Consolidation craze

Consolidation craze

Over the last few years, storage has been a major source of growth for the IT industry. It has evolved from a peripheral to a significant IT expenditure. The rapidly growing use of the Internet, the deployment of enterprise applications and the ubiquity of personal computers and networked devices have dramatically increased the production of data. Australia consumed just under 10,000 terabytes of disk storage in 2002, according to IT research firm IDC. At the current rate of growth, it predicts that this figure will hit 14,700TB next year, and just shy of 60,000 by 2006.

The resulting demand for storage capacity and performance has created a segment of significant size, with IDC valuing the Australia/New Zealand storage market at $1.8 billion for 2001. Within this figure, storage software contributed 10 per cent ($180 million), storage hardware accounted for 60 per cent ($1.08 billion) and storage services contributed 30 per cent ($540 million) of total storage solutions spend.

Looking forward, the research firm predicts the value of the market to reach $2.433 billion by 2006. However, with hardware margins falling rapidly, the revenue split is likely to be turned on its head, with the most profit being generated from software and services and less and less through hardware sales - not unlike the current PC market.

Even before September 11, 2001 and the imminent war rhetoric against Iraq, a US-generated storage report by consulting house Merrill Lynch and McKinsey & Co identified a slide in storage vendor valuations. Pressure from the financial markets served to hasten the already falling margins on storage hardware as vendors tried to buoy shareholder confidence with increased sales.

According to the report: "The growth of demand for networked storage will create value for the industry as a whole; however, it is not yet clear where this value will be captured. Enterprise hardware vendors, networking vendors, independent software vendors and service providers are racing to deliver higher-performance networked storage offerings at lower cost to enterprises of all sizes. Friction among these classes of participants, new entrants, customers' changing expectations and increasing sophistication, macroeconomic changes, technology innovation, and a near-term threat of increased margin pressure obscure who will capture a disproportionate share of the value in storage."

Feeling the pinch

The economic slowdown has had multiple effects on vendors and customers alike. Customers' IT budgets have been reeled in, forcing them to consider more cost-effective ways to manage ever-increasing amounts of data, hence the trend toward network-attached storage (NAS) and storage area networks (SANs), and through them, automation software.

"For customers, the centralisation and sharing enabled by storage networking creates compelling cost and performance advantages," says the McKinsey report.

Over three years, the cost of direct-attached storage (DAS) is 84 cents per megabyte compared to SAN at 38 cents/MB and NAS at 35 cents/MB. EMC managing director Steve Redman says the difference in price relates to an emerging term, "automated software provisioning", or people costs.

George Mele, EMC's director of worldwide software marketing, a man who lived through storage's childhood, says in all his years he has never seen such an enormous shift to a new technology as he has with networked storage.

Three out of five of the top 100 companies in Australia are using or implementing NAS, says Redman. Furthermore, he predicts that with adoption travelling well in the high end, mid-tier uptake is set to "go rampant".

"Seventy per cent of our new customers this quarter are mid-tier," he says.

However, CIOs are still focusing on hardware costs when considering total cost of ownership (TCO), according to the McKinsey report. This is despite the fact that the cost of people to man the system, and money spent on services and maintenance, will chew up several times the expense of the physical infrastructure. "Despite being the largest expense, people costs are less visible because they are hidden with the cost of administering servers," says the report. Hence, customers are either unaware of its magnitude or are not overly concerned with it.

While networked storage is the wave of the future, DAS cannot be completely written off, due mostly to the strength of its grip on organisations, particularly in the low-end sector. Graham Penn, IDC's director of storage research, Asia-Pacific, says that so far in the SMB space DAS represents a large percentage of storage and backup devices. He warns that "companies who focus solely on the top end miss a lot of pressures that are coming up from below". But he does say that these smaller businesses represent a tougher sell because it is the owner of the business putting up their own money, thus they are more critical of the value of the product.

Consulting honey pot

By and large, storage is a grossly mismanaged asset. At HP's ENSA (enterprise network storage architecture) conference in Queensland earlier this year, Neal Clapper, HP vice president, online storage and network storage solutions, estimated that around 50 per cent of capacity in DAS is unused. Similarly, a recent survey conducted by StorageTek found that about 80 per cent or more of disk-based data at most Australian organisations (55.3 per cent) was not used in the past 20 days.

