Data Storage Companies Find Profit in the Clouds

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July 23, 2010 11:37 AM EDT

Data storage companies are recording record revenues, and much of it is through enterprise cloud computing.

Cloud computing is data stored in a shared virtualized setting. Unlike physical data centers, all the data is in a Web-based "cloud," accessible at any time. The cloud, which is separated into two formats: public and private, offers conveniences such as real-time data customization for enterprise customers.

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For companies such as EMC and Cisco, profiting off the private cloud is quite simple. Large companies run their cloud-based software in a firewalled data center and turn it into a virtual operation via software from one of those vendors. In the private cloud, the company which uses it can offer remote access to its customers, making it easier to operate than physical infrastructure. Perhaps the biggest potential customer for cloud computing services is the U.S. Government, which recently launched a cloud computing initiative to cut costs.

"It's less of a leap than the public cloud," said Allan Krans, analyst at Tech Business Research. "When building a private cloud, you are using the same expertise as you have in a physical data center. It's the same pricing. It's easier in terms of financial viability but positions them in a different way."

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The public cloud is a bit different. Companies such as Microsoft via its Azure offering, and Amazon with EC2, offer software services typically for small to mid-size businesses. These customers can access the data center at any time, do not own the software and share it with others.

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The financials are a bit different than the private cloud. "Rather than a lump sum, you receive smaller payments over a period of time," Krans said. "Instead of getting paid annually, you get paid bi-weekly. The public cloud is for smaller customers that consume small bits of information."

While vendors would prefer large scale enterprise customers, the smaller public cloud offering is more in line with what people want, said Krans. "Even for some large customers, it breaks down large costs, provides an easier to implement solution and they do not have to invest as much," he said.

Even though it provides an alternative data storage solution, the belief that cloud computing is cannibalizing the traditional data center is false, according to BTC Logic analyst Paul Vatistas. BTC Logic provides independent consulting to potential enterprise customers on whether cloud computing is an appropriate investment for them. Each quarter, it ranks the top ten cloud computing companies.

Vatistas says thus far, most companies have used enterprise software as a complement to cloud computing rather than a replacement. Thus, it's unlikely data storage companies would lose all their revenue through self-cannibalization.

"Enterprise is not going to wholesale replace their data centers... For instance, if they have a new mobile application coming out and need more data storage, they might look it as a compliment to their existing solution. They'll experiment with it in the cloud and use the cloud to launch quickly," Vatistas said.

The point of cloud computing, for now at least, is to use it when it's necessary for additional resources. As he puts it, "This is not the industry slicing its own throat."

This article is copyrighted by International Business Times, the business news leader