Software as a Service (SaaS) meets storage

joey

By Rich Bourdeau
                               
                       
                               
The
SaaS delivery model is making inroads into the storage market,
especially in applications such as backup and disaster recovery.
With the growing acceptance of the Software-as-a-Service (SaaS)
delivery model, many storage software vendors are moving to gain a
foothold in this emerging market. The SaaS application delivery model
established its roots in the CRM, HR, billing, and collaboration
application markets. Over the last few years, this delivery model has
been adopted by storage software vendors as well. During that time
frame, backup and disaster-recovery applications have shown the largest
growth. However, we are starting to see demand in other storage
application areas, such as online storage for Web content.
SaaS storage providers are enjoying more success compared to
first-generation storage services providers (SSPs) for many reasons:
First, the delivery technology has matured and most customers now have
experience using one or more SaaS applications. There is now less risk
associated with choosing a SaaS application today than there was five
years ago. Second, these offerings are less storage-focused and more
solution-focused than they were in the past. The customer value is in
the solution, not just having their storage hosted remotely. Third, the
SaaS storage providers chose the right target markets.
                               
                               
                                 
                       
                               
Most
disruptive technologies get their start at the low-end, where
“good-enough” solutions satisfy unmet needs or displace existing
applications. SaaS success in storage has followed that model
precisely. Finally, deployment efficiencies in the area of Web 2.0
services, data de-duplication, compression, enhanced bandwidth, and
scalable storage built from commodity hardware make it more
economically viable to deliver SaaS services now than in the past.
                               
                               
                                 
                       
                               
Customers
will benefit from the SaaS delivery model by being able to deploy
storage solutions quicker, and in many cases, at less cost than if they
implemented it themselves. The SaaS delivery model will be particularly
attractive to small to medium-sized businesses (SMBs) that don’t have
the technical resources to deploy and manage more complex storage
solutions. The Taneja Group expects SaaS storage services will also be
very popular with start-ups looking to preserve capital and pay for
storage resources as they grow their business versus having large,
up-front capital expenditures. Larger companies will also be able to
benefit by focusing their IT resources on activities that differentiate
their core business.
                               
                               
                                 
                       
                               
At
this time, SaaS storage revenues are relatively minor compared to the
more mainstream storage software market. However, we believe this
market has reached an inflection point and is poised for a more rapid
growth phase.
                               
                               
                                 
                       
                               
Over
the next few years, storage software vendors will be positioning
themselves, via both acquisitions and internal development, to
transition their software business and the associated hardware revenue
into a combination of software licenses and SaaS delivery models.
                               
                               
                                 
                       
                               
                               
                                Clarification: SaaS storage
                               
                       
                               
All
SaaS applications, such as e-mail, CRM, and collaboration, consume
storage. Therefore, one could think of any SaaS application as a SaaS
storage application. However, for the purpose of our analysis we are
limiting the definition of a SaaS storage provider to traditional
storage software applications such as backup, archiving, disaster
recovery, and data management.
                               
                               
                                 
                       
                               
                               
                                SaaS vs. ASP vs. SSP
                               
                       
                               
What
is the difference among SaaS, application service providers (ASPs), and
SSPs? From our perspective, SaaS is just the latest name for what used
to be referred to as an ASP. There may be subtle differences and
enhancements to allow more efficient delivery, but they essentially
provide the same service.
                               
                               
                                 
                       
                               
About
five to seven years ago, SSPs were supposed to be “the next big thing.”
With relatively cheap bandwidth, the SSPs were going to remotely manage
the world’s data. Unfortunately for these first-generation companies,
the market was not ready to relinquish control of their primary data,
and most SSPs are no longer in business.
                               
                               
                                 
                       
                               
                               
                                Success factors
                               
                       
                               
Some
people might say that SaaS applied to storage is just another name for
an SSP and that “those who forget the lessons of history are doomed to
repeat it.” However, the market has changed considerably since the
early SSPs. We believe that the SaaS storage market has experienced
early success and is poised for significant growth due to enhancements
in all of the following areas:
                               
                               
                                 
                       
                               
Remote delivery acceptance:
Probably the biggest factor slowing adoption of first-generation SSPs
was acceptance of the remote delivery paradigm. Very few companies
wanted to risk releasing control of their primary data and placing it
remotely. However, during the last few years remote delivery
technologies have matured, especially in the area of security. With
these enhancements, SaaS applications are becoming more mainstream.
                               
                               
                                 
                       
                               
Today,
most people use a hosted service for their personal e-mail, and most
companies have one or more remotely hosted SaaS applications. Customers
are more comfortable with the technology used to deploy these solutions
and no longer fear they will be on the bleeding edge. First-generation
SSPs may have just been ahead of their time.
                               
