Storing Future Market Profits

Led by outsourcing and managed hosting,
spending for storage services is improving and will top $30 billion by 2007
worldwide, according to a new report
from the Dataquest unit of high-tech research outfit Gartner.

The $30 billion tab is encouraging. According to report author and Gartner
analyst Adam Couture, the storage services market was worth about $21
billion in 2002, which “was down from previous years, but it grew modestly
in 2003 and will grow more substantially thereafter.”

Couture wrote the market will be led by usual mainstays IBM , HP and EMC
, which has tacked on additional services over the
last few years after spending most of its life as a hardware company.

After posting revenues of $4.7 billion in 2003, Big Blue wields a commanding
21 percent of the storage services market, while EMC and HP hold 6 percent
each and posted same year sales of $1.2 and $1 billion, respectively.

StorageTek is fourth, with 4 percent on revenues of $826
million, while Sun Microsystems
($395 million) and Dell ($386
million) garner 2 percent. Hitachi Data Systems chimes in with 1 percent on
sales of $306 million.

Couture discussed the current and future role of storage services in his

“Storage services are becoming increasingly important to storage hardware
and software vendors and resellers, as well as to the ever-expanding cadre
of service providers, including MSPs, consulting companies and traditional
outsourcing companies,” he said, noting that vendors are expecting service
to contribute at least 25 percent revenue in the coming years.

Looking forward, hardware support is expected to be the single largest
storage service revenue generator despite the fact that this segment was hit
hardest of all the niches in the storage market by reduced spending after
the dot-com bubble burst.

“Users are becoming comfortable with the concept of engaging external
service providers to monitor and manage their storage infrastructure or to
outsource it entirely,” Couture said. “Hardware vendors without managed
service offerings for their own products run the risk of having future
purchasing decisions placed in the hands of service providers, not end

Meanwhile, average storage prices have dropped considerably, even though the
need for more terabytes increases every year. This is a direct result of new
compliance regulations that force companies to retain data files for longer
periods of time.

Couture concludes that IBM will keep its storage services revenue lead in
2004 because of the increasing importance of storage services to its strong
outsourcing and hosting businesses. He noted that HP and EMC will continue
to compete for second or third place, unless a major acquisition tilts the
balance in either company’s favor.

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