SAN FRANCISCO (02/14/2000) - The xSP acronyms keep coming. The latest is SSP (storage service provider), as employed by one of the first of that breed, StorageNetworks Inc. The company's ambitious plans to establish a global data storage network are drawing favorable reviews from the analyst community, and its move may ultimately lead to a major rethinking of how companies deal with their storage needs.
Since its founding in late 1998, StorageNetworks has attempted to replicate the model of electricity or telecom service provider in the data storage market.The company focuses on providing storage services, partnering with hosting companies, to set up what it dubs S-POPs (storage points of presence), continuing the telecom service analogy. The term POPs (points of presence) is used in telecom parlance to refer to the point where a line from a long distance carrier connects up to that of a local telecom or to the end user.
One of the easiest ways to think about the company is as "a kind of ASP (application service provider) for storage," according to Bill Miller, StorageNetworks cofounder, executive vice president and chief technology officer.
"If the whole 'storage as a utility' concept takes off, it will totally change the paradigm of how companies sell their storage products," said Steve Duplessie, senior analyst with The Enterprise Storage Group Inc., based in Milford, Massachusetts. "It will eliminate the end user (as a direct customer of storage product vendors), since one storage service provider can be dealing with 1,000 end users."
Continuing its theme of making storage easy to access and handle, StorageNetworks today unveiled software that allows its customers to view and manage their storage resources online via a secure storage portal. [See "StorageNetworks Unveils Virtual Storage Portal," Feb. 14.] StorageNetworks already has 11 S-POPs in the U.S. in Boston, New York, Virginia, Atlanta, Chicago, Houston, Dallas, Denver, Seattle, the San Francisco Bay area and Los Angeles, bringing the company close to its target of having 15 S-POPs in major U.S. cities by the end of this year. [See "Net Storage for Rent," March 12, 1999.] The storage specialist has also set up its first international S-POP in London, with two more due in Europe shortly, in Frankfurt and Amsterdam, Miller said. The company is also considering setting up an S-POP in Finland, he added.
Next on the agenda are 4 S-POPs in the Asia-Pacific region, in Hong Kong, Singapore, Sydney and Tokyo, to be established in the second quarter of this year, Miller said. "I wouldn't be surprised if we look at Mainland China, but it's an issue of how fast we can go," he added. "We're also going where our customers and partners are dragging us."
The S-POPs are located at the sites of StorageNetworks' Internet hosting partners -- Global Crossing Ltd.'s GlobalCenter and AT&T Corp.'s hosting facilities -- as well as Equinix Inc., Level 3 Communications Inc. and AboveNet Communications Inc. The company will also be partnering with Exodus Communications Inc. by the end of this month, Miller added.
StorageNetworks' ultimate aim is to build a worldwide dedicated storage network, its Global Data Storage Network (GDSN), which will hook up the S-POPs via fiber-optic cable to enterprise customer locations. To that end, StorageNetworks has already purchased 40,000 miles of fiber-optic cable, Miller said. He estimated that having GDSN up and running worldwide is one or two years away at present.
Such an ambitious plan requires plenty of funding."We will spend about US$700 million on building infrastructure over the next three years, " Miller said.
Privately-owned StorageNetworks has already raised $163 million in equity and another $50 million in debt to total around $210 million, he said. "We definitely have to raise more money," Miller added.
Both Dell Computer Corp. and Global Crossing have what Miller described as "very significant stakes" in StorageNetworks, although he wouldn't be drawn on the exact percentages they own. The two companies also have one seat each on StorageNetworks' board of directors.
Dell and Global Crossing took their stakes in the storage specialist during its third round of financing last month which raised $103 million, compared to a first round in late 1998 which yielded $10 million and a second round in July 1999 that resulted in $50 million, Miller said.
StorageNetworks has already secured a strong market for its services among emerging dot-com operations which currently comprise 75 percent of the company's more than 100 customers. Dot-coms are Internet-based electronic-commerce startups, often occupying little actual physical space and backed by limited capital. Such companies can also be offshoots of existing corporations that decide that being on the Internet is vital for maintaining their competitive edge.
"For dot-coms, StorageNetworks is a great solution, because it means there's one less thing -- storage -- that we need to worry about," said Greg Strakosch, chief executive officer of TechTarget.com Inc., based in Dedham, Massachusetts.
