As online business proliferates, more and more companies are recognizing the value of data and are no longer tossing it out because of lack of storage space. Instead they’re developing enterprise storage strategies — which can prove costly. Here’s what finance needs to know to weigh the expense against the potential rewards.

The enormous growth of the Internet and e-business has led to remarkable changes in the way companies conduct business. As electronic orders mushroom, companies are rushing to digital systems and solutions, which are altering the way organizations construct networks and store the ever-increasing crush of data.

"In the past, enterprise data storage was physically contained within the server," explains Robyn Bergeron, an industry analyst for Cahners In-Stat Group, a market research firm in Scottsdale, Ariz. "But because of the tremendous growth in the need for storage space and greater maintenance costs associated with keeping data in a server, companies are turning to enterprise storage to provide the flexibility and capabilities they need," she says. By adding external devices as required, organizations are able to increase their storage capacity while maintaining maximum network efficiency.

At a time when glitzy e-storefronts and sophisticated workflow garner headlines, enterprise storage is fast becoming the backbone of business. Traditionally little more than an afterthought on the road to success, storage is now becoming an integral piece of the computing puzzle. From its humble beginnings in the early 1970s, it has grown into a key component of modern business. The slow and cumbersome tape systems of the past have given way to streamlined boxes controlled by sophisticated software, the most advanced of which can be used across highly dispersed networks, including the Internet.

According to market research and consulting firm Dataquest Inc., the enterprise storage industry grew by 25.4 percent in 1999. The company predicts that total storage sales will eclipse server sales by 2003. And IBM chairman Lou Gerstner believes that companies will spend 75 percent of new hardware dollars on enterprise storage solutions over the next few years. "It’s becoming clear that as companies and their customers store more data electronically, enterprise storage capacity must increase. Companies can put themselves at a competitive disadvantage by not having a complete picture of their business operations," explains William Hurley, a program manager at The Yankee Group, an industry analyst and strategic planning firm in Boston.

In the past, Hurley says, organizations typically dispensed with data that didn’t seem important or wasn’t essential for government reporting requirements. That mentality has changed. The emergence of data mining, business intelligence and knowledge management has forever altered the storage equation. Organizations are creating data at historically unparalleled rates, and enterprise resource planning (ERP) systems and customer relationship management (CRM) have created new demands for information storage and retrieval capabilities. "Companies are realizing that it’s foolhardy to delete files and data simply because you don’t have the space. At some point, the data could become essential to solving important business problems," Hurley says.

Although an enterprise storage strategy is best developed and managed by IT professionals, it’s clear that other departments and disciplines — including finance — must learn to use storage solutions effectively for their internal needs. Because enterprise storage can prove costly, it’s also often important for finance to provide expertise in determining the cost-effectiveness and return on investment (ROI) surrounding different solutions.

Flexible Storage

At First Union Corp., the nation’s sixth largest provider of financial services, a rapidly growing data warehouse and the need for more advanced analysis led the company straight to enterprise storage. "We require quick and transparent access to data stored across heterogeneous systems," says George Mattingly, chief technology officer of the capacity management group at the Charlotte, N.C., company.

The advent of electronic banking, combined with increased customer and market data, has fueled much of First Union’s growing storage requirements. For example, the company must maintain a record of every check that it processes — about 17 million a day. Whereas electronic payments require only 26 data characters, paper checks chew up 40 kilobytes of space as they are scanned and transformed into image files. As a result, a mere 60 days of business records require a whopping 60 terabytes of disk space. Records that are more than two months old are sent to a tape archive. When First Union adds to that mix its customer data, marketing information and other records that sit in a 14-terabyte data warehouse, it requires a total of 140 terabytes of storage. Mattingly believes that the figure will stretch to nearly 200 terabytes within the next year or so. And because First Union’s computing environment includes everything from mainframe computers to Unix and Windows NT servers, it’s clear that the company needs a sophisticated and flexible approach to its enterprise storage needs.

First Union installed a storage area network (SAN) from Hopkinton, Mass.-based EMC Corp., one of several companies — including IBM Corp., Hitachi America Ltd., Hewlett-Packard Co., Dell Computer Corp., Compaq Computer Corp. and Sun Microsystems Inc. — that now offer storage solutions for high-end networks and systems. The SAN lets First Union attach external storage or server devices to the network and use them to store information from various company systems without regard to the underlying operating system or network architecture, making data access quick and effortless. "The data is there and it is always available. People can go about their business without waiting," Mattingly says.

Although the system wasn’t the least expensive alternative, Mattingly believes that it was the most cost-effective. "The great value to First Union was that EMC storage provided the flexibility, versatility and software to allow us to execute our business strategy. We ultimately paid more to acquire the disks, but the solution was far less expensive from a systems management perspective. We also were able to achieve some revenue advantages by making information available sooner than otherwise would have been possible." Now, when a bank customer requests a hard copy of a check or a statement, a customer

service representative can produce it in a matter of seconds, without manually scrolling through microfilm records or waiting to retrieve the data from an optical disk. As the company moves toward PC banking and customer self-service, the system’s speed will become even more crucial. "Magnetic storage is more reliable and robust. Nobody is going to wait two or three minutes at a Web site to retrieve a record. The SAN is far more compatible with our e-business needs," concludes Mattingly.