Many customers are still buying storage in silos, according to Dimension Data national business manager Greg Bowden, while others continue to buy new servers to upgrade capacity. The latter has its own issues, especially in the midrange where the controller often doesn't support the storage device.

Rick Sewell, HP's Asia-Pacific marketing manager, says these fundamental problems in customers' storage environments have resulted from them letting it "build up ad hoc". The demand for system "health checks", as he calls them, will see storage consulting flourishing nicely over the coming months. Network Appliance claims specialist storage integrators, such as SecureData, are billing for pre-consultative services and building quite a successful business out of it.

When Dimension Data asked customers about drivers for storage spending, 34 per cent indicated a desire to maximise existing investments, second only to reducing costs (62 per cent). These figures became the genesis for the integrator's newly launched Risk and Cost Reduction Workshops, a three-step process comprising identification of current and future storage spending for an organisation; analysis of those needs; and developing recommendations to ensure strategic use of storage in the future. "If you can combine cost and risk, it makes a very compelling business case for the customer," says Bowden.

Even vendors are beefing up their professional services capabilities to ease customers through the quagmire of storage technologies. The storage market has taken a "quantum leap in complexity", says Penn. "There is such a smorgasbord of technology out there that customers don't know what they need. They may have a general idea of what they want to achieve but no idea of what it actually entails." Even customers' awareness of addressing backup and storage issues simultaneously is abysmal.

Vendors have chosen to tackle the confusion head on instead of letting customers delay conversion or implementation. Uncertainty is also compounded by the absence of industry standards and shortages of key skills to install and manage new architectures.

For network providers, the networking of storage represents a new frontier and a potential source of incremental revenues. However, most vendors agree that there is a shortage of competent resellers in this area in Australia. "There are plenty of integrators out there who excel in network-based solutions, but to some degree storage is still a specialised service," says Harry Christian, Network Appliance's marketing manager, Australia/NZ. "When NetApp went out to enhance its storage channel we found, to our surprise, that there were an insufficient number of competent resellers in this area. And that's just storage generically, not NAS and SAN-specific solutions."

Sun Microsystems' John Anderson says the level of storage consulting work is overwhelming Sun's professional services group and the vendor is investing a lot of time and money into bringing its partners up to speed so they can meet the demand for services. HP is tackling the situation by ramping up its professional services arm. Even Quantum intends to beef up its direct sales force to be more like its US counterpart, while still committing significant resources to training its channel through the recently launched Advantage Program. EMC, too, which has traditionally been sweet on its direct sales force, is endowing renewed attention and educational resources on its integration partners.

This activity has enormous strategic value on a macro level. The replacement of DAS by networked storage over the next two to three years will temporarily lower customers' resistance to change, according to the McKinsey report, creating a window of opportunity for some and vulnerability for incumbents at each customer. "The winners in networked storage will be the ones who most effectively meet customers' specific needs while this window is open," the report says. The ability of the channel and consultants to understand, communicate with and convince the customer is paramount here.

This fact has not escaped integrators, with a consolidation of skills sets unfolding in the reseller space. Storage specialist SecureData announced earlier this month that it would merge with Vigil Tech, a highly skilled integrator in enterprise servers, operating environments, databases and security.

"Business applications drive demand for storage capacity and performance; therefore, the market opportunity for each architecture, technology and vendor is shaped by customers' use and adoption rate of key storage-intensive applications," says the McKinsey report. It makes sense then that integrators attempt to maximise on this by rounding out their skills sets - storage with application proficiency and networking capability. It is a strategy that has worked well for Professional Advantage, which as well as being a partner of Hitachi Data Systems, provides medium-sized businesses with customer relationship management, enterprise resource planning, e-business and business intelligence solutions as well as network integration services. The integrator was regularly listed as one of Australia's fastest growing private companies between 1996-2000 by BRW magazine, with customer satisfaction levels outstripping the likes of KPMG, Ernst & Young and PricewaterhouseCoopers.

