Research Brief Midsize Businesses Slowly Warm Up to Storage Services Abstract: A recent study reveals only lukewarm demand for new storage services among midsize businesses. Assessment tools and peer references will help customers understand their internal storage total cost of ownership. By Adam Couture User Recommendations Companies that perform on-site backup should consider remote backup service providers or other solutions to vault data at a remote location. Companies considering doing business with startup service providers should look for financially stable companies that use industry-standard applications or companies that have formed partnerships with stable established service vendors. Pilot an initial service provider engagement on nonbusiness-critical applications. Service Vendor Recommendations Service providers must do more missionary work regarding the benefits of remote storage monitoring and management services. Service providers should provide assessment tools and peer references to help customers understand their internal storage total cost of ownership (TCO) and accurately measure cost savings. Partnerships with established, financially stable companies will ease customer trepidation about doing business with venture capital-funded startup companies. Publication Date: 11 April 2003
2 Midsize Businesses Slowly Warm Up to Storage Services Introduction As storage hardware pricing continues to drop 30 percent a year or more, storage hardware vendors and other service providers are increasingly looking to bolster revenue and margins through increased service sales. Many of these vendors are especially keen on selling services to midsize businesses 100 to 1,000 employees where they believe a large untapped market exists. Service vendors are rolling out new services and marketing and partnering campaigns squarely aimed at addressing the smaller businesses in this very large market. Gartner Dataquest research suggests that the majority of midsize businesses are less than eagerly awaiting these new storage services and a large number are adamantly opposed to even considering them. This comes as no surprise since small and midsize businesses in general are tepid about outsourcing (see "Sluggish Growth Expected in SMB Outsourcing Spending in 2003," COM-17-6965). This research suggests that service providers will need to invest heavily in marketing and market education to extol the value and benefits of these new services. Survey Methodology The midsize business storage services survey was completed in the first part of 2003 and sampled the opinions of influencers and decision makers, including many CIOs with IT responsibilities in midsize businesses. The services section was a subset of an overall Web-based storage midsize business study that also sampled opinions and practices surrounding storage hardware and software. As illustrated in Figure 1, the "sweet spot" of the survey was companies with 100 to 999 employees (63 percent of respondents). One-quarter of respondents work at companies with 1,000 to 2,500 employees. 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 11 April 2003
3 Figure 1 Respondent Company Size More Than 2,500 (8%) 1 to 20 (1%) 21 to 99 (3%) 1,000 to 2,500 (25%) 100 to 499 (39%) 500 to 999 (24%) 114179-00-01 Note: Number of respondents = 108 Survey Findings Respondent Storage Environments Although respondents reported running many diverse applications, most singled out e-mail (69 percent) and document management/imaging (64 percent) as requiring the largest amount of storage within their companies. By comparison, only 34 percent named enterprise resource planning (ERP) applications as requiring a large amount of storage (See Figure 2). 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 11 April 2003
4 Midsize Businesses Slowly Warm Up to Storage Services Figure 2 Applications Driving Storage Percentage of Respondents 80 70 60 50 40 30 20 10 0 E-mail Imaging/ Document Management ERP Vertical Application Intranet Web Site CRM 114179-00-02 Note: Multiple responses allowed. As shown in Figure 3, about half of all respondents averaged about half to 2 terabytes of raw storage capacity at their sites. Although 39 percent of respondentsclaimedaterabyteormoreofstoragecapacity,30percent reported less than 500 gigabytes. 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 11 April 2003
5 Figure 3 Amount of Storage More Than 2TB (20%) Less Than 200GB (14%) 200GB to 499GB (17%) 1TB to 2TB (19%) 500GB to 999GB (30%) 114179-00-03 Forty percent of respondents had primarily HP/Compaq storage environments (40 percent); Dell (22 percent) and IBM (21 percent) storage devices had an almost equal split of respondents (See Figure 4). Because midsize businesses are largely Windows environments, it is logical that the small and midsize customers would not be purchasers of EMC's enterprise-level Symmetrix products. Also, Dell is the major reseller of EMC's Clariion product line so much of Dell's strong showing may be attributable to its EMC relationship. 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 11 April 2003
6 Midsize Businesses Slowly Warm Up to Storage Services Figure 4 Primary External Storage Device Vendor EMC (6%) Others (11%) HP/Compaq (40%) IBM (21%) Dell (22%) 114179-00-04 Most small and midsize businesses tend to adhere to industry standard practices of daily incremental (64 percent) and weekly full (56 percent) backups (see Figure 5). Gartner Dataquest believes that the 31 percent of respondents claiming to perform monthly full backups is an anomaly because multiple responses were possible. Respondents choosing daily or weekly backups total 100 percent. Just the same, many respondents likely also selected the "monthly full" backup button because if they believed that they are backing up daily or weekly, then they are also backing up on a monthly basis. For an overview of backup and recovery best practices see "Ten Best Practices for Enterprise Backup/Recovery," DF-15-9895. 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 11 April 2003
7 Figure 5 Backup Schedule Daily Incremental Weekly Full Daily Full Monthly Full Others 0 10 20 30 40 50 60 70 Percentage of Respondents 114179-00-05 Note: Multiple responses allowed. More perplexing than how often respondents back up their data is where they store their backed up data. As shown in Figure 6, almost two-thirds of respondents back up to a local device. As a consequence, any catastrophic event that destroyed their primary server would likely destroy backup media as well. These practices should provide plenty of ammunition for remote backup and recovery service providers. 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 11 April 2003
