In this month's "Industries that your children will be excited about" series, we look at the Data Storage Industry.

Why should you care?

In 2020, the leading cloud service providers such as AWS, Google, Microsoft, Alibaba, Tencent and IBM are also the leading investors in data storage. However, as the demand for data outpaces investments by these few companies, we will inevitably see the decoupling of data storage providers from cloud service providers. In fact, with new entrants and colocation business models, we are already seeing this happen in developing markets. SaaS accounts for 60% of the market share of cloud services which generated ~$170 billion in 2019. It is expected that IaaS will grow at a CAGR of 20%, followed by SaaS at 15%.

How competitive is the industry?

For this analysis, we have used Porter’s 5 Forces Method.

To conduct this analysis, we look at four sub-forces and study how they can act together to determine the competitiveness of this industry. You can use this same methodology for your industry.

At the end of this post, you can see how we choose to visualize this in our pitch decks.

First, let's start with the Bargaining Power of Suppliers. We can break down the development of a Data Storage facility into infrastructure (servers, generators, switches, cooling solutions) and construction (building design and development). Given the broad diversity and quantity of suppliers for both infrastructure and construction, we can assign a LOW rating to this force.

Second, let's look at the Bargaining Power of Buyers. Major buyers of data storage services (enterprises) have several sophisticated options available globally. Any new operator in the Data Storage market, especially those operating on a local/regional/edge scale, recognizes that the market already has reliable suppliers. We can assign a HIGH rating to this force.

Third, let's look at the Threat of New Entrants. Through "colocation" or "colo" for short, data storage providers can reduce their overall risk while investing in innovative infrastructure. Colo is a shared physical space provided by data storage companies to enterprises to store their DS hardware. Some examples of these new colo entrants include EdgeCore and PointOne in the United States, Echelon in Ireland and the UK, and Yotta in India. Furthermore, established players are willing to expand their market reach through acquisitions, and new operators see this as a viable exit strategy. We can assign a MEDIUM rating to this force.

Fourth, let's look at the Threat of Substitutes. Colos are in-fact substitutes for the established single-operator data storage solutions on the market. However, there is a significant cost associated with these colos, including higher CAPEX, OPEX, and time-to-market. There is also constant innovation within the IT infrastructure (i.e., better servers, switches, cooling solutions), and any of these innovations could lead to a better substitute in the future. We can assign a MEDIUM rating to this force.

Finally, let's look at the final force - Competitiveness - as a summary of the above forces. Existing players are interested in expanding their presence through new facilities or acquisitions. Newer players are interested in establishing their own data centers or colos to get a piece of the developing data storage market within their geographies. The rivalry is high to offer not just better pricing, but also service up-time and dependability. Based on our overall analysis, we assign a HIGH rating to the competitiveness of the Data Storage Market.

We assign the number 5 for High, 3 for Medium, and 1 for Low for each of the forces. Using this framework, we can create an interactive chart representing Porter's 5 Forces, as seen below.

If you need help conducting research on the competitiveness of your industry or in preparing a Porter’s 5 Forces analysis for your pitch deck, get in touch with us!