Store for their money

As data continues to proliferate, storage vendors and resellers are finding customers willing to buy, however harsh the economic climate.

Let's face it, what with the dotcom demise, the aftermath of 11 September and the general economic climate, selling any type of IT equipment is more of a hard slog than it used to be.

The good news for storage vendors and resellers, however, is that buying storage is one thing customers are finding they just can't put on the backburner until economic conditions improve.

The bad news is that they also want their storage solutions to provide a lot more functionality for the same amount of money they were paying a year ago. Oh, and did we mention that margins are falling?

The main factor behind the continuing strength of the storage market is a simple one: the enormous growth in the amount of data that needs to be stored, a growth on which economic problems seem to have little effect.

Every illustration of the data explosion that has taken place over the past few years becomes more dramatic than the last. For instance, according to research by the University of California, as much data will be created in the next three years as in the previous 40,000 years put together.

Static budgets

However, in the short term at least, IT managers are finding that they have to manage this data growth on relatively flat budgets and are looking for more cost-effective methods.

No longer willing just to keep adding racks of disk arrays to solve immediate storage needs, they want to find ways of making more efficient use of what they already have.

Setting aside economic upheaval, the storage industry has changed considerably in the past few years. In the IBM-dominated days, the sector could be summed up as hard-disk storage systems attached to mainframe servers.

Now we have an industry where software and services are becoming more important than hardware, where the emphasis is increasingly on the management of systems and where storage arrays bolted on to their own servers are being replaced by networked devices.

The growing complexity of the market inevitably demands more sophisticated selling techniques on the part of resellers.

"You can't just look at the storage marketplace and say 'Oh, that's storage'," explained Paul Sangster, joint managing director at storage distributor Hammer. "There are some products that lend themselves to commoditisation and others that need a more specialist approach."

So what's going to happen in the storage landscape over the next year or so? The first thing to note is that both vendors and resellers believe that the direct-attached storage sector is pretty much dead.

Little growth can be expected because of customers' reluctance to keep buying racks of storage space. Add to this falling margins for hardware, especially disks, and resellers have to think beyond simply shifting units if they wish to succeed in this space.

Software and services

In fact, this year everything seems to be signalling a shift away from hardware altogether. Even EMC, the gorilla of the storage hardware market, is looking at generating only half of its revenue from hardware in the next 12 months. It has stated that it aims to achieve 30 per cent of sales from software and 20 per cent from services.

"Software and services are what leads the sale and hardware is what makes the solution work," said Sangster. "As long as resellers align themselves with the right hardware vendor, then software and services are at least as important, if not more important, than the box."

The focus on software and services is also being sharpened by another of this year's hot topics in the storage sector: under-utilisation.

Analysts such as Gartner estimate that customers waste as much as half of all storage capacity through poor management of hardware, leading them to look at ways of maximising their investment instead of chucking money at more hardware.

"For every gigabyte customers buy, they are automatically wasting one gigabyte," maintained Richard Ruddlesdon, UK enterprise channel manager at storage software supplier Veritas.

"They lose half of the capacity they already have and half of what they have just bought. We see under-utilisation and ways to control it as being very important for the next 12 months or so."

The Veritas solution, of course, is more effective use of storage management software, but the company's view is shared by a number of the big hardware players, including EMC.

The vendor has provided storage management software since 1995 but, with products such as Auto IS and its Wide Sky initiative, it is looking to provide software that allows customers to manage other vendor's hardware as well as its own.

"We can see the point where we're selling software-only solutions," said Peter Yarwood, UK channel sales manager at EMC.

Storage management

The storage management software space could become one of the more interesting battlegrounds of the IT sector. Analyst group IDC is predicting the market to grow from last year's $5.6bn to more than $9bn in 2004.

Earlier this year, IBM formed a dedicated storage software group, and Microsoft has announced plans to develop a range of storage software products for the enterprise market.

According to Graham Titterington, senior analyst at research firm Ovum, this is an inevitable result of the way the market is evolving.

"The hardware players are seeing increasing commoditisation of their products, so where else do they go but software? I think you will see significant pricing pressures on the software market," he explained.

As in every other sector of IT, services are becoming increasingly important for storage, although not all resellers seem to have latched on to this yet.

"Services can give you a good solid revenue stream over a period of years, but too many resellers seem stuck in the mindset of 'what can I sell this month?'," said Philip Wade, marketing manager at specialist storage distributor and services company InTechnology.

The firm has its own dedicated storage services arm which offers data management services through the channel.

According to some industry estimates, for every £1 spent on physical storage, it costs as much as £8 to manage it. With IDC predicting that 75 per cent of users' infrastructure costs will be spent on storage over the next two years, the potential for storage services is clear.

