The Paradox: As Storage And Bandwidth All Drop To Zero Dollars, Who Can Make A Buck?

The dynamic changing storage industry is actually part of a much bigger overall moving picture. In the work done through the IN_fusion business development partnership with my partner, Michael Peterson, we are observing three trends, which we have labeled the IN_fusion Paradox, developing over the next five years that are converging to zero. This convergence and related corollaries promises to change the dimensions and landscape of the storage industry again and again.

The IN_fusion Paradox

Where will the IT focus be in five years when storage, compute power, and bandwidth all get to essentially zero cost per unit purchased? Where will the value in the storage industry be? Will business models change? Are the current core-competencies of the storage industry sustainable? Can you even accept that the paradox is valid? Change is inevitable. Expect lots of it.

* The price per unit of storage purchased is basically approaching zero in the next few years.

Corollary 1 - Storage density increases between 60% and 100% every year.

Corollary 2 - Storage pricing falls between 35%-40% per year.

Corollary 3 - Storage performance improves less than 10% per year.

Corollary 4 - The value of data is growing exponentially.

Corollary 5 - The cost of managing storage is three to ten cost of the hardware.

Note: Management costs include software and people costs.

* The price of compute power is approaching zero in a slightly longer timeframe.

Corollary 1 - The price of compute power falls between 25%-35% per year.

Corollary 2 - The density of transistors doubles every 18-24 months.

Corollary 3 - The performance of computers is improving at 30%-35% per year.

* Global bandwidth is (at last) beginning a pricing slope that will see the price per unit also approach zero in a still slightly longer timeframe.

Corollary 1 - Total global bandwidth is growing at nearly l0x per year.

Corollary 2 - Optical data streams transfer at 10Gbps and electronic switches deliver data-streams up to 2.5Gbps.

Corollary 3 - Bandwidth outside the computer (optical) is growing much faster than bandwidth inside the computer (electronic).

Corollary 4 - Wireless (light and air) is using approximately 1% of the available frequency spectrum while price is now falling at 15%+ annually.

The paradox signals the approach to a near-zero state and triggers many deeper thoughts for the storage industry centered on the notion of what business will you be in five years from now. We have seen the evolution of the IT industry to the point that we can expect the unexpected. In an industry where hardware has been undisputedly the largest revenue component of IT, we now see it as the smallest component lagging both services and software in annual revenues. Strategic tunnel vision is continuing to think about the future in only the same terms and parameters of the past. For the storage industry as an example, this means that storage device (box) suppliers continue to see the future only through the metrics of the past such as price/performance or price per megabyte.

As hardware becomes an increasingly smaller portion of the total cost of ownership of the storage infrastructure, the value for suppliers and the largest expense for the customer moves from the hardware to the management of storage. A lower cost per megabyte has seemed appealing for over thirty years, but it now addresses a smaller component of the total storage expenditures. Though the price is still important, companies can no longer assume that simply offering a lower device price is addressing the area of greatest expense or that it gives them a competitive advantage. The old model is collapsing and the new value chain model stresses a lower total cost of ownership. Therefore, the services provided that simplify storage management, significantly improve availability, are highly scalable, and insure data security become the new elements of value. The new wave of service providers such as the SSPs and ASPs have identified a higher value-chain model and offer a value proposition based on the new metrics of cost-of-ownership and higher quality of service. They could be the early winners.

Storage density and, therefore, capacity and bandwidth are progressing faster than processor density and performance. The processor that was initially the center of the computer world now finds itself as a satellite to the storage infrastructure that has evolved to become the focal point. Though there are plenty of applications that are compute-intensive, the much larger future market opportunity is now based on our ability to communicate and get the already massive amounts of digitized information content from one place to another. Processor performance will continue to evolve at the historical 30%-35% per year rate and make its gains through more appealing SMP (Symmetrical Multi-Processor) and NUMA (Non-Uniform Memory Access) architectures. The greatest challenge and frustration after the tremendous progress of the computer of the past 30 years has become the ability to efficiently move the information to the right place or person.

The third element of the paradox is bandwidth. The Internet has clearly placed the global focus on moving information and content in an effective and timely manner. Information is of value only if it can be put to use. Now, bandwidth is key. The amount of available high-speed bandwidth globally is growing nearly ten times per year. This won't continue forever, but we are experiencing a bandwidth explosion, particularly in the U.S., accompanied by competition and prices finally falling at 15% or more annually. The basis for bandwidth abundance has been centered on the widespread use of fiber optic cable technology and expanded use of the wireless spectrum. The speed of optical transmission is now roughly four times faster than electronic data transfer and the gap is widening. DWDM (Dense Wave Division Multiplexing) sends multiple addressable wavelengths down a fiber strand and is now core to fiber and optical transmission going forward. Wireless optical gets even more intriguing in our longer term outlook. Th e bandwidth element of the paradox is critical and, at last, enables us to consummate the global database as outlined by the World Wide Web.

Welcome to the new world of competition for information technology as it is being shaped by fundamental shifts in our traditional value propositions. The new value chain stresses having the best products, the best total cost, and, most importantly, the best total solution. For customers, the paradox is a plus as the raw costs for IT drop; for vendors, it is a constant reminder that embracing change is now the lifeblood of their business. Don't be overwhelmed by change--thrive on it.