SANs and the Internet

At Excite@Home, a Redwood City, Calif.-based provider of cable modem service and the operator of one of the Web’s most popular portal sites, cost is a serious issue, though ensuring outstanding performance across the network takes precedence — especially as the amount of data generated by the site now doubles on an annual basis. Eric Anderson, manager of system operations, explains that the company requires more than 100 terabytes of storage to keep the portal’s various applications, logs and databases functioning — including Mail Excite, which provides Web-based e-mail to subscribers.

The company relies on more than two dozen external storage devices from EMC and Sun, each of which holds 3 to 6 terabytes of data. The units are fault-tolerant, with a redundant power supply and mirrored drives. That, Anderson says, provides high availability in a 24x7 Web-based environment. For now, Excite@Home uses an ultra-SCSI (small computer system interface) connection to attach the storage units to Unix servers. It relies on software from Veritas Corp. to help manage all the data.

However, the company is currently migrating Mail Excite to a SAN so that it can scale up its storage capacity and provide maximum flexibility. "We need to scale beyond the current architecture and leave space for future growth," Anderson explains. The company developed an enterprise storage strategy early on but has adapted it to growth and changing conditions. "Since you can’t predict what services or products are going to grow and by how much, it’s important to leave adequate breathing space," he says.

The Yankee Group’s Hurley says that as companies’ needs grow, they commonly migrate from serially attached or SCSI-attached storage to SANs. Besides offering greater flexibility and better performance, SANs can provide simplified storage management. Tools are now emerging, he says, that allow systems throughout an enterprise "to be managed through a single window" across a "unified network infrastructure." Because SANs use Fibre Channel technology — which allows concurrent communication among almost all network devices and across various protocols — they are quickly emerging as the de facto storage model.

From Servers to NAS

SANs aren’t the only enterprise storage solution. Another approach, network attached storage (NAS), is also gaining popularity, according to Cahners’ Bergeron. Vendors such as Auspex Systems Inc., ECCS Inc., Cobalt Networks Inc., Network Appliance Inc. and Quantum now offer file-serving appliances that quickly and easily plug into an existing IP network. They can speed up network performance by storing files that would normally sit on servers, freeing up those servers to handle other tasks.

One company that has taken the NAS approach is Shutterfly.com, a Redwood City, Calif., company that caters to digital photography enthusiasts over the Internet. Consumers can store their digital images on the company’s Web site and then order traditional prints. The digital image data, combined with Shutterfly’s need to store everything from general ledger information to customer records, means the company needs over 3 terabytes of storage space. And according to Jim Healey, vice president of operations, Shutterfly’s demand for storage is growing about 25 percent every month.

The company turned to storage systems from Sunnyvale, Calif.-based Network Appliance to run a 100-plus-megabit ethernet network on Sun servers. Shutterfly maintains the devices at a nearby hosting facility. By directly connecting the storage devices to the network, the company is able to plug in new boxes or take units offline for maintenance as needed. "We needed a robust and flexible architecture in a high-availability environment," says Healey. The setup "lets us provide a high level of privacy, security and reliability," he adds.

However, the huge demand for storage space comes with a cost. The company will likely move to a three-tiered storage model in the future and will probably use a digital jukebox system that relies on tape to store images more than 90 days old, since customers rarely access those files. Although the system would require up to 3 minutes to retrieve photos, it would cost between a quarter-cent and a half-cent per image per year. Shutterfly will likely store 30- to 90-day-old images on optical disks at a cost of 1 cent per image annually. And it will place current images on network storage devices at a cost of about 6 cents per image per year. "The key is that we have to provide the service within a profitable business model," says Healey.

Strategies and Costs

Despite a marked downtrend in cost, storage remains a pricey proposition. The hard disk technology that’s at the center of enterprise storage technology now costs as little as 1 cent per megabyte, though the overall cost of systems can run 10 cents to 50 cents per megabyte. And the annual cost of managing enterprise storage technology is generally two to 10 times the purchase price. In addition, SANs often require significant network redesigns as a company adds routers and other equipment needed to ensure a high-availability environment, according to Bergeron. That can ratchet up the price to hundreds of thousands of dollars, or even millions of dollars.

Ultimately, Bergeron believes it’s essential for an organization to create an up-front strategy for managing enterprise storage. Besides the litany of technical issues that are best left to the IT department, she says, it’s crucial not to underestimate future growth and needs. "A lot of companies have problems foreseeing the amount of enterprise storage they will require. They wind up making decisions — sometimes based on cost — that make it difficult to expand and deal with long-term issues."

Hurley adds that interoperability and compatibility are becoming more common, and that an application service provider (ASP) model also is taking hold. These companies have been dubbed storage service providers. And while the concept is relatively new, it offers a viable alternative to the IT department having to manage complex systems and the huge demand for additional storage space. Most of these services also provide data mirroring and disaster recovery capabilities. In many cases, these storage service providers are ideal for startup companies, though some established businesses are also beginning to take a closer look at the ASP storage model.

With disk drives growing in capacity and the demand for data storage expanding even faster, enterprise storage won’t disappear from the corporate radar screen anytime soon. And like other technology decisions, storage system choices demand that the finance department be in the loop — both to assess its internal needs and to manage costs and ROI across the business. Despite the growing complexity of corporate and customer data, one thing is clear: An increasing number of companies are finding that enterprise storage is a key part of their business strategy. "In today’s 24x7 business environment, companies cannot afford to have data that’s unavailable," says Bergeron. "The benefits of a well-designed storage strategy are enormous."