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Cloud storage reseller or consumer? Partners face market shift

A market rife with storage options provides a varied and sometimes ambiguous environment for IT services firms, which take varying paths in a changing infrastructure sector.

Cloud storage has grown into an appealing option on the IT infrastructure menu, but some IT service providers report a decisive shift among their customers.

Bill Busch, chief strategist of big data at Perficient, a digital consultancy based in St. Louis, said the company deploys an enormous amount of storage for its big data and data warehousing customers. Eighty percent to 90% of that storage is now in the cloud, he said. Perficient wraps its own services around offerings from providers such as AWS and Microsoft and also plays a cloud storage reseller and referral partner role.

An attractive price point entices enterprise buyers -- the cost of cloud storage has stabilized at about $23 per terabyte. But interest in the cloud isn't strictly a numbers game. Cloud storage customers also gain access to premium technology and a multitude of services that include versioning and automatic archiving, Busch said.

"It's not just the per-terabyte cost. It's the other services that you get along with that, which is absolutely huge," he noted.

Walter Heck, CTO at HeleCloud, a cloud consultancy based in London with offices in the Netherlands and Bulgaria, has also observed the cloud transition, which COVID-19 has helped propel. The pandemic set the stage for greenfield IT projects, encouraging customers to adopt cloud as they launched new business models. Heck cited the example of an events company that started a cloud-based platform to run online events when it could no longer host in-person gatherings.

In addition, organizations taking a gradual approach to cloud migration began accelerating the process to eliminate the redundant expense of maintaining data center equipment. One HeleCloud customer moved its old tape library from its data center to AWS S3 and Amazon Glacier.

Cloud storage tiering, Heck added, proves more cost-effective than on-premises storage technologies such as tape. A customer, for example, could place new data that must be immediately available in the most expensive, highest performing cloud tier. As that data ages, it could be moved to less expensive storage classes and, eventually, archived to a cloud service such as Glacier.

"Store it in the cloud and make full use of the storage tiers," Heck advised.

cloud vs. on-premises storage comparison chart
Partners keep a range of customer considerations in mind as they navigate a shifting storage market.

Some customers continue to maintain on-premises storage as they move to the cloud, which Heck said can make matters difficult. He noted the example of a company that had to keep a special firewall routing option open to create a path from AWS back to the on-premises environment. "They are making things more complicated for themselves by not going all in," Heck said.

Such customers maintain on-premises storage, even as they move to the cloud, because they believe they need to hold onto old ways of doing things, he said. However, retaining on-premises storage and infrastructure can manifest itself, over time, as significant technical debt.

"We encourage our customers to rethink that approach," Heck said.

HeleCloud is part of AWS' Solution Provider Program, which lets the company resell AWS offerings and manage, service and support customers' AWS infrastructure. Reselling AWS storage is secondary to HeleCloud's main focus, which is to deliver managed services and professional services on AWS, Heck noted.

Perficient, meanwhile has reseller or referral arrangements, which include storage services, with AWS, Microsoft Azure, Google Cloud and Oracle. Cloud reseller status has created a relatively small, but growing, revenue stream, Busch said.

Perficient also offers consulting and cost-optimization services around cloud storage and has created a data warehouse-as-a-service offering that embeds cloud storage. "The storage is actually built into the price that we offer our clients," he said. The data warehouse service, which Perficient is rolling out to a few early adopting clients, includes an extract, transform and load tool along with the storage.

We are seeing this real, profound blurring of what it even means to think about storage.
Ned EngelkeCTO, Evotek

The cloud of uncertainty

For some observers, the cloud-versus-on-premises question has become ambiguous. Ned Engelke, CTO at Evotek, a San Diego-based solutions provider that focuses on digital business and cybersecurity, suggested it's difficult to tease out the difference, given the number of storage options available. Those include hyperscalers' resources, colocation service providers and on-premises storage vendors offering cloud-like, consumption-based models. Customers may combine the various approaches, further confounding matters.

"We are seeing this real, profound blurring of what it even means to think about storage," Engelke said.

As a practical matter, Evotek can offer cloud storage to customers as an elastic pool of resources, while also continuing to provide traditional storage. "We still sell a lot of manufacturers' systems on premises," Engelke said. The exact architecture the company produces depends on the customer's business objectives and economic goals, he added.

Brendan Walsh, senior vice president of partner programs at 1901 Group, a wholly owned subsidiary of Leidos, also views cloud and on-premises storage as a both/add proposition, rather than an either/or. His company focuses on government sector clients.

"When you start looking at the macro picture of cloud migration and digital transformation, there is going to be a component that stays on premises," he said. Data security concerns and the prohibitive cost of modernizing some systems encourages organizations to keep them in-house, he added.

MSPs, Walsh suggested, should be ready to help customers make incremental progress to the cloud, while continuing to support on-premises applications. "We just believe, at least at the enterprise level, that MSPs really need to navigate the hybrid architecture and hybrid environment," he said.

That said, cloud storage uptake appears to be outpacing on-premises purchasing among enterprises. Engelke's hunch is that the number of enterprises using strictly on-premises storage is declining or stable, amid the wide range of storage choices.

Walsh said he believes it's safe to say enterprise cloud storage is growing faster than enterprise on-premises storage, given exponential data growth, an increasing push to locate data closer to the edge, and AWS' status as one of the largest storage providers in the world.

Who's buying?

Another market shift comes from the customer side, as cloud companies gobble up storage technology to meet demand. Indeed, public cloud providers, colocation companies and other types of service providers are major consumers of storage.

Public cloud infrastructure has become the key contributor to data center hardware and software spending growth, according to Synergy Research Group's assessment of third-quarter 2020 data. The market research firm reported a 21% year-over-year (YOY) boost in public cloud infrastructure spending, a category that includes storage.

"Cloud providers continue to invest heavily in their data centers to satisfy the ever-increasing demand for their services," Synergy Research Group noted. At the same time, enterprise investment in data center infrastructure fell 8% YOY in the third quarter -- the third consecutive quarter featuring a "substantial decline," the company reported.

IDC, also examining third quarter 2020 data, found global enterprise external OEM storage revenue declined 1.4% YOY, while revenue generated by original design manufacturers selling directly to hyperscale data centers grew 8.7%.

According to Omdia, a London-based research firm, spending among service providers will continue to climb. Omdia expected cloud and colocation providers' data center Capex, which includes storage, to hit $180 billion in 2024, expanding at a 15.7% compound annual growth rate.

The spending change is turning some channel partner companies into a customer segment for storage vendors, which, in the past, viewed them primarily as a pathway to the ultimate end customer. A partner that becomes a local cloud as a service (LCaaS) provider is an example of this sell-through to sell-to transition.

"Channel partners are signaling on adding a 'sell-to' component to their normal business models," said Steve Biondi, head of channels and alliances in the North America Data Center Group at Lenovo. He said that shift is a reaction to customer-driven LCaaS acceleration.

MSPs that operate data centers, through which they offer storage and other offerings as a service, are also part of the sell-to mix.

"We predominantly consume partner technologies, rather than resell," said 1901 Group's Walsh. The company partners with cloud providers including AWS, Google and Microsoft, as well as storage and data management vendors such as Cohesity and NetApp, which has updated its partner program to reflect cloud sales. Walsh said 1901 Group, as an MSP, provides services that typically combine people, processes, technologies and facilities.

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