Steps to building a cloud storage services business

Lots of hosting companies out there are offering public cloud storage services. And, sure, you could resell those services to your customers if you want. But what if you want to host them yourself? The risk is greater, but so is the reward.

Despite the higher chances for a big return on investment, the cost and profit potential of hosting cloud storage services vary depending on a number of factors, and different people have different opinions on the ROI of cloud storage services. But the analysts, vendors and managed service providers (MSPs) we spoke with do agree that storage solution providers are well-positioned to extend their business into cloud storage services. "They already have a lot of the infrastructure; they've already got the network stuff," said Daniel Golding, vice president and research director for Tier1 Research. "I have not yet run into anyone who has said, 'I can't figure out how to make money at this.' That's not a typical objection," Golding added.

So, how exactly do you build out a cloud storage services business? There are different possible routes to take, but some basic steps apply across the board.

Step 1: Think big

One key is to get rid of the idea of offering cloud storage services on a small scale. To make money, analysts say, you need to think big. "You've got to do this at scale," said Golding. "Doing this as a one-cabinet business, you will lose money. Period."

BC Networks, an MSP in San Jose, Calif., is in the launch phase of its Virtual Vault service, which the company expects to scale using software from Parascale. Paul Harrington, lead architect of network architecture and planning for the company, said that the business plan calls for storage of 500 TB to 600 TB of customer data two years from now. Harrington points to scalability as a fundamental underpinning of cloud storage. "There is a federated economic that says that if this becomes really big, the economics of doing it at a much larger scale are much better. They're almost 'avalanche' better," he said.

Step 2: Determine what hardware you'll use

Both analysts and vendors we talked to say that another key step is to determine what hardware you'll use for your cloud storage infrastructure -- and in general, you should focus on commodity hardware. "[MSPs] have a lot of old storage [devices] sitting around. What do you do with them?" said Golding. "Well, [cloud storage services is] a really cool thing to do that monetizes them. If I had to buy new servers [to host cloud storage services], it might be a close bet."

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Henry Baltazar, storage analyst for The 451 Group, agreed that the cloud storage services business model makes the most sense using commodity hardware. In building out a cloud storage services offering, he said, the first question is: "How am I going to build a cloud? You need to figure out how to make a scalable back-end storage infrastructure out of commodity hardware. Sure, you can build it on NetApp or EMC, but that's going to cost you an arm and a leg." Baltazar pointed to companies such as Parascale and Cleversafe for software at the bottom layer of the cloud storage infrastructure.

Parascale CEO Sajai Krishnan said the revenue model for its cloud storage software platform is much better using commodity hardware. Krishnan said, "A service provider or an MSP can purchase our software and put it on top of existing Linux boxes -- off-contract servers, repurposed existing servers, run our software and make it appear as a single cloud storage appliance." With such a commodity-based approach, Krishnan says that MSPs and VARs can realize margins as high as 70%, charging as much as 40 to 50 cents per gigabyte per month.

Step 3: Ensure data protection

The next step in the process of building out a cloud storage services infrastructure is data protection. "[The cloud storage infrastructure needs to have] the ability to replicate to multiple sites, so you don't have issues with the site going down and your data's not lost," said Baltazar. For many MSPs, this piece of the puzzle is built into their business model. They're already replicating data out to a co-location facility for business continuity and disaster recovery purposes. If you're not already replicating off-site, you'll need to include that in your plans.

Step 4: Determine how to handle data access

Once you've built out the storage infrastructure with commodity hardware and have processes in place to protect the data, you need to provide a way for customers to access their data at your data center. Companies such as Mezeo and Bycast have software in this space. "They provide a front end that allows you to access that back-end storage," said Baltazar. "It's making conventional storage talk like a cloud system."

While companies like Parascale and Cleversafe handle the storage infrastructure end of things, and Mezeo and Bycast handle data access, some companies take on both parts -- for instance, EMC with Atmos and Data Direct Networks with Web Object Scaler. "When you buy that type of offering, you're basically buying appliances, where you plug them in and you have a complete cloud storage infrastructure," said Baltazar. "They're doing both aspects: the protocol part and the scalable back-end part."

Baltazar noted that the basic architecture for cloud storage services isn't static. "Cleversafe added an API, so they're moving more toward Data Direct and EMC Atmos," he said. And ESG analyst Terri McClure said that the product classifications aren't cut-and-dried. For instance, she said that she sees Bycast as a competitor to EMC Atmos and Data Direct Networks more than being relegated to the data access layer of a cloud storage platform.

Step 5: Consider marketing

The last basic step to offering cloud storage services relates to marketing: You'll need to determine your go-to-market strategy. BC Networks' Harrington has some advice: Stay away from the "cloud" moniker. "The enterprise has not entirely bought into the cloud. When we go to our customers, they ask us, 'Can you back up our stuff?' They're not even thinking about cloud. And so Virtual Vault is presented as not a cloud offering at all [but] as a backup solution or a DR solution," he said. Harrington said that when customers want information about the infrastructure under Virtual Vault, the discussion turns to BC Networks' data center, which is housed in Savvis facilities. "In our marketing material, we're showing that we're multisited and that we have a scalable storage platform that's resilient [and] redundant," he said. "We don't really talk about the cloud at all. But the fact is that we are using cloud technology to get it out."

While the approach BC Networks takes with its Virtual Vault service might work with smaller customers, enterprises -- often more averse to the MSP model than small companies to begin with -- appear to still be staunchly anti-public-cloud. ESG's McClure said: "At larger companies, no way would they trust their data to the cloud. We do see enterprises running out of floor space, sprawl, power, cooling. They're starting to recognize things need to be done a little differently, and I think that's what's generating the interest in the cloud. It's a services-based model with perfect, 100% utilization rates. But they're reluctant to trust their data into the cloud. It's still pretty unproven."