For many companies, data storage has become one of the fastest-growing parts of the IT budget, thanks to enterprise-wide transactional systems, massive data warehouses, and explosive growth in e-mail traffic. While the storage market broadly has been growing at 7 percent a year, in some large enterprises, however, networked data storage—disk drives, tape systems, specialized network gear, and the people and software to manage these—has grown by 20 percent or more annually, even where IT budgets have barely budged. The demand for storage has grown by more than 50 percent annually in recent years, even faster than the rapidly decreasing unit cost of storage (Exhibit 1). If storage costs continue their rapid rise, they could make it harder for companies to store and exploit new forms of data—such as tick-level financial data, digital images in life sciences, or video in media companies.

Large enterprises must manage storage more efficiently if they are to exploit opportunities created by new forms of information—such as more detailed financial data, digital images in life sciences, or video in media companies. Unfortunately, it’s a daunting challenge for IT managers to combat...