Data Overload, Cloud Computing Benefit Backup Vendors

Keeping data in the public Internet cloud — or for big companies their own private cloud — can save money by letting IT managers add capacity as needed. They don’t have dedicated servers and storage systems sitting around unused.

The cloud approach really means "distributed resources for processing data storage … across virtual environments," said S&P analyst Jim Yin. "It’s greater efficiency, and if you keep it on your own premises without cloud or virtualization, normal utilization rates of that system are around 15%."

Virtualization lets companies create multiple computer systems that run on a single machine.

Yin says large companies will slowly try to have a bigger presence in the cloud for efficiency. Yin says the simple point that more and more data need to be stored — cloud or not — benefits storage software vendors.

Backup and archiving specialist CommVault is No. 34 on the latest IBD 50 list of top stocks, as its shares soared nearly 50% in 2011.

"There’s a lot of budget dollars spent in the space — (backup and recovery) is roughly a $5.5 billion to $6 billion market, growing 5%-10% a year," said David West, senior vice president of marketing and business development at CommVault. Archiving is another $2.4 billion.

"A lot of attention is being put into the space because information is exploding, and … putting strain on IT organizations," West said.

Backup vendors are boosting their cloud involvement. For example, Symantec last month launched a beta test of its Backup Exec 2012, built with a choice of using on-premises software or appliances, or cloud delivery models. EMC has its own cloud storage platform and keeps adding cloud-friendly features. This year it introduced an appliance that can automatically move inactive files to the cloud.

A survey from CommVault found managing data growth to be a top IT budget priority for 2012.

Companies are "not adding head count," West said. "So how do you manage with about the same staff?"

CommVault’s software aims to simplify how companies back up and archive their data, either on premises or to an outside cloud storage provider. It also sells its software to those cloud storage providers, who use it to power the online services they offer. Storage giant EMC and others also do this.

West says CommVault’s strong suit is that it built its own software code base, so its software acts as a single, efficient system that can cut costs by half.

"None of our competitors have a single platform that does both backup and archiving," he said.

West says finding data takes a single search, instead of having to individually query separate systems for backup and archiving.

Companies spend from $20,000 to millions of dollars on CommVault software, West says.

To better its foothold in the cloud backup market, the company has done a few things: It built a pay-as-you-go pricing model to accommodate cloud storage providers, added software features such as the ability to generate detailed reports and bills by user, and closely considered the best routes to market as it signed up distributors.

"NetApp, for example, is one particular partner that does a really good job of building solutions (using CommVault’s system to provide cloud storage)," West said.

Dell (DELL), like NetApp (NTAP), also acts as a distributor.

Indirect selling relationships with the likes of Dell, Hitachi Data Systems and distributor Arrow Electronics (ARW) are the likely reason CommVault won so much enterprise business in Q3, Pacific Crest analyst Rob Owens said in a research note. Arrow accounted for 27% of revenue and Dell 22%, as CommVault notched a 77% year-over-year rise in the number of deals above $100,000.

Others are also on the march.

IBM is No. 1 in archiving and says its storage unit’s sales rose 12% last quarter. It has many cloud initiatives, storage-related and beyond.

"Our enterprise cloud initiatives help clients improve the economics of IT," IBM Chief Financial Officer Mark Loughridge said on the company’s Q3 conference call. "Year to date, we have already doubled last year’s cloud revenue as we extend our offerings."

EMC "will be one of the biggest beneficiaries of the continued growth of enterprise storage, which is projected to rise 47% per year through 2015, according to IDC," Yin said in a research note on Dec. 20. "Thus, we think datacenter upgrades will remain as a top IT spending priority in 2012."