Storage Software Business Growing Rapidly

By Geoffrey James

Last month this newsletter reported that storage software was likely to be a hot area for software sales. That prophecy has proven accurate. A new study released by market researchers IDC fleshes out the numbers and they look fantastic, to say the least. According to IDC, the worldwide storage software market surpassed $1.9 billion in quarterly revenue for the first time in the third quarter of 2004, growing at a robust pace of 19.1% year over year.

What’s particularly significant about this trend is that it’s software-specific. Customer investment in storage software grew to nearly $36 for every $100 spent on storage systems, which is a much higher ratio than most other high-tech segments. IDC sees the high ratio as a good sign of the high value customers place on this software, which allows them to effectively manage and protect business information assets.

This big uptick in storage software sales is occurring in all segments. All of the major functional areas posted double-digit revenue growth in the third quarter of 2004 when compared to the same quarter in 2003. The storage resource management market posted the largest gain at 27.3% year-over-year growth, while the back-up and archive software market continued to represent the largest functional market, growing 17.4% year over year. The storage replication software and file system software markets also enjoyed strong results in the third quarter with 13.7% and 10.3% year-over-year growth, respectively.

The storage software market is dominated by five large vendors. EMC/Legato leads the market with 31.8% revenue share and gained the most market share among the top five vendors for the third quarter of 2003. In second place is Veritas with a 21.7% revenue share, growing 12.7% year over year. Computer Associates edged out HP and IBM for the third position with 8.8% revenue share. HP and IBM finished in a statistical tie for the fourth position with 7.6% and 7.1% revenue share, respectively.

Despite the presence of big vendors, the storage software market hasn’t consolidated, which means there are still opportunities for smaller firms. Big vendors accounted for a little more than three quarters of the sales, which means half a billion dollars went to smaller and niche vendors. So if you’re thinking about moving into storage software sales, there’s still time to get on the bandwagon.