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Star Oil & Gas Ltd. is a data-intensive operation. The engineers and geologists at the Calgary-based oil-patch company use and produce huge amounts of computer data. But making sure the information is available at all times has been a challenge because some of its 100 employees have, on occasion, inadvertently deleted crucial files.

"When it's down, you might as well send everybody in this organization home," says Stephen Lefebvre, Star Oil's manager of information systems.

Because the availability of data is so important to its business, Star Oil recently decided to outsource its data storage to Securitinet Inc., a Vancouver-based storage service provider (SSP).

"It's a managed solution and I no longer have to worry about it," Mr. Lefebvre says.

Outsourcing is a relatively new concept that began in 1998 in the storage industry. But worldwide storage services spending by companies is forecast to reach $10.7-billion (U.S.) in four years from $682-million this year, according to market research firm International Data Corp. In the United States, storage services spending is expected to grow to $6.6-billion in 2005 from $559-million in 2001. And in Canada, that figure is projected to rise to $344-million in 2005 from $11-million this year.

It's no wonder a dozen or so pure plays, including newcomers StorageNetworks Inc. and ManagedStorage International, and traditional storage vendors International Business Machines Corp. and Compaq Computer Corp. are vying for a major piece of the SSP market -- also known as the storage utility or storage-on-demand business.

"We're obviously pretty bullish on this environment and we think we can make some pretty significant revenue gains from it," said Don Bradford, IBM's general manager of storage services, which began offering the service to customers last July.

Ten years ago, storage was an afterthought for companies because it was a small part of their information technology purchases. But fuelled by data-intensive applications, such as customer relationship management, audio files, Web graphics and other Internet content, information is now doubling each year for many firms, says Doug Chandler, an IDC director.

Those companies are now finding that data storage is the biggest expense in their IT budgets. Over the next two years, IDC estimates that 75 per cent of a company's IT hardware purchases will be on storage, while other research firms project a 50-per-cent figure.

Many firms have to install more storage capacity as the volume of data increases. In a survey of 50 global companies, Forrester Research Inc. concluded that average storage capacity was growing at 52 per cent a year. More aggressive estimates indicate that storage capacity is expanding by as much as 80 or 100 per cent a year.

ForReQuest Seismic Surveys Ltd., the need for storage has skyrocketed in recent years. The Calgary-based company, which sells X-ray maps of the earth to oil and gas explorers, recently acquired mountains of seismic images that overloaded its 12,000-square-foot warehouse.

The company needed a faster, cheaper way of making its data available to its 700 oil customers than the old method, which was a lengthy process that required pulling images from its warehouse, copying them onto tapes and mailing them to clients who would load them onto a workstation for viewing, says Todd Chuckry, ReQuest's chairman.

The databases now reside in the network of servers at storage service provider Storage Alliance Inc. Using customized software, ReQuest clients can retrieve images in seconds directly from their desktop computers, Mr. Chuckry says.

Traditionally, companies buy file servers, which are just computers with big hard drives that store files that are backed up on tape. This simpler storage approach becomes harder to manage as the amount of data increases, analysts say. Data often has to be spread over several servers that aren't centrally managed, making availability difficult because not every user has access to every server. The backup process can also be cumbersome because of the sheer amount of accumulated data.

When companies manage their own storage they must also reserve extra capacity for future growth, which costs them money because it's an up-front expense. A recent Compaq survey also concluded that the cost of managing storage over the lifetime of the storage hardware is about eight times the actual cost of buying the storage hardware. And hiring additional IT professionals to man the systems is expensive. So, storage management is a significant expense," said Mark Sorenson, Compaq's vice-president of storage software and solutions. "It requires increasing expertise and increased investment, and many customers don't want to have to ramp up that expertise in their environment."

Some companies are also buying more sophisticated systems, such as network-attached storage and storage-area networks, both of which pool data so that it can be centrally managed and shared by all servers. But these new methods are complex to handle, giving companies another reason to pay SSPs to manage the storage systems on their behalf.

"Maybe they don't have the necessary funding to bring in people to manage their storage," says Alan Freedman, research manager of servers and storage at IDC Canada Ltd.

Offloading the storage to SSPs also frees up a company's IT department. TechTarget.com Inc. of Needham, Mass., builds informational Web sites for IT professionals. Two years ago, it outsourced storage of its database of 1.5 million registered users to StorageNetworks.

"It's one less thing to have to focus on," says Greg Strakosch, TechTarget.com's chief executive officer. "Our IT guys, instead of focusing on managing storage, can help us develop products that we can make money off of."

But many companies still have reservations about the technology used by SSPs, analysts say. Depending on the provider, storage devices are installed and integrated at the customer's site or at the SSP's facility for a monthly fee. The devices also can be owned and managed by the SSP, which introduces security concerns.

"They're reluctant to have the devices somewhere else owned by someone else," Mr. Chandler says. "That's a big reason why this market is relatively so slow."

Companies also worry about the economic stability of SSP startups, he says.

In recent months it has become difficult for SSPs in a sluggish U.S. economy. About 18 months ago, Internet startups were driving growth because the pay-as-you-go SSP model, which treats storage capacity like any other utility, was attractive to new companies that didn't want or couldn't afford to make a big investment in storage.

For the SSPs, dot-coms were very eager customers, Mr. Chandler says. But in the past six months, many of them have gone out of business because of a lack of funding, and SSPs are now left looking for other kinds of customers.

As a result, there has been a shakeout in the SSP market. A handful of SSP companies have dropped out of the services game for good, Mr. Chandler says. San Diego-based Centripetal Inc., launched only last year, was acquired by SkyDesk Inc. recently.

"This is still going to be viable and a valuable alternative to purchasing your own storage and managing it yourself," Mr. Sorenson says. "I don't believe that in the year 2005 90 per cent of customers will be using storage in that shape or form. That market is evolving. People are still struggling to find the right business model."

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