StorageNetworks And CreekPath Systems: Goliath And David Have A Lot In Common.

"I love the whole service provider concept," said analyst Steve Duplessie of the Enterprise Storage Group during a recent online chat session. "It works because of two fundamental principles: A) online storage growth is exploding at a ridiculous rate and B) there is no more storage talent left in the world. Those two elements make it awfully compelling for me as the CEO/CIO to say, 'Hey, let's go back to our core competency, keep our intellectual property to ourselves and give boring infrastructure stuff to the professionals.' I love the space."

In honor of the SSP space, we've compared two Storage Service Provider companies: one King-of-the-Hill StorageNetworks, and Denver start-up CreekPath Systems--what have they got in common? Where do they differ? How do they see their future and the future of the SSP industry?

Question: What Have They Got In Common?

Answer: A lot. Although Storage Networks' infrastructure is larger than CreekPath's, they're operating with largely the same opportunities and challenges.

Opportunities are handling the vast storage needs of enterprise and e-commerce customers. Gartner Group reported, "Driven by the demand for storage capacity and the explosive e-business market, the North American storage utility market is forecast to grow from nearly $10 million to $8 billion in 2003."

According to StorageNetworks' Annual Report, industry background drivers include:

* Rapid increase in the volume and importance of stored data. Forrester Research estimated that online storage for a study of 2,500 global companies will grow from an average of 15,000GB per company in 1999 to 153,000GB by 2003, representing a compound annual growth rate of 78%. This growth is happening in response to high availability and data redundancy demands, as well as consumer personalization pressures on marketing and product development. Enterprise applications such as ERP, CRM, and data warehousing are also growing. The Internet, of course, is also driving the breakneck speed of storage demands, especially the continued growth of e-commerce and its database applications, Internet-based telecommunications, and everpopular e-mail.

* Increasing cost and complexity of data storage. The evolution from single mainframes to distributed computing has left the industry with extremely complex needs for data storage, access, and retrieval. Storage requirements now include immediate access to huge volumes of primary data and also the vital need to protect that data with multiple-location data redundancy, always-available backup copies of critical information, and enterprise access to multiple copies of large databases. Couple that with the need to manage all of this storage in a timely and cost-effective manner and you've got an explosive situation on your hands.

This need to manage an ever-growing and complex pool of data leaves IT departments with the unenviable job of managing diverse networks, equipment, environments, transport options, and applications. This means that companies that manage their own data can suffer from inadequate business continuity/disaster recovery and data replication plans, possible poor decisions about technology expenditures, and sudden shortages in storage capacity and skilled storage professionals.

* The need for networked storage systems. Although many servers and workstations still use DAS (Direct Attached Storage), this is giving way to Network Attached Storage servers that provide file sharing over the network and Storage Area Networks that link multiple servers to storage resources through dedicated networks.

What Are The Risks?

These factors obviously present a huge opportunity to SSPs, but large and small providers face similar risks in addition to individual challenges. Some common risks for the service provider industry are a short history and lack of profitability: even market leader StorageNetworks is in a building phase. Much of StorageNetworks' profitability model depends on aggressive expansion. Without significant investment, customer response, or access to software and hardware, the expansion might not be a successful business strategy.

CreekPath also plans to expand, but its individual challenge is branding. StorageNetworks is in front now and, with multiple billions in the storage-providing industry, other well-known companies such as Compaq, HP and Sun have all jumped in. To meet the challenge, all SSPs need is to educate the customer. Greg Mangold, CreekPath System's vice president of sales and marketing, said the bedrock of the SSPs business is "the evolution of e-businesses relinquishing control of their systems and data." It can be hard for companies to let go of the data that represents their core competency But storing that data is probably not the company's mission, so as a service provider model frees up storage resources, the company can concentrate on what it does best.

"People are chock full of money and ideas and they want to do those ideas, so they're willing to outsource to service providers," Mangold said. "Including putting all your data into someone else's data center."

According to StorageNetworks' Bill Brodnitzki, director of services marketing, more and more companies use service providers, especially enterprise accounts in financial services, utilities, and telecommunications industries. These customers experience high data storage capacities and demand and recognize the need for sophisticated storage management. However, the majority of most SSP customers, including StorageNetworks', are emerging Internet-based businesses, which may not survive long enough to pay their bills.

Another challenge is the physical placement of data centers, which must be placed close to customers. This has led to a hot competition among all sorts of service providers for hosting space. StorageNetworks was an early exception to the shared data center rule and earmarked millions of dollars to build their own data centers close to customers. However, after finishing their Houston center, they made the decision to move away from that model. "Our business is core data storage management, not running the data center," said Brodnitzki. They are now partnering with AT&T, Exodus, and other Tier 1 hosting providers to house their S-POP data centers.

Mangold finds a similar challenge in dealing with hosting providers. "Because, as a SSP, you want to be very sure the data centers you're partnering with are going to be there next year. You pick a data center, build a $10 million SAN, and the center goes out of business? Not something a SSP wants to have happen."

What's The Future For SSPs?

Growth opportunities abound. As of June 2000, StorageNetworks had 37 networked S-POP data centers and they are expecting to increase this number to more than 50 by the end of year 2000. Their expansion includes Europe, presently London and Frankfurt.

CreekPath also has growth plans. With venture capital well in place (not to mention Exabyte's backing), they've partnered with Internet Data Centers (IDCs). In a shared revenue plan, CreekPath installs a SAN in the IDC and cooperatively leases storage services to companies hosting or co-locating their web servers inside the IDC. This allows CreekPath to take advantage of the JDC's own sales and marketing force while maintaining the SANs and performing storage for customers. They've already opened a new center in Minneapolis and are hoping to expand into additional IDCs this year with two different national IDC providers.

Mangold says, "It's a challenge to know what the right way to grow is. We have more opportunities to grow now than we can take advantage of."

Yet if growth seems assured, is profitability? No one knows for sure and, in this new era of investors wanting to see some actual returns, that's an increasingly critical question. Successful SSPs will concentrate not only on expansion, but also on good customer communication and service, reliable partnerships with hosting providers and equipment suppliers, and robust technologies that will benefit client companies.