Friday, July 20, 2001

Dot-Com Failures Dampen Outlook for North American Storage Service Provider Industry

The North American storage service provider (SSP) market will grow from $176 million in 2000 to over $6 billion in 2004, according to Dataquest Inc., a unit of Gartner, Inc. The SSP industry was bracing for even stronger growth, but the recent failures of many dot-com companies, among other factors, has lowered expectations.

"Many SSPs viewed dot-com organizations as among the most likely candidates for storage utility services because they frequently came to market with little or no infrastructure and even less IT talent," said Adam Couture, senior analyst for Gartner Dataquest's IT services worldwide group.

"Although the adoption rate of outsourced storage services and storage utility has slowed, this market still has a very large opportunity," said Couture. "Driven by customer requirements, investor demands, new technologies and an uncertain economy, SSPs are refocusing their strategies and offerings to adjust to the new realities of delivering outsourced storage services."

The market will also be impacted by SSP saturation. Competitors have quickly jumped into this market. While a raft of new providers should mean more sales, a good number of them are going to fail which could spook potential customers. With the large number of new SSPs, there has been an early commoditization of the market, which has meant lower prices for storage utility services.

Most early penetration of the storage utility market will take place at Internet data centers, colocation centers, such as Exodus and Level3, and hosting data centers, such as Digex and Interia. In 2000, storage utility penetration of corporate data centers was $32 million, and it is not expected to exceed $1 billion until 2003. By contrast, storage service revenue generated through Internet data centers is expected to climb to more than $800 million by 2002.

"The reason for the disparity is that e-commerce and e-business customers hosted at Internet data centers will embrace the storage utility model before corporate data centers," said Couture. "Also, SSP offerings from telecos are anticipated to begin making a strong contribution to Internet data center revenue. By contrast, much of the growth at corporate data centers will be driven by storage management services on client-owned storage hardware."

Additional information is available in the Gartner Dataquest Perspective "Storage Service Providers and Storage Utility Services." This Perspective presents the 1999-2004 storage service provider forecast and discusses market, business, economic and other factors influencing future market growth.

This information is produced by Gartner Dataquest's IT services group. This group provides a complete picture of the IT services industry including network integration and support, hardware services, consulting and system integration, outsourcing, life cycle service, strategic partnering and services marketing, vertical markets, and software support.