The Last of a Dying Breed?

Like one of the last dinosaurs, StorageNetworks clung on until the end, but it just wasn’t enough.

The provider of storage services fell under the weight of a market that had rendered it and vendors like it obsolete, filing a plan to liquidate yesterday.

The site is now dark and the Waltham, Mass., company has sent most of its remaining staff of 60 packing, leaving a skeleton crew to sift through the detritus.

CEO and President Paul Flanagan left the company immediately, saying that all other options failed, including looking for a buyer, looking to buy technology, or turning into a storage management resource provider.

“Interest in acquiring the company was limited, and the only interest that was expressed was at price points below what we estimated as our liquidation value,” Flanagan said in a public statement.

This is a company whose stock had soared as high $90 in 2000 before the dot-com boom died, a company whose overall market valuation was $14 billion at one point. So what happened? StorageNetworks did not respond to requests for comment but analysts did for internetnews.com.

“The SSP model was not viable and this was mostly because of what the customer wanted and what they wanted to pay for it,” said Forrester Research analyst Anders Lofgren. “One of the keys to the business model was economies of scale – shared storage devices, shared resources, etc. – and it just wasn’t going to work.”

Or, as Lofgren’s colleague, Forrester’s Bob Zimmerman, said: “The SSP model failed because the customer wanted the Hummer2 but was only willing to pay for the WWII vintage used Jeep.”

Lofgren said another issue was that the technology was just not there to provide these types of services.

“Now with technology improvements this may change but if it does it will be a long time and it would have to be the big guys (IBM, HP, EMC, etc.) that provide it,” Lofgren said.

Basically, no one bought into the business model where banks of storage were outsourced and maintained off site. So many storage vendors have popped up offering products of all different flavors that storage service providers became unnecessary. Or as Enterprise Storage Group Senior Analyst Nancy Marrone said:

“StorageNetworks has gone the way of most SSP’s, it just took them a bit longer. The business model was not sustainable for a number of reasons. The premise was that companies would want to outsource their storage, and in the end the SSPs found that this was not the case — organizations are very concerned about their data getting into the wrong hands. In order to insure
the security of the data, SSPs like StorageNetworks had to build out individual SANs to satisfy customer requirements, and there was no economy of scale with that model – it just wasn’t economically feasible. StorageNetworks turned to outsourcing backup, but could not generate enough revenue to recover from losses.”

Instead, customers kept storage on-site, and bought hardware or software from powerhouses like IBM , HP
, Sun Microsystems , Veritas and EMC . If they required more specialized products, customers might turn to smaller companies, many of which were acquired in the last few years. Software consolidation remains rampant across the board.

Last September, Sun picked up Pirus Networks. One week later, EMC answered by grabbing Prisa Networks in a bit of a storage landrush free-for-all. EMC recently bought BMC’s storage software line and Legato Systems
.

StorageNetworks was hardly the only storage service provider to endure the hardships of a model few loved. Unfortunately for them, nobody wanted what they had, whereas some firms had managed storage services assets that were viewed as complementary. Take the case of StorageWay.

In June 2002, StorageWay was purchased by Cable & Wireless for $2 million. London’s C&W said these services complement its Exodus storage solutions, which are designed to let customers take advantage of an storage and backup infrastructure.

Marrone said firms such as CreekPath and Storability successfully made the transisiton into storage management vendors, selling the software they developed to monitor their customers networks to the open market. Storage Networks attempted this as well, but Marrone said the software was not user friendly and had very low adoption rates.

So, if the SSPs are the dinosaurs, then what happens after the Big Bang? It’s a fair question, but one that can only be answered following more consolidation. For now, the industry appears to be shifting its focus toward utility computing, where customers can take the “faucet” approach of turning computing resources on and off as they need it.