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Storage channel set for 'momentous changes,' says analyst

Antony Adshead, UK bureau chief, storage
The storage channel is undergoing "momentous changes," which are creating a polarisation between huge volume sellers and multi-vendor consultancy-heavy smaller operations, with virtualisation a key driver for storage projects.

That's the view of Alastair Edwards, senior analyst with Canalys, speaking this week at an event staged in Leeds by EMC, Falconstor, Brocade and VMware distributor Magirus.

A proper storage strategy underpins any virtualisation project.
Denise Bryant
storage and services directorMagirus
Edwards explained that the IT market faces unprecedented external pressures from the world economic situation and is undergoing great changes internally as market consolidation occurs and customer projects grow ever more complex. "We're moving to an entirely new phase in the channel, with a new set of pressures and conditions altering the dynamic of the industry," he said. "More than in any other period in the IT industry, global economic trends are impacting the channel and customers."

Referring to rocketing prices for oil and commodities, economic slowdown and a shaky security environment, Edwards said, "Things look negative, but if you turn them on their head, there are opportunities for the IT industry. Increasing energy costs provide an opportunity for more efficient IT, environmental concerns open the way for green IT, and the weak dollar makes for a declining street price of products."

While a possible economic slowdown may lead to IT projects being delayed or even abandoned, Edwards pointed out that increasing data volumes, regulatory compliance and the need to get more from IT resources with less would see storage and virtualisation projects continue. "Virtualisation revenues are gaining rapidly," he said. "In the current climate it's a technology area that allows a business to get more from its existing hardware."

Magirus storage and services director Denise Bryant echoed this, saying that virtualisation projects were a key driver for businesses moving from DAS to SAN. "A proper storage strategy underpins any virtualisation project," she said. "If you virtualise physical servers, it's difficult for those servers to retain their direct-attached storage, so shared storage is needed. Also for VMotion for example, you also need shared storage – DAS just doesn't work in that environment."

At the same time as external economic pressures are affecting the industry, significant changes are occurring within the storage channel. Edwards identified these as a polarisation between big tin-shifters and smaller skills-intensive operations, as well as the potentially disruptive entrance in the market of large-scale service providers.

Storage channel vacuum
Edwards described a storage channel in which the big players have been consolidating rapidly, but as this occurs, the smaller firms they have bought have lost the skills that helped build them, thereby creating a vacuum in the market. "There has been lots of consolidation in volume space but with acquisitions by the likes of Arrow, Avnet and Westcon, there is also now a vacuum, a loss of expertise as smaller, more consultancy-led businesses are bought and their people move on," he said. "So we should expect more consolidation but with this vacuum, new companies will appear."

While one end of the market is a growing volume sales space, the other end is occupied by channel businesses that increasingly rely on consultancy and skills to offer multi-vendor product solutions to customers. This in turn means that channel businesses will need to work more closely with other vendors' resellers and with distributors.

"The good news for the channel over the last couple of years is that the idea of there being economies to be gained from direct rather than indirect model is finished," Edwards said. "The direct sales model just cannot get into the growing areas of business such as those involving complex multi-vendor projects and among SMBs. It's just not something vendors can do themselves."

The analyst also warned of a development that could potentially change the IT landscape. Companies such as the former state telcos are turning themselves into providers of not just communications, but also computing, storage and security services. One example is BT, following its acquisition of Basilica last summer. "Most disruptive of all is the arrival of service providers, such as BT Basilica, which will provide it with an opportunity to attack virtually every sector of the market," he said. "It's a huge threat to the channel."

However, Edward suggested that such managed service giants may struggle because of their very size and internal political problems.


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