                               
                                 
                       
                               
Target market:
Like Willie Sutton who robbed banks “because that’s where the money
is,” first-generation SSPs targeted the most mission-critical
applications at large enterprises “because that’s where the data is”
(and the money, too). Although SaaS technology has become more
acceptable, most large companies are still reluctant to release control
of their mission-critical data. The success of second-generation SaaS
vendors is based in large part on choosing a target market (consumers,
SMBs, and Internet start-ups) that are not only accepting of the
technology, but also do not have the resources or time to deploy these
solutions themselves.
                               
                               
                                 
                       
                               
Most
disruptive technologies start at the low-end, providing “good-enough”
solutions compared to the current state of the market. Now that SaaS
storage services have established a foothold in the consumer and SMB
markets, we expect to see additional adoption at larger enterprises as
IT managers understand how SaaS services can be used to reduce their
time to deployment as well as cut the cost of maintaining applications.
                               
                               
                               
                       
                               
Target applications:
Another big difference between first-generation SSPs and the new round
of vendors applying the SaaS delivery model to storage is their focus
on the storage applications (e.g., data protection vs. management of
primary storage). The value customers are seeing in SaaS storage
services is not in the storage or the management of that storage by
someone else; rather, the value is in the storage application and what
it can do to help the customer be more successful.
                               
                               
                                 
                       
                               
Online
backup/recovery is the SaaS storage application that has had the most
success to date. Customers have historically been more willing to place
their secondary copies of data in off-site locations. With disks
replacing tape for quick recovery, it is not surprising that companies
are deploying SaaS data-protection services. While there were SSP
vendors offering backup services in the past, we believe the other
success factors were previously missing, which prevented these
companies from gaining broader market acceptance.
                               
                               
                                 
                       
                               
SaaS
storage services are not just limited to secondary storage. There are
several vendors that are providing inexpensive primary storage services
for Web application content. The difference is that these SaaS storage
providers are targeting emerging Internet applications and not
mission-critical production applications in Fortune 1000 enterprises as
the early SSPs did. Many Internet start-ups prefer the pay-as-you-grow
model of SaaS storage acquisition. They would rather invest their
limited capital and technical resources in development of their
applications than deploy their own storage. Therefore, Internet
start-ups are more appropriate consumers of these primary storage
services than traditional large enterprise customers.
                               
                               
                                 
                       
                               
Deployment efficiencies:
Another factor that has contributed to the success of the SaaS storage
vendors has been technological advances that make delivery of SaaS
storage services more-efficient and cost-effective, and therefore more
economically viable for more customers than they were in the past.
                               
                               
                                 
                       
                               
Web
2.0 services are making it faster, easier, and more secure to develop
applications that can be used remotely than earlier-generation
client/server applications. Web 2.0 services also allow vendors to mash
applications together, enabling them to easily grow their solution
portfolios, and providing them quicker time to market for their SaaS
services as compared to earlier client/server development
architectures.
                               
                               
                                 
                       
                               
Data
de-duplication and compression technologies, which were not available
to first-generation SSPs, have significantly reduced the amount of data
that needs to be remotely stored. These enhancements, combined with
increasing bandwidth, make more remote storage services possible than
what could have been implemented just five years ago.
                               
                               
                                 
                       
                               
                               
                                SaaS storage services
                               
                       
                               
In
terms of SaaS storage services, the growth has been primarily in
backup/recovery. Taneja Group believes the cost of disk storage has
decreased to a point where it is now an attractive option for customers
looking for more reliable data protection, with faster restore times.
Most consumers and many SMBs have very little or haphazard
data-protection schemes in place today. SaaS-based backup/recovery
provides enhanced online data-protection capabilities generally enjoyed
by only by larger companies at a price point that is both affordable
and cost-effective for this target market. While most of the initial
growth has been in the SMB market, medium-sized enterprises and
branches of larger enterprises are also starting to deploy SaaS
backup/recovery services.
                               
                               
                                 
                       
                               
Over
the last two to three years, growth of SaaS backup/recovery revenue has
been substantial. However, the SaaS portion currently represents only
about 3% of the overall data-protection market. Although SaaS
represents a very small percentage of this market, the Taneja Group
expects this application area will be one of the primary SaaS storage
growth drivers into the future.
                               
                               
                                 
                       
                               
As
customers start to adopt new deployment models, such as SaaS storage
services, they will look to limit their risk. Backup, recovery, and
archiving represent less risk than other storage applications because
they use secondary storage. Customers still have the primary copy of
their data. We believe there will be a natural evolution of SaaS
data-protection services—from simple backup and restore to hosted
application recovery where companies’ applications can be restarted at
a hosted site with minimal disruption to their business.
                               
                               
                                 
                       
                               
Data
protection is a labor-intensive operation with very little unique
competitive advantage. As more companies start looking at the service
level improvements and the cost savings associated with SaaS delivery,
we expect to see more adoption by larger companies.
                               
