What Killed The Storage Service Providers?
Storage Service Providers (SSPs) were common back in the dot-com days. The idea was that instead of buying your own disk drives, you could buy disk space from an SSP and access it over the internet, or over some kind of metropolitan area network.
Many people believe that the SSPs died out because corporations want to keep their data nearby and will never allow it to be stored offsite. (I followed Jon Rath’s blog to two articles about the possible resurgence of SSPs, here and here.)
I don’t think offsite data was the main problem. I believe that SSPs died because their business model evaporated out from under them.
To understand the original SSP business model, you have to think back to the crazy days of the dot-com boom, when the SSPs were popular. Companies were growing so fast that they just couldn’t keep up with the hiring. Money was plentiful, but IT staff was scarce. Everyone believed that there was a limited time to make a land grab, so they couldn’t afford to slow down.
In that environment, the SSP business model was: We charge more, but you’ll pay it anyway, because you can’t hire IT people yourself. Part of the reason that startups couldn’t hire IT staff themselves was that SSPs and other IT-centric startups were luring them in with pre-IPO stock options. Why be in a supporting role at a product-centric startup when you could run the show at an IT-centric startup?
The model fell apart after the dot-com crash, because dollars became scarce, potential customers no longer needed to grow fast, and there were plenty of unemployed IT people around to hire. “We charge more so you can grow fast” lost its appeal.
In response, SSPs tried to change their business model. They claimed, “We can save you money because of economies of scale.” The problem is, they never actually demonstrated that. Helping your customers grow very quickly, but at a high cost, is very different from helping your customers save money. The SSPs just weren’t able to make the change.
Part of the cost problem is that the bandwidth required to feed a big disk array is expensive. It’s true that bandwidth keeps getting cheaper, but then again, disk drives keep getting bigger. Some SSPs focused on outsourcing storage within co-location facilities where customers would also host their servers. This solved the bandwidth problem, but left SSPs vulnerable when the co-lo model collapsed. The final blow was that many of the SSPs’ biggest customers were the failing dot-com companies.
In summary, their business model evaporated, their technique for dealing with bandwidth cost collapsed, and their best customers went bankrupt. (“Other than that, Mrs. Lincoln, how was the play?”) So it’s true that the SSPs flamed out, but that doesn’t prove that the storage outsourcing model can never work.
I don’t buy the part about corporations never allowing data offsite. Ask people at many corporations where their voice mail is stored; they have no idea, and it doesn’t worry them. (Answer: Offsite in a phone company data center.) Ask them where super-important legal documents are? (Answer: Offsite in an Iron Mountain warehouse.)
Of course, you only let critical data go offsite if you really trust the provider, which makes this a difficult business for startups.
One way to get around the bandwidth problem is to outsource the whole application, instead of just the storage. There is usually less bandwidth between the application and the user’s eyeball than there is between the application and the storage. This is exactly what Oracle does with its On Demand business, which has been quite successful, and likewise SAP with their Managed Services offering. Another approach is to store less critical data, like photos at Shutterfly, or personal e-mail at Yahoo! and Google. For disaster recovery copies, the data must be offsite anyway, so it takes just as much bandwidth to mirror to your own remote storage as it does to mirror to outsourced storage. Iron Mountain is getting into this business.
I doubt it will ever be cost effective (cheap enough bandwidth, fast enough bandwidth) for SSPs to outsource all disk drives, and I’m sure there is some data that big corporations will want to keep close to home, but there are already many situations where it makes sense to outsource the management of important corporate data. I predict this trend will keep growing.



