Posted: 03/2000

Carriers Invest in ‘Televaulting
By M.J. Richter

Competitive pressures, combined with the capabilities and reach of the Internet, are
driving corporations of all sizes to adopt an e-commerce strategy as fast as possible.

Many already have discovered that a successful e-commerce strategy requires a place–or
places–to store, back up and recover all those enterprise data, the network connections
to link data sites with corporate offices and the technical expertise to manage all that
complexity.

They also have learned that creating such a foundation demands enormous investments, in
terms of hardware, software, bandwidth, real estate, experienced personnel and time. Even
if a given company is fortunate enough to command most of those resources, no business
organization has enough time.

In today’s Internet-driven economy, the time-to-market factor can make or break an
e-commerce initiative. Not surprisingly, therefore, companies of all sizes opt to
outsource their data-storage operations and focus their efforts on their core businesses.

In doing so, they present network service providers with numerous and lucrative
opportunities in a fast-developing segment of the market. By providing enterprise
customers with data-storage services, either directly or in alliances with other types of
suppliers, network service providers can create additional revenue streams, expand their
customer base and strengthen their own competitive positions.

Leveraging Existing Assets

Obviously, many service providers already possess at least two critical portions of the
enterprise e-commerce foundation: the high-capacity networks needed to link data centers
with enterprise end users and long-standing relationships with the enterprise IT
department.

Several facilities-based service pro-viders also have strong relationships with
value-added resellers, many of which have their own long-term relationships with
enterprise customers.

To augment what they can bring to the table, numerous service providers are building
storage capacity, in the form of data centers designed specifically for web hosting,
application hosting and other e-commerce requirements.

Chart: Application "On Demand"

For example, Qwest Communications International Inc. (www.qwest.com)
operates seven so-called CyberCenters around the nation. By the end of the year, the
company plans to bolster that capacity by adding seven more facilities and expanding the
existing ones in Burbank and Sunnyvale, Calif.

Similarly, GlobalCenter (www.globalcenter.net),
a Global Crossing Ltd. company (www.globalcrossing.com),
currently operates six data centers and plans to add 11 more this year, including
facilities in Amsterdam, Frankfurt, London and Paris.

In addition to their own networks and storage facilities, network service providers now
have access to the other crucial portions of the enterprise data-storage foundation: the
relevant hardware/software platform that enables them to manage all that data. Among the
growing number of vendors supplying these platforms is Toronto-based D.S. Data Storage
Inc. (www.dstelevaulting.com).

A Golden Egg Relationship

The company’s flagship offering is its DS-Televaulting product, an automated on-line
backup, storage and recovery technology that transports data over a dedicated or dial-up
telecom link to a secure, off-site data vault.

Based on client-server architecture, the platform consists of three components: a
backup-and-recovery software program; a Windows GUI; and an off-site, on-line RAID 5 data
vault. The service provider owns that "electronic vault" and places it on the
backbone network. The DS-Televaulting platform supports a variety of connections,
including analog modem, cable, ISDN, x digital subscriber line (xDSL), T1, T3 and
fractional T1 connections, frame relay and ATM.

Chart

Last September, D.S. Data Storage launched an authorized service provider program aimed
at telecommunications carriers, ISPs, application service providers (ASPs) and systems
integrators. David Farajun, founder and CEO, emphasizes his company does not sell directly
to enterprise customers. Rather, it specifically has designed the platform for sale to
service providers so they in turn can sell it to their enterprise customers.

"The relationship between service providers and their customers is the golden
egg," he says. "They have first contact with the LAN administrator, they’ve got
credibility, they’re bonded and they’re trusted."

Plus, from the service provider’s perspective, Farajun says it’s "much easier to
do business with existing customers than with somebody from Timbuktu who’s coming to
provide outsourcing services to those customers."

Any service provider interested in purchasing the technology goes through a
qualification and training process with D.S. Data Storage. Once that’s completed, Farajun
says his company offers the service provider a choice of three possible agreements:

* No up-front payment but a fixed division of subsequent revenues derived from
data-vaulting services;

* A pay-as-you-go deal, with the service provider making monthly payments to D.S. Data
Storage, based on the actual gigabytes of data stored; and

* An agreement that calls for the service provider to pay D.S. Data Storage a licensing
fee up front, plus a monthly per-gigabyte-stored fee.

