Qwest, HP to open data storage centers

Qwest Communications and Hewlett-Packard today agreed to work together on high-end data storage centers.

The announcement comes just one day after Intel opened its first data-hosting operation, in a play that could reshape the market for Internet services.

The deal, which Qwest expects to pull in $1.5 billion over the course of the three-year term, deepens a relationship between HP and Qwest that began in May.

HP's "e-services" initiative has created a frenzy of activity at the otherwise famously staid company. In the e-services deals, HP typically gives away hardware to companies that use it to house services they sell over the Internet. HP gets a cut of the revenue and sometimes has taken equity investments in the companies.

HP was able to move quickly on its e-services deals because it's already got the equipment in hand, analysts have said. Essentially, the company has been trying to make money off existing products in a new way.

This Qwest deal is the 35th "e-services" deal HP has announced, said Nick Earle, head of marketing for HP's enterprise computing group. The size of the deal will vary according to the number of customers who sign up for it, but Earle estimated HP would contribute at least several hundred millions of dollars' worth of equipment.

Under the deal, Qwest will add seven new computer facilities, called "CyberCenters," to the seven it's already set up, giving the company a total of 1.8 million square feet to fill with computer hardware, Wilks said.

Both Qwest and Intel are emerging as leaders in what some analysts call the service provider market.

E-commerce companies and traditional merchants moving online are examining ways to get up and running quickly by outsourcing Web site design, transaction hosting, and data warehousing functions. Companies such as Qwest and Intel want to tap into this trend by getting into the business of running a data factory, of sorts, where all kinds of electronic information is processed.

"Customers will have more computing powers, more capabilities as they move to Internet-based applications, and they'll be able to outsource not just the core applications but the storage applications as well," said Lewis Wilks, Qwest's president of Internet and multimedia markets, in a conference call.

As part of the three-year agreement, HP will provide Qwest with solutions from its SureStore E portfolio of products and services, which include tools for connecting and monitoring storage area networks.

The companies will begin offering services--ranging from backup and recovery to data storage for Internet service providers--in the fourth quarter. Qwest expects to realize $200 million in additional revenue the first year the service is operational and up to $1.5 billion over three years.

The seven new CyberCenters should be ready by the end of next year, and will provide additional application hosting, e-commerce, and Web-hosting services.

It currently operates six CyberCenters: three in California, two in New Jersey, and one in Virginia.

The partnership is also significant for HP, which is typically not associated with application or data center outsourcing services.

"They have some huge server farms, which they're leveraging for this new service offering," said Bruce Caldwell, outsourcing services analyst for Dataquest. "They're making partnerships with Qwest for the networking aspect, and they're saying, 'here it is, the utility, come place your application on it.'"