Tom Sweeney, President, CEO, and Chairman, ManagedStorage International

Thomas J. Sweeney III, of ManagedStorage International Inc. (MSI), is a veteran of market transitions. He became CEO and president in March 2001, amid the worst economic slump in IT history. Having weathered that storm, he's steering his company through yet another migration.

Sweeney and team are aiming ManagedStorage toward the enterprise, where they see increased motivation among companies to outsource specific storage networking tasks and functions. MSI just expanded its Enterprise Storage Solutions Division, hiring Tracy Hawkey, formerly of EMC Corp. (NYSE: EMC), to head it up (see MSI Courts the Enterprise).

Not that Sweeney's giving up on the storage service provider (SSP) concept that ManagedStorage began with. Indeed, ManagedStorage remains one of the few companies to survive the recent economic crunch without abandoning the model. While a slew of firms fled the business as carrier spending tanked in early 2002 (see SSPs: RIP), MSI continued to see sizeable opportunity in selling outsourced storage through carriers (see Top Ten Private Companies: Summer 2003, page 8).

Still, Sweeney acknowledges the last two years haven't been easy. Many carriers aren't getting off the dime. "There are still a number of service providers who don't offer a fairly robust set of storage services," he says. While these providers take their time building their storage rosters, MSI is reaching out directly to enterprise customers.

It's a delicate balance. MSI wants to preserve a high-end menu of services that encompass SAN management, while at the same time offering service providers attractive resale options.Sweeney feels up to the job. He's a veteran of tough markets, having served in various senior executive posts at Level 3 Communications Inc. (Nasdaq: LVLT); MCI (Nasdaq: WCOEQ, MCWEQ), the carrier formerly known as WorldCom; MFS Communications; and his own management consulting company.

Sweeney's also chairman of the board of Front Porch Digital Inc., a software startup he helped start through the consulting firm he owned prior to joining MSI. Front Porch Digital is described on its Website as converting "audio, video, images, text and data into digital formats that enable searching, browsing, editing, storage and on-demand delivery of content in nearly any other digital format through a single capture."

Sweeney was interviewed by Byte and Switch Site Editor Mary Jander during Christmas week, a time when numerous other companies throughout the storage networking industry close up shop. Despite the season, he seemed eager to give us the details of his strategic outlook and just as eager to get off the phone and back to business.

Click on the links below for specific portions of the interview:

— Mary Jander, Site Editor, Byte and SwitchByte and Switch: What’s going on with ManagedStorage?

Sweeney: We’ve made a couple of announcements lately. One of the more important ones was that we’ve reached positive EBITDA [see MSI Reports EBITDA-Positive Q3]. We’re very excited about that. Probably more significant is our exclusive relationship with Cable & Wireless in the U.K. We also purchased [the Datavault storage service business of] Sanrise in January [see MSI Springs on $22M]. From February to November 2003 we grew our billable storage base 700 percent.

Byte and Switch: What was your arrangement with StorageNetworks? [Ed. note: StorageNetworks sold its enterprise managed storage services business to ManagedStorage when it exited the market in June 2003 – see MSI Courts the Enterprise.]

Sweeney: We had an exclusive marketing arrangement. They could only refer customers to us for managed storage services. They exited the business, and we migrated all their customers to our services this spring. That gave us entrée into the enterprise marketplace. We are going to introduce enterprise services in January [2004]... officially announce it.

Byte and Switch: What’s the difference between your enterprise services and the ones for service providers?Sweeney: We offer monitoring and management of storage for enterprise clients, whether they own the assets or we own them... This has led to some very big transactions.

Byte and Switch: Can you quantify your growth?

Sweeney: I can tell you that last December we streamed 47,000 Gbytes. This December, we will stream over 600,000 Gbytes. In November, we streamed 530,000 Gbytes.

Byte and Switch: So who are your customers, and how many of them do you have?

Sweeney: It's complicated, because now we have end users as well as [customers who buy through resellers]. I'd say we're in the 700-plus range. Cable & Wireless is a large reseller in the U.S. and Europe. Qwest uses us to manage storage infrastructure in their data centers. We have Internap Network Services as a reseller, and they're the eighth largest ISP in the country right now.A number of clients purchase services from us directly. We have a lot of neat clients in that category. In January, we will probably name a number of them... the second-largest U.S. airline... Another one is one of the largest risk management companies in the world.

NEXT: State of the Market

Byte and Switch: Can you speak to the state of the market?

