The company's Storage Server 2003 software, designed to run as the operating system on network-attached storage (NAS) devices, is expected to debut next month.
NAS devices are dedicated computers that serve up files and data to computer users on a network. The systems tend to be used by smaller companies or work groups within large organisations, such as law firms or financial services companies, that frequently access data in the form of files.
Microsoft says the new software pumps up the performance of its existing NAS software and adds features such as a new data copying tool and support for clustering more NAS machines. Storage Server 2003 is based on the Windows Server 2003 operating system, retooled for use in dedicated file servers.
The software's debut will be a significant milestone for Microsoft's Enterprise Storage Division, launched in January 2002 and headed by veteran executive Bob Muglia. In the past year, the division has been busy cutting deals with new partners.
Microsoft has gained ground in the storage market during recent months. The market share for Windows in network-attached storage devices rose 8 percentage points earlier this year, to 41 percent.
So far, storage systems based on Windows have typically been used by smaller companies. Microsoft claims that the better performance of the new release opens the door to more critical storage operations at larger businesses.
"It's enterprise-ready," said Vanessa Lee, a Microsoft product manager.
Nancy Marrone-Hurley, an analyst with market research firm Enterprise Storage Group, agreed that Microsoft's upgrade puts the company in the higher-end playing field.
"Before, they didn't compete in this space," she said. "Now they can effectively go after it."
To tackle the high-end market, Microsoft will use a tactic honed in its successful battles for market share in database software, network operating systems and business applications: bundle lots of features and undercut competitors on price.
Look out, Network Appliance
Microsoft's largest rival in the higher-end NAS market is storage device-maker Network Appliance, said Bill North, an analyst with market research firm IDC. Network Appliance has "been 'the' show in town" in the high-end NAS market, North said, and it may find its business dented by Microsoft's newest software.
While spending on NAS machines declined last year to $1.54bn (£970m), IDC projects the NAS market will bounce back to $1.77bn this year and jump to $3.17bn in 2007.
Storage Server 2003 is part of Microsoft's effort to get in on the ground floor of that market, and it could help the company's other products, said Zane Adam, director of product management and marketing in Microsoft's Enterprise Storage Division. "Ultimately, storage is the core of all products. If you cannot get access to your data, you cannot do business."
Microsoft's licensing deals may allow manufacturers to undercut NAS devices from Network Appliance on price while adding an improved operating system, North said.
Microsoft NAS products are already cheaper than those from Network Appliance. Small businesses can buy a Dell PowerVault 725N NAS device running Windows with 1 terabyte of capacity for $4,098. By contrast, pricing for Network Appliance's FAS250 model with 1 terabyte of capacity begins at roughly $10,000, according to the company. A terabyte is approximately one trillion bytes.
IDC said that in the third quarter of 2002, Network Appliance NAS gear cost 2.9 cents per megabyte (MB), compared with 1.9 cents per MB for NAS equipment from Dell that uses Windows as the operating system. Microsoft's Adam said NAS equipment using the company's upgraded OS will continue to be priced lower than gear with similar capacity from Network Appliance.
The overall manufacturing costs for comparable machines made by Network Appliance and manufacturers using Windows Storage Server 2003 are likely to be similar, North said.
"The question is, would NetApp be willing to give up some of its operating margin to compete more effectively?" North said.
Eric Brown, a Network Appliance spokesman, conceded that Microsoft beats his company on NAS pricing. But he said that in other categories, such as overall performance, Network Appliance holds its own against Microsoft. In particular, Brown said Network Appliance NAS devices are a better choice for companies integrating Windows, Unix and Linux systems.
Microsoft says that with Storage Server 2003 it's working to bolster support for operating systems other than Windows.
Tools and speed
Microsoft has also added tools to the new release to make systems running its software more attractive to enterprise buyers. One new tool, called Volume Shadow Copy Services, allows customers to take a snapshot of their data for easier management. Microsoft says the tool is superior to other available snapshot products because it works with other applications to prepare them for the data copying process. That integration results in a better picture of the information, and therefore better retrieval of lost documents, the company claims.
Marrone-Hurley praised the new tool. "It makes sure of the integrity of the data," she said. "It's a pretty cool little feature."
Other changes focus on preventing outages -- a key requirement for storing critical business information. Microsoft Storage Server 2003 now supports redundant input-output data paths as well as the ability to set up clusters of up to eight NAS boxes to provide backup in case of a failure. The existing Windows operating systems for NAS allows only for a cluster of two machines.
Microsoft also said the new storage OS has increased the speed of serving up files. Microsoft's Adam says that in Windows-based networks, performance increases by more than 100 percent compared with the existing Windows OS for NAS. In Unix environments, the performance has jumped by at least 50 percent, Adam said.
Verifying the company's claims isn't easy. Microsoft hasn't published specific performance figures for Unix. That translates into a question mark for Marrone-Hurley. "We have to wait to see the performance numbers before we can say how they'll compete in that space," she said. "In the past, their performance hasn't been great in the Unix space."
Network Appliance is about to have a battle on its hands with Microsoft and its hardware partners looking for a greater share of the market, North said.
"Those are formidable players that would like to have a share of the market that NetApp has enjoyed," North said.
