Storage Channel Pipeline

Oct 13 2009   10:16AM GMT

Cloud storage services: Startup costs, revenue potential

Sue Troy Sue Troy Profile: Sue Troy

We know there’s a lot of interest out there in the idea of cloud storage services, but what does it take to actually launch them?

To help answer that question, I had a conversation with ParaScale CEO Sajai Krishnan, former GM of NetApp’s StoreVault business unit, a few days ago about the company’s cloud storage software. It’s one of a handful of companies (other companies in this space include Bycast, Mezeo and Caringo) that sell software that can be used as the platform for a cloud storage service.

As Krishnan explains it, MSPs and resellers can set up “high-touch” cloud storage services pretty cheaply, charging 40 to 50 cents per gigabyte per month, in exchange for reliable (backed up and redundant via your data centers/colocation facilities) file storage over a fast network. Compare that to the 15 cents a gigabyte per month for Amazon S3, with that traffic running over and data living on the anonymous Internet. ParaScale lets its customers store the first 4 TB of data for free in pilot-stage mode.  So, the pitch goes, say you have available space in your data center and a colocation facility and three or four spare Linux servers hanging around (2-year-old machines would be fine, Krishnan says), the infrastructure startup costs for cloud storage services would be next to nothing (not taking into account the apportioned cost of housing and running the Linux hardware in your data center). Once you get beyond 4 TB or begin using the 4TB in production mode as opposed to pilot mode, the costs from ParaScale start to incur (including minimum support costs of about $3,000 a year on the free 4 TB). Krishnan says there’s an optional quarterly payment plan and that at a volume of about 10TB, the cost for the software and support is less than $3,000 per quarter. If you’re at about 100 TB of storage, for Year 1, the cost is “well under $200,000,” said Krishnan, including hardware, software and support.

That translates to less than $2K per terabyte per year at a volume of 100 TB. The cost to a reseller would be less than $2 per gigabyte per year. Assuming you’re charging all customers the same price and giving them all the same service (which is unlikely in reality but it gives us a baseline for analysis), if you’re charging customers 50 cents per gigabyte per month, the cost to the end user per gigabyte would be $6 per year. So at a volume of 100 TB, the margin would be $4 per year per gigabyte to resellers, about 67%, not including data center costs and personnel. And the data center costs could be the big gotcha, since they can’t be ignored, and estimating them will differ from company to company depending on size and existing infrastructure. Some resellers may be able to piggyback cloud storage services on top of their existing equipment/data centers,  but the bigger your cloud storage services business becomes, the higher the costs become and the more likely they’ll need to be accounted for separately on a budget.  And for resellers without spare space in an existing data center, the startup costs are even higher.

So that leaves me with some questions for you:  Do the metrics on this sound right? Will customers be willing to pay 40 to 50 cents a gigabyte a month for high-end cloud storage services? And what kinds of data center/hardware costs would you face to support 100 TB of customer data? And have you looked into any of ParaScale’s competitors? I’m interested in your thoughts on this. Email me at

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