Sweeney: I think we've seen generally the bottom of the downward slide that was occurring. I'm sure there's still some more bankruptcies in store for certain businesses. But the majority are on the upswing. Across our service provider and existing enterprise customers, they are increasing the volume of sales and services. Some service providers have seen phenomenal growth. I think the environment is positive.

Byte and Switch: Where's the highest growth?Sweeney: In outsourcing storage infrastructure and operations, we see increase in the volume of customers moving either existing or new applications into data centers provided by hosting or managed service companies. That tells us 2004 should look better than 2003.

Byte and Switch: Which is growing faster, the service provider or enterprise space?

Sweeney: For us, because we're just kicking off the enterprise sales process in the last couple of months, we see more growth overall in service providers... But it will be 50/50 in terms of growth [with enterprise customers] by the end of the first quarter.

Byte and Switch: So aren't service providers extending themselves?

Sweeney: Yes, but not all of them have yet. There are still a number of service providers today who don't offer a fairly robust set of storage services. They're offering basic things on their own. Businesses want sophisticated services [and would like it if] more service providers had more services in the distribution channel.NEXT: The New Approach

Byte and Switch: Describe your enterprise program.

Sweeney: We have a set of services due to launch officially in January. We will monitor the storage assets you already have in the data center as an enterprise client – and all of the sub-assets, such as tape libraries and servers, or IP or SAN switches. Our service will look across all the storage infrastructure and provide monitoring and alert-and-notification services. Customers can ask us to manage all contracts with vendors. You can add to that a backup and verification application, and a customer could actually ask us to provide infrastructure hardware and software as well.

Byte and Switch: Any new business arrangements or partnerships?

Sweeney: We are signing a reseller contract today [December 23, 2003] with a professional services outfit in the U.S. to sell to their enterprise customers. We will also announce new customers in Tokyo and a major service provider in Bermuda in January, and we have other work going on in Asia.Byte and Switch: Do you see opportunities in any particular geographic area?

Sweeney: We're pushing the efforts along the lines of getting more Asia/Pacific partners. We'd like to go down into Australia to begin with, even though we support customers in Tokyo today. We'd like to get an Australian partner.

Byte and Switch: What about China?

Sweeney: We do not have an initial thrust in China... We would like to have a presence in Hong Kong and potentially in the Koreas and Singapore. We need to see who would be our service provider partners.

NEXT: Sizing Up the FieldByte and Switch: So how do you see ManagedStorage differentiating itself in the market?

Sweeney: We continue to specialize in the data protection area. It can be difficult for enterprises to find a provider to run data protection services and not take over your whole data center. We can also work well with integrators. This is a case where because of MSI's expertise we can go into an existing client's operations and guarantee improvement in backup and availability of data... basically, monitor and manage every single backup job for really large infrastructures.

Byte and Switch: So enterprises can't get this kind of service elsewhere?

Sweeney: We've been very focused on defining a unique position. We can help enterprises take costs out, eliminate staff doing a lot of work. We can guarantee operational improvement and sometimes savings up to 50 percent.

We let service providers increase revenues, be more competitive in the marketplace, and of course they get the opportunity to create a very sticky service in terms of differentiation.Byte and Switch: Sounds great. But what about companies like AmeriVault Corp., Arsenal Digital Solutions Worldwide Inc., EVault Inc., or LiveVault Corp.?

Sweeney: Arsenal is one of the more pure competitors of ours. They're a provider inside AT&T data centers, for example. In our view, they have not created as broad an offering in terms of being able to service enterprise clients' dedicated and shared assets or assets customers own themselves. And we've been in Europe ahead of them, even though they have announced they're going there. We've been hearing they're doing reasonably well.

AmeriVault and the rest are backup-and-restore providers. We cost less but haven't dedicated the sales resources to sell that directly, where their model is. Our enterprise contracts are typically for $15,000 to $100,000 a month.

[Ed note: According to Kevin Thomas, a spokesman for MSI, small-to-medium-sized businesses typically pay between $300 and $3,000 a month for the kind of backup-and-restore services Sweeney refers to here.]

Once we introduce enterprise services, we will have some places where we compete with larger systems integrators. But I think we compete in a better way. We're willing to carve off a portion of operations of the business, data protection infrastructure, where it makes a lot of sense to offer a compelling service. We guarantee the work we do and we have SLAs [service level agreements] for everything. We also guarantee the price we work at: The scale goes down as volume goes up.NEXT: A Look Ahead