"StorageNetworks manages our storage better than we can, we can get storage on demand."
TechTarget is building up a portfolio of IT-specific portals and communities.
At the moment, these number four -- SearchNT.com, Search400.com (for users of IBM Corp.'s AS/400 hardware and software), SearchDomino.com and SearchStorage.com. Storage is key to TechTarget which plans to launch about 20 to 25 more sites, tripling its storage needs from today's 1T byte to about 3T bytes by the end of this year, Strakosch estimated.
"Emerging dot-coms are information-centric, they have no existing infrastructure," StorageNetworks' Miller said, so that they tend to outsource their storage requirements to companies like his from day one of their operations. When it comes to larger, more established enterprises, such firms typically have already built a lot of their own infrastructure and are doing day-to-day storage management, so they look to StorageNetworks to supplement what they are doing, he added.
It's not surprising that StorageNetworks has been very successful in the dot-com arena and less so among larger companies, according to The Enterprise Storage Group senior analyst Duplessie.
"You have to take into account that the average Fortune 1,000 company has spent 10 years and billions of dollars to build its global storage network," he said.
"Dot-coms don't have 10 years, they don't have 10 hours." Duplessie believes that StorageNetworks is likely to face plenty of competition, but will continue to do well in the storage services market. "They should clean up, they're not just investing in a space, they've got all the really good talent already lined up, they know how to do this, " he said.
Over time, StorageNetworks will be able to push further into the traditional legacy Fortune 1,000 and 2,000 companies, initially by supplying them with secondary and tertiary storage services, such as replicating data from one location to another or backing up data, Duplessie said.
John Webster, analyst and IT advisor with Illuminata Inc., based in Nashua, New Hampshire, also believes that StorageNetworks is on the right track, both with its storage portal idea and the company's general strategy.
"StorageNetworks is pretty adept at changing its business models as the market dictates," Webster said. "Over time, Global 2,000 companies have to see the value-add of (storage) providers. Partly now they're unsure about the model itself, with issues around the security part of it. It takes a little while for an idea like this to catch on." Perhaps, the majority of Global 2,000 companies are thinking if they're going to outsource some feature of their business, perhaps they should go for "the whole stack" -- storage, servers and applications -- rather than storage alone, Webster added.
Given the number of former EMC Corp. staffers in its employ, StorageNetworks perhaps had the image of being a little too close to that company, Webster said. However, that impression is waning, particularly given the appointment earlier this month of Janpieter Scheerder, president of Sun Microsystems Inc.
Network Storage, to StorageNetworks' Executive Advisory Council, he added.
StorageNetworks is one of the first companies to go all out as purely a storage service provider, while some of the traditional storage product providers, Storage Technology Corp. (StorageTek) and EMC, are holding back, Miller said.
He also doesn't expect to see much competition from startups, given the large initial investment required to set up a global storage network. "It's a capital issue, the first mover gets most market share," he said. However, telecommunication carriers are likely to become more and more of a threat, Miller said.
"The most serious announcement we've seen so far is HP's (Hewlett-Packard Co.'s) and Qwest's (Qwest Communications International Inc.'s) joint venture in Qwest data centers," he said. [See "Qwest Taps HP Storage for Web Hosting Push," Sept. 29, 1999.] Miller pointed out that none of StorageNetworks' current partnerships are exclusive and revealed the company's ambition to eventually "establish itself as a horizontal (storage services) layer throughout the market across all channels."
Since November 1998 The company has grown its staff from its two founders -- Miller and Peter Bell -- to number almost 400 today. Less than half of StorageNetworks' staff are at its Boston headquarters, the rest are located with its S-POPs. About 100 of its workforce are storage architects working in the company's professional services business, helping customers with their storage infrastructure and integration needs.
One slight potential wrinkle remains for Miller -- his company's name. "I sometimes wonder if our name is too close to StorageTek," he said, relating the tale of receiving a phone call from a friend commiserating on his company's poor performance under the mistaken impression that loss-making StorageTek and StorageNetworks are one and the same company. Hopefully, once StorageNetworks' global data storage network kicks off, there won't be any cases of mistaken identity.
StorageNetworks Inc., based in Waltham, Massachusetts, can be reached via the Internet at http://www.storagenetworks.com/.