History 2001: Dot.com Failures Dampen Outlook for North American SSP Industry

The North American storage service provider (SSP) market will grow from $176 million in 2000 to over $6 billion in 2004, according to Dataquest Inc., a unit of Gartner.

The SSP industry was bracing for even stronger growth, but the recent failures of many dot-com companies, among other factors, has lowered expectations, said the report entitled Storage Service Providers and Storage Utility Services.

“Many SSPs viewed dot-com organizations as among the most likely candidates for storage utility services because they frequently came to market with little or no infrastructure and even less IT talent,” said Adam Couture, senior analyst for Gartner Dataquest’s IT services WW group. “Although the adoption rate of outsourced storage services and storage utility has slowed, this market still has a very large opportunity. Driven by customer requirements, investor demands, new technologies and an uncertain economy, SSPs are refocusing their strategies and offerings to adjust to the new realities of delivering outsourced storage services.”

The market will also be impacted by SSP saturation. Competitors have quickly jumped into this market. While a raft of new providers should mean more sales, a good number of them are going to fail which could spook potential customers. With the large number of new SSPs, there has been an early commodification of the market, which has meant lower prices for storage utility services. Most early penetration of the storage utility market will take place at Internet data centers, co-location centers, such as Exodus and Level3, and hosting data centers, such as Digex and lnteria.

In 2000, storage utility penetration of corporate data centers was $32 million, and it is not expected to exceed $1 billion until 2003.

By contrast, storage service revenue generated through Internet data centers is expected to climb to more than $800 million by 2002.

“The reason for the disparity is that e-commerce and e-business customers hosted at Internet data centers will embrace the storage utility model before corporate data centers,” said Couture. “Also, SSP offerings from telcos are anticipated to begin making a strong contribution to Internet data center revenue. By contrast, much of the growth at corporate data centers will be driven by storage management services on client-owned storage hardware.”

This article is an abstract of news published on issue 163 on August 2001 from the former paper version of Computer Data Storage Newsletter.