San versus Nas

While last year seemed dominated by the storage area network (San) versus network attached storage (Nas) debate, most vendors now seem willing to accept the two as complementary, rather than competing, technologies. This year, the talk is about network storage, a term which can cover both concepts quite comfortably.

And while a year ago everybody was talking about network storage but very few were actually using it, the technology does now seem to be more common among vendors and resellers. Both are describing strong growth in sales, albeit with certain caveats because of today's tough market.

"We're definitely seeing a lot of interest in the San sector and a lot of sales," said Sangster. "You have to remember that it was a good couple of years before anyone really understood what the technology was about.

"I think there is still a lack of understanding of Nas, with people seeing it as a cheap and cheerful approach to San, rather than asking where the value lies in it."

Paul Talbot, marketing director at reseller HPS, stated: "More and more customers are realising that the direct-attached storage model is no longer viable.

"However, while there is a clear case for moving to a Nas model, we need to have the business justifications in place if we are going to get customers to agree.

"I think the argument behind the network storage model is so compelling that every customer should go that way, but clearly they're not going to do that until they see a good economic argument."

Vendors are also uncomfortably aware of the need to justify a sale to customers in the current climate.

"A couple of years ago, the emphasis was on the need to be able to grow your business and having the capacity in place to be able to scale rapidly," said Mark Ellery, head of business development for Hitachi Data Systems (HDS).

"Now everybody we're talking to is looking at return on investment and total cost of ownership. They're asking, 'what is this product going to do for our business?'"

Steve Dalmage, marketing manager at StorageTek, explained: "Although the storage market has continued to grow in the past few months, people are having to go through much tougher cost justifications for purchases, so every bit of business is that much bit harder to get.

"However, if, say, you're looking at running a new application and you want to buy a server, and there isn't a good case for it, you just shelve the project. With storage, companies find they just have to buy it when it's needed."

Virtualisation

One technology area needs to catch on if people are going to continue making those storage purchases, and that is virtualisation. The concept behind it is simple: removing the need for the end user to worry about which device information is stored on by separating the physical media on which the data is stored from the server operating system.

Virtualisation is a topic that has been around for some time, but it is only now that products are actually appearing on the market in any serious numbers.

While most of the main vendors are already offering products that address aspects of virtualisation, it is difficult to see one clear leader emerging in this market.

However, given the impetus that network storage, and Sans in particular, have built up over the past 12 months, virtualisation seems likely to prove a stayer in the long run.

"It hasn't taken off as quickly as many people expected because there is still a lot of confusion out there," said Wayne Naya, business development manager for software vendor BMC.

"Maybe this year we'll see more people picking it up as they implement San infrastructures. You have to remember that San was a buzzword for a couple of years, but people were implementing only small-scale projects."

Among many other vendors HDS, EMC, Compaq, and Hewlett Packard (HP) have either announced, or are planning to announce, products in the storage virtualisation space.

However, the fate of the HP and Compaq product lines is far from certain, with their merger currently looking likely to go ahead but with few, if any, details available about what will happen to their product sets.

Since both companies are major players in both the storage hardware and software markets, as well as being heavily channel-focused, the merger could prove to be the most important story of 2002 for the storage sector.

The merger could also have an impact on other vendors, as HP is a major reseller of HDS storage systems.

Consolidation

Sangster believes that there is room in the storage market for further consolidation this year, both among vendors and distributors. "I think it's safe to say that we will see more evidence of this happening this year," he said.

Another market sector likely to drive storage sales this year is disaster recovery and business continuity, which have become of critical importance to companies.

Concentrating on this area could be dismissed as playing on customers' fears, but there is evidence of a real place for these products in the market.

InTechnology carried out a survey of chief information officers in May last year and found that only 35 per cent were interested in having their data managed off-site, while 65 per cent were opposed to the idea. By October, these figures had been reversed.

So, all in all, it looks like another tough year ahead for storage sales but, for those resellers which get it right, and which make the right partnerships, it could also be a very rewarding one.

SUMMARY:

• The storage market is holding up better than other IT sectors. However, customers have limited budgets, and are looking for more functionality for the same price.
• Direct attached storage sales are flat, with growth coming in the San/Nas markets. Vendors are now looking to position them as complementary to each other.
• Storage virtualisation products are now coming on to the market, and this is expected to be a major growth area.
• The HP/Compaq merger is likely to go ahead soon, and resellers should expect more consolidation in the storage market this year.

CONTACTS

HPS (01635) 874 330
www.hps.co.uk

InTechnology (0847) 120 7070
www.intechnology.co.uk

Hammer (01256) 841 000
www.hammerplc.com