The other sector making good returns from networked storage is the once-beleaguered data centre, which can finally cash in on long-term economies of scale. Doug Oates, managing director of Sydney-based managed service provider Pihana Pacific, says many customers turn to outsourcers as a means of avoiding obsolete infrastructure, much the same as leasing on cars. These managed service providers operate on a utility-like pay-per-store model (which vendors would love to mimic), whereby the customer pays a set amount per gigabyte of storage used in a month, including service-level agreements (SLAs) for the frequency of backups and the integrity of data stored. The solution offers customers flexibility in both hardware and software - limited to the service providers' infrastructure - while eliminating the cost of upkeep and the hassle of finding skilled personnel. "Customers get the economies of a shared infrastructure as well as the comfort of a defined SLA and a predictable budget," Oates says.

A wholesome view

With customers taking a more holistic view of their infrastructure, the vendor ranks are getting increasingly cosy. Customers are asking vendors to interoperate more tightly with other brands, while showing little or no regard for cross-vendor competition. Vendors have responded accordingly by shifting their emphasis exclusively from hardware to incorporate software and services as part of the delivery. Veritas and IBM, two of the biggest players in storage, announced an alliance last month whereby a complete set of Veritas storage management solutions were released on IBM's AIX platform. Similarly, Network Appliance has signed an OEM agreement with Brocade to integrate its flagship enterprise storage platform, the FAS900 series, with the 2Gbps Brocade SilkWorm 3800 Enterprise Fabric Switch and SilkWorm 3200 Entry Fabric Switch.

Tape vendor Quantum effectively bought its way into the high value mid-range market through the acquisition of Benchmark Storage Innovations, while outsourcing the manufacturing of its tape drives to Jabil Circuit in Malaysia. The manufacturing of Benchmark's products is already outsourced to Mitsumi Electric (a Panasonic company) and Beyonics Technology, thus Quantum is moving to the top end of the value chain - "the design phase rather than pumping out however many widgets and gadgets".

This type of outsourcing is becoming the norm among storage vendors; those who fail to follow suit will struggle to stay competitive. "Manufacturers like Jabil know best how to squeeze the margin out of the supply chain," says Alex Tan, general manager, Asia-Pacific sales and marketing, for Quantum Storage Singapore. "We don't want to get caught with a high-cost product when the margins are falling."

Still, IDC's Penn warns that any attempt by vendors to create a vanilla-flavoured package won't work because every customer environment is unique.

For server vendors, this holistic view of the network infrastructure, and the increasing intelligence embedded in storage devices, threatens the pre-eminence of the server as the "brains" of enterprise networks.

Network Appliance's Christian says consolidation of storage assets is top of mind among customers, taking precedence over disaster recovery procedures and backup. Speaking at a round table prior to IDC's StorageVision conference in September, Christian cited examples of customers reducing server counts from 300 to 12 by "letting the servers actually run applications" rather than perform storage functions.

EMC's Redman agrees, saying that in discussions with customers his company is witnessing the uncoupling of storage/information management and servers. "One year ago it was always a conversation with a server, now companies are employing storage management people," he says.

"This is good because it means we're finally on the radar. The bad thing is that the costs associated with storage have also been exposed."

Welcome, iSCSI

After two years of countless meetings and animated discussions, the Storage Network Industry Association (SNIA) has announced the completion of a final iSCSI standard draft. The last call for revisions triggered only a few minor requests for edits -- in other words, the standard is good to go. For the storage public, this milestone is the equivalent of the white smoke announcing to the world that a new pope has been elected.

Although still a draft, this last version of the standard has gained unfettered acceptance by the storage community. At startup Alacritech, the new -- and most likely final -- version of the standard is already being implemented into the company's iSCSI interface cards.

Joe Gervais, director of product marketing at San Jose-based Alacritech, says the company isn't alone. By next quarter, he predicts a flurry of products that will support iSCSI.

According to Bill Lynn, co-chair of the SNIA IP Storage Forum, putting together the iSCSI draft has been a smooth ride, although some topics, such as the adoption of TCP as the transport protocol and the inclusion of security guidelines in the specs, were the focus of heated debate.

Nonetheless, TCP is the accepted transport protocol, and unlike the Fibre Channel specs that do not dictate security provisions, iSCSI demands that implementers support CHAP (Challenge Handshake Authentication Protocol) authentication at a minimum and enforce IPsec encryption when appropriate.

