Storage Software Sales Up, Trend To Continue

Storage software sales in the third quarter increased by an "impressive" 4.2 percent over the same quarter last year, said research firm IDC Wednesday, pointing to a solid 2003 which should, in turn, lead to a just-as-robust 2004.

"In general, storage software has been a pretty hot market for the past couple of years," said Bill North, the research director of IDC's storage software division. "But these third quarter numbers are really impressive."

The boom in storage sales stems from several factors, North said, including a general rebounding of the world's economies as well as a re-dedication on the part of enterprises to better manage what storage capacity they already have.

"One of the things that's been on hold [within enterprise budgets] is storage," North said. "Two years ago companies over committed in buying storage capacity. Now they've used most of that excess capacity and are buying more hardware. That leads to more software purchases."

Additionally, he said, the increased reliance on storage networks -- pools of storage servers that can be redirected to handle capacity within the organization as the need arises -- means more storage software must be deployed. "Storage networks have really come out of the closet and gone mainstream," North said, "and they need more sophisticated software."Other drivers for storage sales, he added, include more attention by enterprises to disaster recovery -- which may necessitate establishing alternate storage sites ready to take over chores if the business's primary storage network is destroyed or disrupted -- and the trend toward lifecycle management.

Lifecycle management, a concept for managing data from its creation to its ultimate disposal, has in the past been a tough problem to solve for some vendors, said North, because it's difficult to classify data, an essential ingredient to the strategy. Data must be pigeon-holed before it can be assigned a route in the management process. Some data, for instance, may need to be kept indefinitely, while other information can be tossed at some point in its lifespan.

Vendors that have solved those problems -- North pointed to EMC as one -- have benefited from the buzz around lifecycle management.

In the third quarter, storage software sales climbed to $1.65 billion, a number especially significant because the third quarter is typically the weakest of the year. The quarter's growth, when added to the two previous, puts 2003 above 2002 by a double-digit 11.4 percent. Even if sales slide or remain flat in the last quarter, said North, this year's storage software sales will be significantly higher than last year.

The increased importance of storage software in the enterprise led to across-the-board boosts in all three of the sub-markets that IDC tracks. The largest gain was posted by storage replication software, which grew 7.3 percent year-over-year. Storage resource management applications came in second with an increase of 3.6 percent, while the backup and archiving market -- the largest of the three in terms of overall revenues -- grew by just 2.7 percent.Among vendors, EMC continued to dominate the sales chart, with revenues of $431 million in the quarter, enough to grab 26.1 percent of the market, an up tick from last year's 25.2 percent. VERITAS is the second-biggest seller of storage software, with Computer Associates, IBM, and Hewlett-Packard rounding out the top five. All but IBM showed gains in sales over the same quarter in 2002.

"The climate is affecting nearly all vendors," said North. "'A rising tide floats all boats' kind of thing. Whether companies are into storage hardware or storage software or storage systems, they're all seeing significant growth."

North singled out EMC several times as the player with most moxie. Its acquisition spree -- in October, the company announced plans to purchase Documentum, a content management provider, and just this month said it would snap up VMware, a maker of virtual machine software -- puts it in the best position to take advantage of the move toward more integrated storage solutions.

"EMC's going into areas like application management and document management and server management, all of which are related to and intimately connected to storage management," said North. "These investments can potentially be a big booster for their business."

The trend of better storage software sales should continue next year, he predicted. "All the signs of a good economy coming back are in place, and the demand for storage only increases. Next year will be pretty robust."