Storage Moves Up The Food Chain

You can see it in the numbers: The technology recession has finally caught up with the sector's last, best hope, enterprise storage.
And technology consultants hear it from their storage customers. Instead of making major new investments, clients want to optimize what they bought last year, and — for those who do buy new gear — they want faster ROI.
Analyst Tony Prigmore, with the Enterprise Storage Group in Milford, MA, sums it up as follows: "Storage has caught the same basic flu as the rest of IT."
So far, it is the storage hardware vendors that are feeling most of the pain. Storage giant EMC, for example, reported first quarter revenues of $1.3 billion, down 14 percent from the same period last year.
Capacity companies like EMC and Sun Microsystems have been hit with a triple whammy, according to Prigmore: "Customers are delaying purchases of new capacity; the price per megabyte, which usually falls about 30 percent per year, has dropped off even more dramatically; and competition is at an all-time high."
For consultants with the right skills, however, things are not quite so grim. "It is certainly true that device sales are down," says Doug White, managing director of the services solution group at KPMG Consulting in Chicago. "But I don't think we are seeing the same downturn in storage services and software."
It is one of the oldest stories in the technology business. As the market for "platforms" (basic hardware or software such as servers and databases) becomes saturated, the value moves up the food chain into more advanced software and services. Historically, this has been good news for consultants — the best example probably being the mid-1990s boom in ERP.
That this is now happening with storage can be clearly seen in the stated goals of EMC. Hoping to follow the money, the company plans to shift more of its business to services and software. "In 2001, the mix was 70 percent hardware, 20 percent software, and 10 percent services," says Ken Steinhardt, director of technology analysis at EMC in Hopkinton, MA. "Our target is to change that to 50 percent hardware, 30 percent software, and 20 percent services."
While this is an example of the same market dynamic that fueled the boom in ERP consulting, the details are more similar to another technology/service play, namely network management.

Grooming the Network

Analysts, consultants, and vendors all agree that the action in storage for the next few years will be centered on networked storage. This comes in two flavors SAN (Storage Area Networks) and NAS (Network Attached Storage; see sidebar)