SSPs Switch to Selling Software

Cracks are beginning to appear in the storage service provider (SSP) model, with three players in this sector reinventing themselves as software solutions providers.

Creekpath Systems Inc., the SSP spun out of Exabyte Corp. (Nasdaq: EXBT) a year ago, was the first to announce publicly that it has changed horses midstream. Last week it quietly acquired Datavail Systems, a storage management software company, in a stock-for-stock deal for an undisclosed sum.

Datavails software provides automated storage management software, much like product from InterSAN, SANavigator, and others (see InterSAN Attracts Major InterEST).

”We’re no longer an SSP; we're strictly an ISV [independent software vendor] now,” says Paula Dallabetta, director of marketing at CreekPath. “We discovered how hard it was as an SSP to deploy shared storage resources among multiple customers and decided to focus on the software tools that enable this, rather than provisioning the services."

It’s been tough to change the model from services to software, she says, but CreekPath's segue has been smoothed by a $21 million round of funding from TeleSoft Partners and Sequel Venture Partners in December. “We had all this hardware deployed out there in storage points of presence, and professional services staff, and they had to be exchanged for software developers. This turnaround cost a lot of money."Others have been hit even harder. StorageNetworks Inc. (Nasdaq: STOR) for instance, just laid off a third of its workforce, or 220 employees, and reported a $32 million loss, or 33 cents a share, on $33 million revenues (see StorageNetworks: Big Layoff).

It is now attempting to refocus on two small but growing business segments that are less capital intensive and presumably more resistant to the economic downturn. Both are service oriented but rely more heavily on StorageNetworks’ proprietary virtualization software. The first, called STORmanage, helps businesses manage their own storage systems. The second, STORfusion, provides a similar service for carriers and service providers.

ManagedStorage International Inc. is also rumored to be shifting towards selling software instead of services and is thought to be increasing its engineering resources in order to make the transition. “We are not ready to announce this yet,” an insider at the company told Byte and Switch. [Ed.note: That’s alright. You just did.]

It seems there is a subtle shift going on, away from the traditional idea of the service provider managing and monitoring the service, towards selling products that let the company run and manage the service themselves.

Storability Inc., one of the more recent recruits to the SSP army, spotted the trend early and has based its entire business on selling software that lets organizations manage their storage resources on the company premises. If necessary, Storability can provide remote monitoring services, but, on the whole, the idea is to sell software.”Normally the customer has to wait on the SSP for utilization reports -- i.e., how much capacity is being used by a particular department, whether backups ran successfully, and how the overall SAN is performing -- but using Storability’s software, the customer can see this information immediately,” says a company spokesperson.

It’s hardly surprising this is happening, given the number of organizations that have sprung up in the SSP sector over the past year or so. Our VC survey found no fewer than 14 companies, with more than $500 million in venture capital guzzled among them, all clamoring for attention (see Venture Capital Survey).

Analysts' lofty market projections have only served to spur the investment activity. IDC

predicts the global market for storage services will reach $5.5 billion in 2003, while Salomon Smith Barney says it will exceed $8 billion by then. These numbers seem wildly optimistic, considering what’s actually going on at ground level.

This all leaves at least another 10 SSPs out there trying to figure out how to make money.

— Jo Maitland, Senior Editor, Byte and Switch http://www.byteandswitch.comWant to know more? The big cheeses of the storage networking industrywill be discussing this topic in a session at StorageNet, Byte andSwitch’s annual conference, being held in New York City, October 2-5,2001. Check it out at StorageNet2001