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The Business Case for Storage Networks

  • Sample Chapter is provided courtesy of Cisco Press.
  • Date: Nov 18, 2004.

Chapter Description

This chapter covers the copious non-technical reasons for preferring storage networks, from the legal implications of Sarbanes-Oxley to the economy of scale created by their usage. Discover the other advantages storage networks could provide to your business within.

Implementing a Storage Vision

Now, more than ever, companies are adopting storage networks as fundamental building blocks of a storage vision that addresses the capacity, utilization, and management issues related to data storage. This broader strategy or vision is designed to:

  • Reduce the overhead associated with providing storage solutions

  • Maximize critical business continuance capabilities

  • Increase the performance and flexibility of the overall data storage infrastructure

A storage vision begins with the migration to storage networks, and proceeds with the decommissioning of DAS. A storage vision also requires the classification of environments into tiers and the creation of a service-level framework to measure the efficacy and performance of storage-related deliverables. A storage vision culminates in the ability to provide storage services in a utility-like fashion. The net effect of a storage vision is an overall lower TCO for storage.

The need for low-cost, highly-available storage solutions, coupled with the high demand for long-distance replication functionality (spurred by legislation and security concerns), has helped to increase sales of Fibre Channel (FC) storage networking and optical transport products. This increase in product sales occurred even as disk revenues fell dramatically in 2001 and 2002. The management burden of DAS and the difficulties of managing heterogeneous storage on an FC storage network have led to an increased interest in IP storage networks. It is the belief of some vendors that a strong Fibre Channel infrastructure facilitates the adoption of Internet Small Computer Systems Interface (iSCSI), Fibre Channel over IP (FCIP), and IP over Fibre Channel (IPFC).

The soft economic climate of the last three years has fostered the realization that not every application requires five-star accommodations. Application environments are now consolidated to conserve resources. Likewise, business processes are now modified to provide service-level management (SLM) frameworks that match an application's needs to the most appropriate and cost-efficient storage solution. Service-level management is an increasingly important concept in storage management, and, as shown in the case studies in Part II, "Case Studies," SLM forms the framework around which solid storage visions are currently built.

Five years ago, the typical IT department was asked to provide the most expensive server and disk solutions for every conceivable array of applications. At that time, it was customary for IT departments to provide storage capacity based on poorly scoped application requirements. Then, it was acceptable for IT to serve strictly as a cost center. Those days are over. Now, the focus is on cutting costs at a time when legislation and competition actually create new requirements and drive increased costs. In addition, data storage is growing at such a rate that cutting costs without a storage management strategy is almost impossible.

To understand the importance of a storage vision, it is necessary to look at broader trends in the market. An analysis of the overall storage and IT spending rates for the last several years is illustrative of the current storage management headache facing today's IT decision maker.

Irrational Exuberance

It is no secret that corporate spending on information technology hardware, software, and services has slowed dramatically in recent time. If the drop-off in IT spending was dramatic, the run-up previous to the decline was equally spectacular.

No doubt, times have changed and just as electronic commerce and web technologies have matured, business leaders now understand the importance of value case analysis, and are returning to Net Present Value (NPV) and return on investment (ROI) as methods for validating new IT investments.

The "irrational exuberance" in the securities markets of the late 1990s, noticed as early as 1996 by Federal Reserve Chairman Alan Greenspan, presented significant hurdles to planners, analysts, and those in charge of charting the path of the U.S. economy.6 This exuberance was fueled in part by Y2K and in part by the multi-million dollar IT budgets burning a hole in the pockets of both Fortune 500 companies and start-ups alike. These firms together shared the collective aim of gaining both a long-term boost in productivity and a competitive edge in the marketplace. The churn-and-burn mentality of the start-ups and dot-coms led to massive capital purchases, inflating the revenues of almost every high-tech company in the value chain.

Table 1-2 clearly shows that one of the primary areas to benefit from exuberant IT spending during this time frame was external disk storage, as highlighted by the increases in vendor revenues between 1999 and 2000.