Are network service providers ready to take advantage of the opportunities emerging in
the enterprise data-storage arena? Absolutely, Farajun says. Although he declines to
identify them, D.S. Data Storage already has two CLEC customers, "one of which is
already in, and the other one is testing our product."

Farajun says, "The bandwidth business is driving them nuts, and the margins are
going to be almost zero. They have to differentiate themselves with additional value-added
services. While they’re selling the bandwidth, they can sell the backup, recovery and
electronic vaulting services."

E-Storage Opportunities

Another platform vendor teaming with service providers is Hewlett-Packard Co. (HP) (www.hp.com), which launched a major initiative in the
high-end data-storage market last September with Qwest. The program combines HP’s
SureStore E solution, a platform comprising disk arrays, storage-management software and a
fibre-channel switch, with Qwest’s IP-based broadband network and its data-center
operations.

Together, the two companies offer an "e-storage" solution that includes
backup and recovery services; ISP storage utility services; disaster-readiness services;
and "storage professional services" that consist of storage technology and
services packaged with consulting services.

The network service provider expects to derive about $200 million in revenues during
the program’s first year, and up to $1.5 billion during the three-year term of its
agreement with HP.

An ASP Ecosystem

Roland Luk, e-services storage manager for HP, says his company’s deal with Qwest has
prompted other service providers, ILECs and CLECs alike, to approach HP about possible
similar agreements.

In fact, he says traditional IT players, from software companies and hardware vendors
to carriers and value-added resellers are evaluating what roles they want to play, alone
or in tandem, in this evolving "ASP ecosystem."

"The competitive landscape is going to evolve and change, and the roles of
traditional IT players are going to change," he says.

Will many players, regardless of their original starting points, end up as ASPs serving
the enterprise? In other words, could a network service provider become an ASP? Could an
ISP become an ASP? In each case, the answer depends on each organization and its strategy
for exploiting its basic strengths within an increasingly competitive market.

"If you look at all the traditional players–the systems integrators, the hardware
box providers, the software providers, the network bandwidth providers–they each will
have to define how they’re going to add value to this whole ASP ecosystem," Luk says.
"They will have to decide whether or not they themselves want to be ASPs."

Customized Data Infrastructures

One company that has made that decision is GlobalCenter. Jason Schaffer, director of IT
infrastructure and hosting, says his organization is not an ASP; rather, GlobalCenter is a
company that provides data-storage infrastructure, mainly to enterprise customers but also
to some ASPs.

"Our primary business from day one has been to design the infrastructure for
businesses that do business on line," he says.

To customize data-storage infrastructures for its enterprise customers and its ASP
customers, GlobalCenter pulls together the disk services of Storage Network (www.storagenetworks.com), the tape-storage
capabilities of StorageTek Corp. (www.stortek.com)
and the bandwidth of Global Crossing and Tier 1 and Tier 2 carriers.

Schaffer says its business approach basically resembles a triangle divided into three
layers. The bottom layer is connectivity; the middle layer is the data centers, which
include utility-type applications; and the top layer comprises professional services.

Schaffer explains that an ASP or enterprise basically says to GlobalCenter, "We’re
great at integrating all of the software applications. However, we don’t want to do
storage, and we don’t want to pay for connectivity. We have the applications, so why don’t
we host in your facility. You provide us all our infrastructure, and together we’ll have a
complete package."

Getting–and Keeping–Customers

Regardless of their different entrance strategies, two of the biggest network service
providers–Global Crossing and Qwest–already have staked out positions in the enterprise
data-storage arena.

Will other network service providers, notably the ILECs and the CLECs, follow suit?

Schaffer says some of the traditional telcos are taking a first step by asking
GlobalCenter to provide disaster-recovery facilities for their own internal data
applications. However, he thinks providing such services to the enterprise, either
directly or as part of an ASP team, will be a next logical step for them. Farajun agrees.
"They have to provide some services which will cause the customer to stick with
them," he says. "Otherwise, they will lose their business."

M.J. Richter is a freelance writer based in Arlington, Va.