8 Midsize Businesses Slowly Warm Up to Storage Services Figure 6 Backup Device Location On-Site Remote at a Company Facility Remote at a Service Provider Facility Others 0 10 20 30 40 50 60 70 Percentage of Respondents 114179-00-06 Storage Services Figure 7 illustrates the challenges for storage service providers seeking to expand sales to midsize businesses. Although midsize businesses represent a largely untapped market for many storage service vendors, these businesses say they are less likely to purchase services today than they have been in the past. Respondents indicated that they will purchase less hardware support, consulting, training and implementation services than they have in the past. Only software support services and management services are likely growth opportunities according to the survey. This is consistent with the Gartner Dataquest storage service market forecasts where we predict increased opportunities for storage software support services and storage management services overall (see "Storage Services North American Forecast, 2001-2006," ITOU-WW-MS- 0109). 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 11 April 2003
9 Figure 7 Storage Services Purchases Percentage of Respondents 50 Have Purchased 40 Will Purchase 30 20 10 0 Hardware Support Education and Training Software Support Consulting Implementation Management Services No Services 114179-00-07 In Figure 6, about two-thirds of respondents reported that their backup devices are located on-site with the servers from which they back up. In the event of a fire or other disaster, it is very possible that both their servers and backup data could be destroyed. Therefore, it seems logical that a very large percentage of these respondents would welcome a service that vaulted their backup data to a remote site, right? Wrong! Figure 8 shows that three-quarters of respondents have no interest in online server backup services. Only 6 percent of respondents are using or considering using such a service, leaving only 20 percent of respondents as potential prospects. 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 11 April 2003
10 Midsize Businesses Slowly Warm Up to Storage Services Figure 8 Likelihood of Using External Backup Service Provider Currently Considering (1%) Currently Using (5%) May Use (20%) No Interest (74%) 114179-00-08 If respondents were not exactly "warmed up" to online backup services, they were lukewarm to remote monitoring and management services and storage capacity "on demand." Remote monitoring and management services can deliver availability monitoring, automated metering and provisioning, remotely-managed backups and a variety of related remote management services. Storage on demand is an alternative pricing methodology where storage providers own the storage infrastructure and users are charged according to how much storage they use in a given time period usually per gigabyte per month. As shown in Figure 9, 14 percent of respondents were "somewhat" or "very" interested in remote monitoring and management services for their storage servers. Conversely, only 4 percent of respondents could muster that much interest in storage on demand. 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 11 April 2003
Figure 9 Likelihood of Using Remote Monitoring and Management Services for Storage Servers 11 Percentage of Respondents 60 50 Remote Monitoring Storage Utility 40 30 20 10 0 Not at All Likely Not Likely Neutral Somewhat Likely Very Likely 114179-00-09 Gartner Dataquest Perspective Midsize businesses seem to be stuck in the same spending malaise as their enterprise brethren. Storage hardware spending is not predicted to rebound anytime soon, so all of the consulting and implementation services associated with new product sales are put on hold as well. On a positive note, storage service providers are well positioned to help small and midsize businesses actually reduce IT-related spending by reducing management costs, increasing efficiencies and wringing more value out of a company's established storage infrastructure. However, Gartner Dataquest believes a good deal of market education will be required before these customers understand the value proposition of these services, especially newer remotely-delivered services such as remote backup and remote monitoring and management services, and especially storage on demand. Also on the positive side, the concept of on demand computing and the storage utility are being heavily promoted by major players such as EDS, HP, IBM and Sun Microsystems. As a consequence, the concept of remotely delivered storage services is being validated in a very visible forum. Just the same, smaller service providers will need a lot more than concept validation to survive and thrive. One of the major impediments to success for pure-play storage service providers has been the demise of the original storage service providers. Most of the original players of the storage service provider "heyday" are 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 11 April 2003
12 Midsize Businesses Slowly Warm Up to Storage Services gone. Companies such as sanrise, Storage Way and Storage Provider are just memories and even StorageNetworks is hanging on by a thread. These failures have made potential clients considerably more cautious about trusting their data to companies with questionable market commitment or viability. Gartner Dataquest makes the following recommendations to startup storage service providers to help alleviate trepidation regarding their viability: Base service solutions on industry-standard applications. If a service provider bases solutions on industry-standard applications from established independent software vendors, then cautious prospects can take comfort in knowing that even if the service provider goes out of business, the customer may be able to take the solution in house or transfer it to another service provider using the same technology. Partner even venture capital startups can gain a great deal of market credibility by partnering with established companies. A partnership could even lessen reticence regarding proprietary solutions, providing that the partner commits to acquiring and maintaining the technology if the service provider fails. Key Issue What are the key trends, drivers and inhibitors of the outsourcing market? This document has been published to the following Marketplace codes: ITSV-WW-DP-0487 For More Information... In North America and Latin America: +1-203-316-1111 In Europe, the Middle East and Africa: +44-1784-268819 In Asia/Pacific: +61-7-3405-2582 In Japan: +81-3-3481-3670 Worldwide via gartner.com: www.gartner.com Entire contents 2003 Gartner, Inc. and/or its Affiliates. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice. 114179