History 2001: StorageProvider or Hardship of SSP

Launching a business as a storage service provider requires heavy investment in order to establish wide coverage through many points of presence.

SSP StorageProvider, funded in April 2000 by several former Compaq executives, is running out of money and is closing its Austin, TX HQs to return to Houston, TX, revealed the Austin Business Journal.

CEO Reagan Dixon and CMO Glenn Clowney have left the company.

And we would be surprised if StorageProvider was the last SSP to encounter these kinds of difficulties. In addition to a major need for fresh cash, SSPs must often ally themselves with telcoms, which then furnish them with the “pipes” they lack.

Not surprisingly, the latter companies have quickly figured out that they could themselves furnish storage on-demand as-a-service, using their own networks, from their own sites.

Lastly, large enterprise users are hardly likely to entrust their data to external contractors. Those that will more likely be tempted are dot.com companies that don’t have the resources necessary to invest in SAN or NAS solutions, and prefer to pay by the gigabyte of storage. But such clients are currently risky.

Indeed, it has become obvious that SSPs, led by ManagedStorage International, StorageNetworks and Storability, are currently changing their business model in order to become VARs, integrators and suppliers of storage managemen software. They are know seeking to sell their storage know-how – usually of excellent quality to customers that are having enormous difficulty finding or retaining qualified specialists in this area.

As Epoch Partners, an investment bank, explained in a recent research note about StorageNetworks: “The company’s service delivery model is evolving to the development of services directly within existing customers’ data center facilities.“

Thus, StorageNetworks now offers Storfusion, a service enabling telcom companies to enter into storage management services mrket, and thus become rival SSPs.

Another example: ManagedStorage International will implement and operate the new outsourced storage offerings of London, UK-based Tele-City, which provides Webhosting to ISPs. TeleCity will thus also become an SSP, thanks to MSI.

For now, then, it remains to be proven that the business of being a pure SSP, that is to say, of offering storage outsourcing, a bandwagon that a number of US and European start-ups rushed to jump aboard in recent months, will remain the significant market that certain storage industry analysts promised.

In fact, Gartner Dataquest has already reduced by 25% its forecasts for the SSP market, which it now predicts will reach a total of $6.1 billion in 2004, compared to $176 million in 2000. The reasons: the failure of a number of dot.com companies that were expected to provide a huge portion of the customer base, the drop in the price of a managed gigabyte, as well as customers interested mainly in less costly backup and remote recovery.

This article is an abstract of news published on issue 162 on July 2001 from the former paper version of Computer Data Storage Newsletter.