How to Beat the High Cost of Storage

In an ancient Chinese legend, the emperor offers a reward to the man who has just invented the game of chess. The inventor modestly asks for one grain of rice on the chessboard’s first square, two grains on the next square, four grains on the third, and so on, doubling every square. The emperor, thinking this a swell bargain, grants his request — only to realize later that the 64th square would have enough grains of rice to cover the entire earth. He angrily orders the inventor beheaded.

A similar scenario is being played out inside your company — not with grains of rice (or beheadings, one hopes), but with bits of data. According to research conducted last year by the University of California at Berkeley, the amount of digital information produced in the world is doubling as often as every two years. At many companies the growth is even faster, with data doubling each year, thanks to the reams of information generated by the Web. All those e-business tools — your databases, customer-relationship management systems, and personalization servers, not to mention your website’s content, graphics, and audio and video files — are kicking up a veritable tsunami of data.

Data storage is fast becoming the biggest expense in large companies’ IT budgets, gobbling up as much as 30 percent of capital expenditures. Which means that if you need to hold down IT costs, storage should be the first place you look. It may not be the sexiest topic, but when you consider that you might be able to cut 10 to 30 percent of your budget by outsourcing your storage needs, you may begin to see the allure.

With the cost of the traditional means of storage — hard discs attached to file servers — dropping, you might wonder where the problem lies. After all, you can now buy PC hard discs for $7 to $8 per gigabyte, about half of last year’s price. Shouldn’t the falling cost balance out the rising need for storage capacity?

In a word, no. And the reason is that hard discs alone can’t efficiently handle all the data that companies are churning out these days. As a result, many companies are deploying more complicated solutions such as network-attached storage (NAS) and storage-area networks (SANs), both of which pool data so that it can be centrally managed and shared by all the servers. On the low end, NAS devices are high-speed servers dedicated solely to storing data. They can be plugged into the network wherever they are needed, enabling you to add storage capacity quickly. SANs offer an even bigger, more efficient data vault, with high-end storage devices plugged into a special high-speed network that’s separate from your regular local-area network. SANs essentially operate as their own mini-network of data servers.

Both of these technologies improve the performance of your network by delivering data more efficiently and quickly. But at $50 or more per gigabyte for NAS devices and as much as $300 per gigabyte for SANs, these solutions don’t come cheap. On top of all that, you have to pay for maintenance, backups, recovery of data when a hard drive crashes, and even electric power to keep all the drives spinning. When you factor in all of the expenses, the purchase price amounts to just 20 percent of the total cost of owning your own storage system.

What’s a budget-conscious company to do? My vote: Outsource the whole mess to a storage service provider (SSP) such as IBM Global Services, EDS, Compaq, or newcomer StorageNetworks. SSPs provide storage capacity and manage it for you, either in your own data center, in the co-location facility where your site is hosted, or at the SSP’s own data center. In return you pay only for what you use — typically $20 to $70 per gigabyte per month, depending on how much data you have, what kind of backups you need, and how much bandwidth you connect to your data.

Outsourcing data storage is a relatively new option, but the industry is growing fast: This year, according to research firm IDC, the storage-services market in the United States is expected to grow to a healthy $500 million, up from $140 million last year. The reason is that outsourcing storage is faster to deploy, easier to manage, and often much cheaper than building your own storage infrastructure. When Web portal Terra Lycos needed to move 5.5 terabytes of data — spread across 30 network-attached storage devices — from its Tripod subsidiary in Jersey City, N.J., to company headquarters in Waltham, Mass., CTO/CIO Tim Wright knew that his team couldn’t handle it alone. The difficulty and expense of buying hardware, deploying it, and then transferring all the data was, as he puts it, “daunting.” Instead, he turned the whole project over to StorageNetworks, which built a new storage infrastructure for Tripod and moved the data in just three hours.

Wright has found that the outsourced storage system is indeed faster and cheaper than the old system. The Terra Lycos data handled by StorageNetworks has since swelled to 20 terabytes, yet Wright estimates that he has shaved 10 percent off his storage costs while improving the overall performance of Terra Lycos sites. Even bigger savings are possible: Merrill Lynch claims to have cut its storage costs in half by outsourcing its needs to StorageNetworks.

Storage services can also be a good way to minimize up-front capital outlay on new ventures. Take ChartOne, a company in Dallas that digitizes medical records for hospitals. When it started a new online version of its service, outsourcing storage to IBM wasn’t much of a decision — it was more like the only available option, since building data centers would have been prohibitively expensive. “Even with a couple million bucks,” says Michael Sanderson, executive vice president at ChartOne, “we would only have been able to do about 50 percent of what we needed.”

Bear in mind, however, that outsourcing storage isn’t always the cheapest option. It doesn’t make sense to outsource unless you have a huge amount of data to deal with, at which point volume discounts will bring your monthly cost per gigabyte down to less than the cost of doing it yourself. Right now, that minimum level is about 8 terabytes, reckons StorageNetworks co-founder and CTO Bill Miller, although it may drop as the cost of outsourced storage does.

If you do decide to outsource, pick your partner carefully. There is stiff competition among SSPs — especially now that heavyweights like IBM have entered the game — so consolidation is inevitable. “We anticipate that most pure-play storage service providers are going to go out of business,” says Gartner Group senior analyst Adam Couture. If you don’t want to explain to the boss what happened to all that data when your SSP went bust, avoid the startups unless you can be absolutely certain of their continued viability. One notable exception is StorageNetworks, which is publicly held and financially stable.

Of course, competition has its benefits too. “SSP prices can only come down,” predicts IDC program manager Doug Chandler. That’s good news for e-business: There may be a place to put all that data after all. Which means that e-business managers, unlike the hapless chess master, just might get to keep their heads.

Dylan Tweney ( is a contributing writer for eCompany Now. Sign up for e-mail delivery of his weekly Web column at

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How to Beat the High Cost of Storage