Gradually businesses are getting over their reluctance to share their data as outsourced data management solutions enable them to purchase robust and secure storage within a restricted budget.
“Smaller firms are also realising that online storage enables them to purchase enterprise-class storage without needing to buy the hardware or software themselves.”
Using an online backup service brings peace of mind and the ability to centralise and outsource a dull, repetitive, but business-critical task. Online archiving of email and other data enables many firms to meet increasingly onerous compliance obligations, whether from Sarbanes Oxley or simply the need to enforce policies on acceptable use by staff.
According to Jones, online backup services should be both better and cheaper than in-house solutions.
“Compared to tapes they dramatically improve the recovery point and recovery time objectives in the event of a failure [of people, servers or sites],” he said. “They can even prove to be more cost effective compared with the cost of tapes, tape drives, software, people time and couriers for storing tapes offsite.”
Business continuity can be significantly improved. Instead of restoring from backups that may be one or two days out of date, an online service may enable customers to revert to data that is just one hour old, Jones said.
As a bonus, the customer may get its data cleaned up, said Mark Walker, business unit director at storage distributor Horizon Data Management.
“To make online backup practical and fast for large data sets, the remote backup provider may need to provide on-site appliances that incorporate de-duplication technology,” Walker said. “This would be prohibitively expensive for SMEs to install in-house; with a managed service they can effectively rent it as a utility.”
However, although all types of firm are potential users of online storage, certain sectors proliferate.
“We’re finding that companies with high value, time critical data are most likely to buy as they’re under most pressure to improve their recovery procedures,” Jones added. “This includes business types such as legal, financial, and transport and logistics.”
Potential customers include any organisation that wants to make sure it has secure copies of its data, according to Tarzey.
“Lawyers, financial services organisations, the public sector – they tend to worry most about this as they are bound by tight regulations,” Tarzey claimed. “Others such as retail and manufacturing have already mitigated the risk to their most valuable data by using hosted or on-demand supply chain management systems.”
Customers for online storage services can range from corporates to consumers, but SMEs predominate.
“Service customers often have a single site and nowhere to send their backup data offsite, or they have multiple sites, but are focused on outsourcing specific, non-core IT functions,” Jones said.
They need to be convinced that their data will be secure, but this is not a major obstacle, according to Keith Inight, senior architect at IT services company Atos Origin. “Any security concerns are generally waived in favour of the cost savings and reliability improvement offered by the service provider,” Inight said.
Even consumers are being driven towards online storage as their data requirements explode.
“Having embraced digital photography, video and music, there’s an increasing awareness that family photo albums and entire music collections are at risk from a single catastrophic event such as a flood or house fire,” Walker said. “Unlike corporate users there is very little resistance to entrusting this to third parties with massively superior IT infrastructures, especially if the firms in question are household names.”
However, competing with the likes of Amazon, Google, Yahoo, Kodak or Dell could prove a pretty tall order for the average reseller.
Resellers seeking to enter the online storage market have three business models open to them, said Jones. They can retail a managed service, branded and supported by another service provider; they can operate a “wholesale” model, using a third party to provide the actual service, but branding and supporting it themselves; or they can operate the entire service in-house.
Typically resellers dip their toes in the water with the first model and progress to the second, and maybe the third, as customer numbers and the reseller’s confidence grow, said Jones. The retail and wholesale models have the advantage that resellers only need to know one thing – how to sell – while the in-house option requires an infrastructure team who know how to run a network and data centre. However, gross margins for storage solutions run in-house can reach 80 per cent, compared with 25 per cent for retail sales, said Jones.
Some observers doubt whether resellers can go it alone.
“One of the main advantages of off-site storage has to be the security of enterprise-class facilities and a reseller going into this area is unlikely to able to do this alone,” Tarzey said. “However, they will need to work with a co-location provider (specialist data centre) and invest in robust storage infrastructure.”
Floyd Bradley, executive vice-president at Carbonite, which provides online backup services to the consumer and small office/home office market, said: “The capital costs are significant and the software required on the front end, middle and back end is extremely complex. Without proprietary specialist knowledge, resellers’ variable costs would be far higher than those of dedicated specialists. Resellers would make more money from reselling an existing online backup solution.”
However, Stephen Watson, business manager for Hewlett-Packard StorageWorks, is convinced that experienced resellers could make a go of operating a service in-house. “As long as they have the skills and staff to support contracts and SLAs then once they have the necessary kit it’s relatively simple to run,” he said.
Resellers would need physical storage capacity, skills in popular operating systems and the ability to manage data on the fly, Watson added. Resilient connections and tight security would also be essential.
Hardware costs need not be prohibitive, according to Andy Hill, sales director, Europe, at archiving appliance vendor Nexsan.
“For under £40,000 a reseller can have a disk-based CAS [content addressable storage] archive that offers up to 3.7TB or 20 million objects of online storage capacity,” he said. “Storage technologies that offer CAS combined with a search engine at the front end can offer instant access and retrieval of information regardless of whether the records of who crea-ted the file and when they did it have been lost. This makes them an ideal service package to look after the email archiving, compliance and data protection needs of SMEs.”
In certain market segments reseller margins are significantly higher than selling storage hardware, said Jones. “The biggest margin is on larger corporate or government contracts, but resellers need to ensure they can cope with the scale,” he said. “At the lower end, commodity pricing is the norm so VARs need a significant number of existing customers looking to transition if they want large revenues.”
Storage as a Service has the added benefit of bringing in a long-term revenue stream, over a three- or five-year contract, rather than a one-off sale, plus consultancy opportunities such as business impact analysis and business continuity planning.
The added value opportunities can be significant, said Hasse.
“Customers are looking for strategic business partners and advisers to assist them through the maze of data management and operational requirements without significant cost implications,” he said. “This gives system integrators and resellers the unique opportunity to offer a consultative approach, adding value and hence margin by wrapping their own services around those brought in from hardware vendors and managed services operators.”
As the technology improves and prices fall, online storage services will continue to grow and mature, Hasse predicted. “Outsourcing the management of key applications servers such as Exchange, SQL and Oracle, as well as subscription to online document management and archiving services and data replication and full business continuity services, will become commonplace,” he said.
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