Storage cost per gigabyte is heading for less than one cent, reports Angus Kidman.

Published in AustralianIT, March 18 2002

TOUGH times for IT companies mean customers hold the whip hand when it comes to negotiating contracts with storage vendors. "Storage prices fell last year across the board," says Graham Titterington, senior analyst at Ovum Research.

"Hardware prices fell fastest, as usual for IT.

"But the price pressure was so severe that even software prices fell to a lesser extent."

Other factors also raised expectations of lower costs.

"Although the demand for storage continues to grow rapidly, one of the main selling points for networked storage is that it enables consolidation and reduction in the number of discs you need, thus reducing demand in the short term, and adding to the price pressure," Titterington says.

But, while base prices may be low, negotiating any long-term contract is something of a Catch-22, as EMC ANZ marketing director Clive Gold explains.

"The more I buy now and the more spare capacity I have, the more it's going to cost me over time as storage prices drop -- but the more I buy now, the better deal I can get," he says.

Contract types for storage can range from a one-off purchase of required equipment through to a completely outsourced model in which a company pays purely for capacity used. But the most common model is to negotiate deals in three or four year cycles, accruing some advantage from negotiating in bulk while not being locked in for an onerously long period.

Such medium-term deals, which generally include a service component, also help cut the purely administrative costs associated with storage.

A common base measurement of storage expense is cost per gigabyte. But figures from the National Science Foundation show this has declined rapidly over the past 30 years and is likely to be less than one cent in the near future.

However, observers warn against making excessive use of such figures, especially as networked storage environments, which depend heavily on software, continue to grow in prominence.

"Storage purchase costs account for no more than 30 per cent of storage costs. The rest is management time over its life cycle," Titterington says.

"The most important thing is to get the most manageable, flexible, scalable, and resilient system to minimise operational costs."

META Group data shows that staff costs also rise rapidly as storage capacity increases, offsetting any short term advantage of lower hardware costs.