And so the theorizing begins: How will the impending recession in the overall U.S. economy be impacting the various sections of the IT storage and data center businesses?
As vital as they are to the continuity of business, the data storage, archiving, disaster recovery, e-discovery, risk management and online storage businesses are certainly not immune from the impact of a negative macroeconomy.
However, due to the nonstop job of storing ever-increasing piles of digital files and providing timely access to them, it appears that storage could well remain one of the busier spaces in IT, despite a spending downturn.
Most people and organizations are not good editors of digital files. It’s too easy to keep everything and simply buy more storage as needed. After all, it takes time and effort to weed out and dispose of files that are no longer relevant, and time for second-tier jobs like that is hard to find.
Besides, in the case of business, new federal court rules and other state and national regulations require that a lot more business data be kept for legal reasons than in the past.
So on we go, stockpiling gigabytes, terabytes — and eventually, petabytes — of personal and business documents, photos, videos, music, e-mail and whatever.
How the ‘Down’ Macroeconomy Will Impact the Data Storage Sector
title=What Industry People Are Thinking}
What industry people are thinking
IDC storage analyst Benjamin S. Woo has a relatively optimistic outlook.
“Despite the downturn in the macroeconomic conditions, our consensus is that in the short- to medium-term, storage is the most resistant to macroeconomic changes,” Woo said.
“While there is no doubt that there will be some form of pullback on storage investment, many of the large financial institutions, especially JPMorgan Chase and Bank of America (but also Wells Fargo and Barclays) will need to commit (or in the case of Chase, maintain) substantial IT and storage investment in the next six to 12 months, for integration of their acquired banks.”
JPMorgan Chase took over Washington Mutual ($1.9 billion), BofA is adding Merrill Lynch ($34.9 billion) to its portfolio, Wells Fargo is in the process of acquiring Wachovia ($15 billion), and Barclays is absorbing Lehman Brothers ($1.35 billion).
In the longer term, Woo said, most companies will go into capital conservation mode, which historically has resulted in the use of credit — mostly in the form of financing and leasing.
“But with the credit market all but dry, there is an opportunity for small business in particular — but even medium to large companies — to consider subscription models offered by online storage providers,” Woo said.
Average sales pricing is likely to be heavily pressured as end users attempt to stretch what little money they have to spend further, Woo said.
“That said, for this current quarter, we feel that those who still have access to their IT budgets are likely to ‘flush’ their budgets, since ’09 is so uncertain,” Woo said.
How the ‘Down’ Macroeconomy Will Impact the Data Storage Sector
title=Main Drivers of Storage: Economic Growth, Automation}
Main drivers of storage: Economic growth, automation
Richard Jones of Burton Group contended that “storage consumption (read storage market growth) is driven by two factors: economic growth and automation of business processes.”
There are some dynamics at work here, given the macroeconomy, Jones said:
–The economy is slowing, thus it will slow the storage market.
–IT organizations will move from the mode of building infrastructure to support growth to modifying infrastructure for improved efficiency, which will add some growth to the storage market.
–As businesses fail or get into more financial deep water in a slowing economy, the number of legal actions tends to increase exponentially, thus storage products that are used mostly for legal discovery will see growth in the storage market.
“The second point above is one of those that is not linear with decreasing macroeconomic health,” Jones said. “In other words, as things slow [down], IT organizations shift to improving efficiency. However, as the recession deepens, then even those projects get cut and survival becomes the focus, so storage spending will drop. The third point will also follow this trend to a lesser degree.”
Dave Friend, CEO of online backup service provider Carbonite and a storage industry veteran, told me: “I don’t have answers, just hypotheses. It’s possible that consumers, small businesses and enterprises may react very differently.”
“One hypothesis is that consumers are feeling the pinch (real or imagined) and are discarding any non-essential expenditures. For example, I have heard anecdotally that magazine subscription renewals are off slightly in the last couple of months. I would expect this same effect to appear at renewal time for software and services as well. So far it is still in the noise, but I’ll bet it’s there,” Friend said.
Carbonite, which operates its service on a monthly or yearly subscription basis, has a good baseline from which to measure things such as renewal rates and try-to-buy conversions, Friend said.
“I suspect that there is some small effect already buried in the numbers, and we’re doing further analysis,” he said. “On the other hand, $50 [per year, which is what Carbonite charges] is not a lot of money to keep all your documents and family photos safe. So most people may simply look at it like an insurance policy and pay up.”
When budgets get squeezed, enterprises will more than likely cancel or postpone a project because of lack of manpower to work on it, Friend said.
“Just saving money is not always the deciding factor. They have purchasing processes, evaluations, etc. — all of which take people. If there is a hiring freeze or staff reduction, any changes to infrastructure tend to go on hold, and that would certainly negatively impact any new purchases of storage solutions,” Friend said.
Bells and Whistles’ Will Have to Wait}</p>
<p><strong>’Bells and whistles’ will have to wait</strong><br />
Greg Schulz, principal analyst at StorageIO and author of a new book coming out this fall, <a href=”http://www.amazon.com/Green-Virtual-D
itle=’Bells and Whistles’ Will Have to Wait}
‘Bells and whistles’ will have to wait
Greg Schulz, principal analyst at StorageIO and author of a new book coming out this fall, “The Green and Virtual Data Center” (Auerbach, $69.95), told me that “certainly there will be a tightening of the belt, so to speak, on discretionary spending on upgrades or new products, hardware, software, networks or services that are nice to have.”
However, Schulz said, the focus will be on technologies “that can do more in a smaller footprint — that footprint being power, cooling, floor-space, and time in a given density. This means servers [will be needed] that can do more work in a smaller space, storage for active data that can do more IOPS or bandwidth or files or e-mails or videos streamed per watt in a given footprint.
“Or — for inactive and idle data — more capacity in a given footprint and cost point [will be desirable].”
What’s discretionary will vary by organizations, Schulz said. For example, some enterprises will defer migration from tape to disk for a period of time to leverage what they already have, while others will make the jump as a means of boosting productivity, he said.
“Where this gets interesting is when you look at the financial systems that are being stressed by all of the extreme trading activity that are having to work overtime to process the transactions, settlements, support analysis, and increased queries of regulators, analysts and people wanting to know what their 401k are worth,” Schulz said.
“Unlike 2001 and 2002, post-Y2K and dot-com bust as well as post-9/11, there is not as much of a glut of underutilized technology deployed today as in the past,” Schulz said.
“Ironically, all of the emphasis recently on consolidation may have already evaporated some of that, hence, we could actually see a boost or at least sustain a little dip in core/bread-and-butter IT technologies while the nice-to-have, bells-and-whistles features get hit harder.”