Table 1-2 Worldwide External Disk Storage Systems Non-OEM Factory Revenue ($M) and Units, 1999-2003 (Source: IDC, 2004)7

Worldwide External Disk Storage Systems Non-OEM Factory Revenue ($M) and Units, 1999-2003

 

2003

2002

2001

2000

1999

 

$M

$M

$M

$M

$M

External Disk Storage Systems

$13,591

$13,097

$17,195

$21,751

$18,141

Units

398,978

439,412

566,157

648,121

577,823


These figures are sufficiently eye-opening in that they highlight the marked increase and then sudden decline in overall revenues. Aside from highlighting a precipitous drop in margins, the unit numbers in Table 1-2, coupled with the percentage of DAS sold worldwide during the same timeframe (as shown in Table 1-1), indicate that there is a mountain of DAS currently deployed.

NOTE

As shown in Table 1-1, 87 percent of supplier revenues in 1999 and 78 percent of supplier revenues in 2000 were from sales of DAS solutions.

As is well documented by now, the "damn-the-ROI" mentality prevailed in IT spending until a series of events accelerated the well-known recent economic downturn.

Macro Sources of Economic Downturn

With capital spending trending downwards, many firms began to report disappointing revenues in late 2000 and early 2001. Of those reporting declines, arguably one of the most significant was Cisco Systems.

On February 7, 2001, Cisco Systems missed its quarterly earnings estimates for the first time in almost three years. Cisco Systems, technology bellwether, and long-time advocate of the virtual close-a process that allowed earnings snapshots to be retrieved at any time to provide guidance to its leadership-came up short of analysts' per share expectations for the second quarter of fiscal year 2001. The subsequent write-down of $2.2 billion worth of Cisco inventory sent shockwaves through its supply chain and had a deleterious effect across the industry.8 Companies in many sectors questioned their capability to forecast sales and profitability, shareholders suffered, and visibility into U.S. economic recovery became even murkier.

On September 11, 2001, terrorists attacked the World Trade Center and the Pentagon, killing almost 3000 people. The New York Stock Exchange, NASDAQ, and AMEX exchanges were closed for four days. An already shaky U.S. economy found itself against the ropes, and the United States prepared for a multi-front war. Subsequent foreign intervention (in Afghanistan and eventually Iraq) dampened hopes that an economic upswing was imminent, and six cuts in the federal fund rate (one each in the remaining months of 2001 after the September 11 attacks, and one each in 2002 and 2003), shown in Figure 1-1, indicated that the Federal Open Market Committee (the Federal Reserve) saw little sign of economic revival, equally thwarting hopes of a recovery.

Figure 1Figure 1-1 Federal Fund Rate Cuts Since January 1, 2000

NOTE

On June 30, 2004, the Federal Open Market Committee raised the federal fund rate by one-quarter of one point—its first rate hike in four years.

Data from the Bureau of Economic Analysis highlights the effect of decreased spending for electronic hardware on the U.S. Gross Domestic Product (GDP) during the period in question (shown in Figure 1-2).9

Figure 2Figure 1-2 Electronic and Electric Equipment Manufacturing Contribution to U.S. GDP 1992-2001

Analysis of the effects of economic growth related to the "New Economy" began in October, 2001, when the McKinsey Global Institute released its study titled "U.S. Productivity Growth 1995-2000." This study indicated that although IT spending increased between 1995 and 2000, IT was just one of several factors (including innovation, cyclical demand, and competition) contributing to U.S. productivity growth during this time frame.10

Some point to this "productivity paradox," as it has come to be called, as highlighting the failure of corporate spending on IT products and services to lead to a tangible increase in sustained output of U.S. companies. Although this point is debatable, what is clear is the subsequent decrease in profits for major storage and server vendors, indicating the commoditization of both the disk and the host.

NOTE

Whether or not the economic downturn was officially a recession, there seems to be little doubt at this point. In July, 2003, the National Bureau of Economic Research (NBER) issued a report stating that the last U.S. recession ended in November, 2001. The NBER's Business Cycle Dating Committee, which tracks the timelines of U.S. business cycles, pinned the length of this most recent recession, which began in March, 2001, at eight months, three less than the post-World War II average of 11 months.11

3. Commoditization of Hardware | Next Section Previous Section

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