                               
                                 
                       
                               
We
do not, however, see the SaaS storage market limited to just data
protection or secondary storage. Other applications—such as security,
management, reporting, as well as primary storage for Web content—all
show growth promise as potential SaaS storage services.
                               
                               
                                 
                       
                               
For
example, companies such as Amazon and Nirvanix have recently launched
SaaS services that provide online storage for Web services content. We
do not believe this SaaS storage service will initially displace
primary storage for more traditional mission-critical applications.
However, it does provide an attractive option for many Web 2.0
start-ups. For these companies, the attraction is capital preservation
and a “pay-as-you-grow” model, where limited resources can be spent on
product delivery versus infrastructure purchases.
                               
                               
                                 
                       
                               
                               
                                SaaS storage providers
                               
                       
                               
One
of the primary growth drivers in the SaaS storage market has been
backup-and-recovery applications. Until recently, this market has been
dominated by smaller vendors such as Arsenal Digital, Asigra, Iron
Mountain Digital, eVault, Mozy, ROBObak, and others. Strong growth
combined with forecasts that SaaS deployments will account for 25% of
software revenues within the next five years, have prompted vendors
such as Amazon and Symantec to introduce SaaS storage offerings, while
other vendors such as EMC, IBM, and Seagate have chosen to acquire some
of the emerging leaders as a way to enter the SaaS storage market. It
is not surprising that the current data-protection market leaders
(e.g., EMC, IBM, and Symantec) are aggressively moving to a SaaS
delivery model as a way to grow and protect their existing revenue
streams.
                               
                               
                                 
                       
                               
Taneja
Group believes the strategic reason for the leaders in storage software
to enter this market is to establish a SaaS portal to allow them to
sell other storage software (in addition to backup) as SaaS services.
Most of these vendors are establishing a SaaS delivery infrastructure
of security, authentication, usage tracking, reporting, billing, and
branding that will allow them to deliver these services directly or
through channel partners.
                               
                               
                                 
                       
                               
As
this market enters the growth phase, we expect other SaaS storage
vendors such as Asigra, eVault, ROBObak, and Iron Mountain Digital to
be potential acquisition candidates by larger IT providers such as
Dell, Hewlett-Packard, Hitachi Data Systems, Sun, and others.
                               
                               
                                 
                       
                               
                               
                                Opinion
                               
                       
                               
Taneja
Group believes the fundamentals are now aligned to allow for more
efficient delivery of SaaS storage software services. Growth
acceleration and market consolidation are clear signs that the SaaS
storage services market has reached an inflection point and is poised
to enter a more rapid growth phase.
                               
                               
                                 
                       
                               
The following three reasons have contributed to companies of all sizes adopting SaaS storage solutions:

• Accelerated time-to-deployment;
• Delivery of services not previously available; and
• Pay-as-you-grow purchasing.

  
       
                               
                               
                               
                               
                       
                               
In
recent years, the SaaS delivery model has been adopted for storage
applications such as backup, disaster recovery, and even storage of
primary data for emerging Web applications. Our research indicates that
yearly management and maintenance costs to deploy storage services can
often exceed the initial software purchase prices by as much as four to
five times. SaaS storage services provide a cost-effective approach for
delivering applications such as backup, archiving, and recovery.
Customers considering SaaS alternatives for internally deployed
solutions must make sure to compare the fully burdened cost to deliver
these services, not just the initial hardware and software acquisition
costs.
                               
                               
                                 
                       
                               
With
SaaS storage services, smaller companies can now deploy solutions
typically only enjoyed by larger companies. Larger companies can save
their limited IT resources to be deployed on projects that provide more
competitive differentiation. All companies enjoy a more predictable
pay-as-you-grow licensing model, where the provider is now responsible
for the delivery and the ongoing management and maintenance of the SaaS
storage solution.
                               
                               
                                 
                       
                               
For
storage application vendors, the SaaS delivery model will expand market
opportunity, allowing them to reach customers in the consumer and SMB
markets. Today, more than two-thirds of all SaaS revenue is derived
from companies with greater than $1million in revenues. While SaaS
storage services are currently dominated by consumer and SMB customers,
we anticipate that very soon the customer distribution will mirror the
broader SaaS market.
                               
                               
                                 
                       
                               
In
addition to revenue growth possibilities, we believe SaaS storage
services will provide a more predictable and evenly distributed revenue
stream than the current software license model.
                               
                               
                                 
                       
                                Taneja
Group believes the acquisition of smaller SaaS providers by larger IT
vendors, combined with the introduction of new services, will fuel the
growth of SaaS storage services in larger companies, due to the service
and support associated with these larger vendors. As these vendors
expand their SaaS offerings with products from their existing software
portfolios and acquisitions, we expect to see an increase in the number
of available SaaS storage solutions as well as increased adoption by
companies of all sizes.
               
               
               

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