So why is the iSCSI protocol really so important? The first reason that comes to mind is that it creates a more affordable entry point to block-based storage networks, compared to Fibre Channel. iSCSI components are expected to be less expensive and will not require learning additional skills, attracting more customers to networked storage.

Moreover, by using iSCSI, companies can leverage existing WANs to easily implement solutions such as remote replicas or remote backups and strengthen their business continuity plans.iSCSI also enters the storage arena as a non-adversarial solution that is consistent with existing Fibre Channel networks. Although an iSCSI SAN can stand on its own, it can also easily connect to a Fibre Channel network. This allows companies to preserve existing investments and gives them more flexibility to choose the most cost-effective solution.

And finally, iSCSI promises vendor transparency: several interoperable solutions from various vendors are expected this month.

Fast, affordable, secure, and environmentally friendly, iSCSI clearly makes a grand entrance in the networked storage world and should be carving out a space in IT budgets.

Scott Tyler Shafer and Mario Apicella

Case study: Open-platform SAN ups performance Professional Advantage has successfully completed a mid-sized storage area network (SAN) installation for international promotional agency Creata Promotion, using Hitachi Data Systems' open-platform Thunder 9200.

The new infrastructure has tripled the amount of data Creata can handle.

Following rapid expansion over the last 12 months, the company was concerned its graphic design operations were being hindered by the limitations of the previous system. Access rates and the integration of both PC and Mac-based environments were critical in the choice of storage solution.

Michael Ashby, vice president of IT at Creata, says staff productivity has increased, attributable to the 400 per cent improvement in performance over the old system.

"Our selection process was extensive and thorough with a large number of vendors and resellers presenting different options," Ashby says. "In the end we engaged a couple of industry solutions experts, including Professional Advantage, to find the best solution for us. I asked them to compare price and features for each solution."

Expandability was a compelling factor in the decision, he says. "Budget constraints meant we needed to start small but with a solution we could build on. HDS's Thunder was within our price point and it scales up to a few terabytes. It will serve as a framework which we can add onto in the future."

Professional Advantage and Hitachi Data Systems began work on the project last Christmas. Jim Mackessy, systems integration manager for Professional Advantage, says the alliance with Hitachi has proved profitable, with demand for "clever and simple storage solutions" increasing. HDS's pricing and services ethos make it a complementary partner, he adds.

HP and EMC: Cosy but not close

HP filed suit against EMC in a Californian court last week, claiming that the storage leader's Symmetrix and Clariion arrays as well as its TimeFinder software products infringe on seven HP patents. HP has asked a judge to slap an injunction on EMC to keep it from using the technology.

Bob Schultz, vice president of marketing for HP Network Solutions, pointed out past patent infringement suits by EMC in an effort to brand the company as one of the more litigious vendors in the storage space. Specifically, Schultz mentioned suits brought by EMC against HP OEM partner Hitachi Data Systems and StorageApps, which HP acquired last year.

"HP has a responsibility to ensure that, as we compete in the marketplace, we are not competing against our own intellectual property," Schultz said in an announcement. "We have a strong patent portfolio covering storage technology, and we will protect it."

EMC spokesman Mike O'Malley couldn't immediately comment in detail on the suit, but he said it "smacks of desperation".

"They're clearly under pressure. Storage was used as a major justification for the merger [between HP and Compaq]. The results of that aren't [corresponding] with the promises made," O'Malley said.

HP's lawsuit specifically cites technology involving data transfer between storage media; the number of reads and writes in a RAID environment; host computers coupled to a storage array with a switching network; live AC mains power selector for a disk storage system; two methods of handling a disk failure in a RAID array; and presenting logical units to host computers.

HP spokesman Mark Stouse said the lawsuit has nothing to do with previous litigation by EMC, saying simply that "a company doesn't have the right to make money off of another company's [intellectual property]".

In April, EMC filed a patent infringement lawsuit against Hitachi, claiming that it was using technology exclusive to its Symmetrix Remote Data Facility business continuity software and its TimeFinder remote storage software. Hitachi immediately countersued with its own patent infringement claims.

In October 2000, EMC filed patent infringement lawsuits against then StorageApps for patent infringements against EMC's TimeFinder and Symmetrix Remote Data Facility (SRDF) software.

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