They offer a service for secure access to managed storage resources for those companies who opt not to manage their own. This can be VERY useful if your company lacks the skilled manpower to manage a SAN. You can focus on doing your actual business rather than an IT shop. Some vendors will manage YOUR storage at YOUR site. This is useful if performance is an issue. Connecting to storage over distance, even if it's a fibre connection introduces latency into the path.
An SLA (service level agreement) is extremely important if you are thinking of outsourcing your storage needs. Make sure the vendor is reputable, and check with others using their service. Get everything in writing, and push for financial penalties for non-adherence to the SLA in your contract.
Storage vendors themselves can offer a similar service. I know HDS allows for push button access to terabytes of storage whenever you need it. You get a huge amount of storage up front, but only pay for what you use. Others also offer this "utility" model for "storage on demand."
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This was first published in November 2001