Storage

storage

There's the complexity of the technology, and the complexity of the market. There's an educated end-user community and a vendor community moving from the enterprise downstream into small and midsize businesses, and branching out into other technology spaces such as security.

In the midst of all this, the 2007 CRN Profitability Study found revenue and gross margins across the storage market have slipped since last year's survey. The biggest average margin drop was for networked storage, which survey respondents reported fell 6.3 percentage points, from 21.2 percent to 14.9 percent over the past 12 months.

Yet survey respondents also said the number of customers has risen in both the network storage infrastructure and storage management segments. And as sales volume rises and storage capacity grows, it requires more sophisticated tools and services to manage the volume.

"It can be challenging, for sure," said Dave Hiechel, president and CEO of Eagle Software, an SMB-focused storage VAR in Salina, Kan. "On the disk side of things it gets really challenging and ugly."

To combat this, Eagle, which manages an 85 percent to 15 percent product-to-services revenue mix, looks harder for products that provide it with good margins. "Priority No. 1 is, 'How much can we make on a pure sale?' " Hiechel said.

Next: Storage profitability stats

Eagle could make more money on services than it does, but the solution provider often gives away service and support with a sale, Hiechel said. The VAR's most profitable services engagements are short ones: two- to four-day jobs, he said.

Eagle also gains ground in the profitability battle by partnering with smaller vendors such as EqualLogic, with which Hiechel said his company makes 22 to 25 margin points on its iSCSI arrays, and array vendor Nexsan, with which the solution provider garners 15 to 20 points.

And the VAR seeks out vendor partners that have "legitimate registration programs," Hiechel said, which will protect the time investment he puts in to land an account. Median sales cycles among the solution providers surveyed by CRN about profitability were three months for networked storage infrastructure and four months for storage management deployments, the same as in 2006.

Rick Marcotte, president and CEO of DLT Solutions, Herndon, Va., said competition in the marketplace is driving prices down. But he said an educated end-user community that understands the need for storage solutions, and the complexity of the technology are helping offset those falling prices among DLT's customers, mostly government agencies.

"The storage requirements of our customers are growing by leaps and bounds," Marcotte said. "This is not technology that you take out of the shrink-wrap, plug it in and you go."

DLT has also embraced the convergence of storage and security, highlighted by big vendor mergers like Symantec-Veritas and EMC-RSA. "The confluence of storage and security is creating a greater urgency in the end-user community and the need for more technical solutions, which creates more opportunity for delivering services, which tends to drive profitability," Marcotte said.

DLT has become more active in services, he said, since the company became a technical support partner for Symantec. "We invested in the people, training and expertise to do that," Marcotte said. "As a result, we're getting a much tighter relationship with customers."

Survey respondents said the strategic importance of storage to their customers has risen in both networked storage and storage management.

This may be another result of an educated customer base, said Keith Norbie, storage division director at Nexus Information Systems, Plymouth, Minn. Often, customers have purchased a number of point solutions over the years, he said, and are now ready to make the commitment to a complete solution. "When you get into the next-gen architectures, there's less hemming and hawing by the client trying to figure out if they should do it and where to find the money for it," he said.