Getting The Message

So, not surprisingly, solution providers have high sales expectations for storage in 2005. In the CRN Monthly Solution Provider Survey for November 2004, the number of respondents who said they expected growth of 6 percent or more in storage sales rose significantly compared with November 2003, climbing a solid 9 percent for hardware (to 60 percent from 51 percent) and increasing a healthy 13 percent for software (to 56 percent from 43 percent).

"Midmarket companies are waking up to a couple of things," said Mark Teter, CTO of Denver-based Advanced Systems Group. "They're saying, 'My gosh, we need more storage,' and, 'It seems we're not managing our storage very well.' "

Smaller companies don't necessarily have smaller storage issues than large enterprises, say solution providers, vendors and distributors, and the key business drivers for storage sales continue to be compliance, storage and infrastructure consolidation, business continuity and security.

"Compliance is absolutely driving the storage business," said Reagan Dixon, president of Dallas-based storage solution provider Lumenate, which partners with Sun Microsystems, Veritas Software, Hitachi Data Systems (HDS), StorageTek and other vendors. "We had one customer come to us and say, 'Our lawyers told us we have to retain everything forever.' "

And before customers even get to dealing with compliance, Dixon said, many of them have to upgrade their storage infrastructures and start classifying their data.

Jeff Bawol, senior vice president and general manager of the enterprise software and storage business unit at Tempe, Ariz.-based distributor Avnet Partner Solutions, said, "As long as the consolidation issues continue, as long as the security issues continue, as long as they're concerned about the utilization of the current storage they have, you're going to see a strong drive for storage in the midmarket and the software to manage that storage."

Overall, midsize companies appear ready to hone their spending plans toward more specific products and technologies over the near term, while keeping the growth rate of spending relatively steady, according to data from the November Business Spending Survey. This is consistent with previous data covering small businesses in that some technology areas, such as storage, are likely to see faster growth than others, and solution providers will need to refine their sales strategies to address these opportunities.

In the November survey on business spending, 46 percent of midsize companies surveyed expected to increase their technology budgets over the next 12 months. This is down rather sharply from 58 percent in August 2004, the last time these companies were surveyed. Despite the decline, however, nearly three times as many midsize companies plan to increase their IT budgets compared with those planning to decrease them.

Those that do expect to boost spending are likely to make significant new technology investments. More than two-thirds of these companies plan to boost spending by more than 15 percent over the next 12 months. And 79 percent are either "extremely" or "strongly" committed to actually carrying out these planned increases. The strong commitment of these midsize companies to their spending plans should balance out the fact that fewer companies are planning spending increases, keeping the overall growth of midsize-company spending relatively stable over the near term.

Within storage, management software was the No. 1 spending priority for the second year in a row, according to the November survey.

Lumenate has three or four customers committed to spending on storage management software, Dixon said. "We've seen a lot more midmarket companies talking about some sort of software management framework pieces to their projects," he said. "And they say they have the budgets for them in 2005." SAN installations followed closely behind storage management software in the CRN survey, tying for second on the list of spending priorities. Advanced Systems Group's Teter said that as the SAN and storage networking industry has matured and broadened, costs have come down and familiarity with the technology has increased, which has opened the door to sales of these solutions. "You don't have to explain to customers what a SAN is anymore," he said.

On the NAS front, Dixon said Lumenate has seen interest in the technology rise because of its flexibility.

The No. 3 spending priority within storage was enterprise backup, according to the November survey. "The backup market is huge," said Andy Khanna, president and CEO of Sonasoft, a San Jose, Calif.-based Microsoft business partner that four months ago began shipping a software suite for the Microsoft platform focused on data recovery. "If you're a company with 100 employees and you have an Exchange server that talks to the world for you and it goes down, you're in trouble."

The year ahead is shaping up to be the time when the world of backup technology sees "one of the most significant developments in years," said Lodi Vercelli, CEO of Midrange Computing Solutions, Downers Grove, Ill. "This'll be the year of disk-based backup," he said. "ATA drives have brought the costs of disks so low that it is beginning to justify it." Plus, Vercelli said, you don't have the bad media and jammed cartridge problems you have with tape technology.

Overall, 2005 should be a banner year for storage in the channel, according to solution providers, vendors and distributors. The SAN market is expected to be particularly hot, as all of the big storage vendors have made strong moves in the space. EMC refreshed its Clariion line and introduced its first midrange array, and IBM, Hewlett-Packard and Sun have all refreshed their midmarket SAN offerings. Microsoft launched a SAN bundle program, and Fibre Channel switch vendors QLogic and Brocade Communications Systems simplified their switches and cut prices.

In December, HDS unveiled its first entry-level modular storage array specifically designed for the channel. "Because the SMB customers value the advice of the SMB resellers, we've aligned ourselves with those companies to reach this market," said Scott Genereux, senior vice president of global marketing and global channels at HDS.

Lumenate's Dixon said he's pleased with the attention the vendors are giving to the midmarket, and his company takes full advantage of it. "Because we partner with several different vendors out there—including HDS, Sun, Veritas and StorageTek—it allows us to pull from a pretty large solution portfolio, so we're going to match you to the right solution," he said. Dixon still expects the evaluation cycle for companies to take some time, which means he expects the real spending push will come from the midmarket in the second half of the year. That highlights another key feature of the midmarket: the need to use caution. Said Avnet Partner Solutions' Bawol: "In today's world, customers are a little more price-conscious, so they are a little more cautious about their spending."

Yet, Bawol said, the midmarket is definitely a strong area with plenty of steam. The spending on storage in the midmarket is a "sustainable" trend, he said. "This isn't a flash in the pan."