Selling servers

With low-end servers almost akin to a commodity product, standing out from the crowd and providing customers with a compelling reason to select one vendor over another has become a tough task. CME tracks the movers and shakers in the Middle East server landscape and explores their channel strategies.

  • E-Mail
By  Alex Malouf Published  September 24, 2004

Channel strategies|~|JimDELL-side.gif|~|Jim McMahon, enterprise business manager at Dell Middle East|~|Once the preserve of corporates with money to burn, servers are now very much part of mainstream IT investment. The competition is fierce, server prices are dropping sharply and customers are getting more bang for their buck thanks to more powerful machines capable of 64 bit processing. What makes successful server vendors stand out from the crowd is their future vision of the market and how they are working with the channel to provide customers with value-add features that distinguish their offering from the competition. Vendors who show partners the profits from specialisation in the server business can expect their market share to grow across the board. The server market is full of buzz words at present — consolidation, SMB, and commoditisation. Every vendor is playing up the amount of business that can be done in the server space and yet there has never been so much competition in the market. For industry-standard servers (ISS), which is the mainstay of channel business, there is very little to differentiate vendor offerings. “Basic configurations are similar across the vendor solutions [on offer],” says Andrew Lamb, business development manager for servers and storage at Acer Middle East. “Certain enhancements do differentiate offerings slightly but what is going to be a differentiator is how the channel benefits from these options and how the vendors utilise their channels.” Partnering with the right people has become ever more important as the channel comes to play a bigger role in selling servers. Andy Nehme, ISS sales manager for HP Middle East, explains: “There is growth in the enterprise space but the big market for us is the SMB space. How do we address this market? I would say that 70% of this market is selling a few unitshere and there and this is becoming increasingly important to our channel business. I cannot multiply the sales people I have to cover the SMB segment, so our channel partners are pushing HP to a scattered and wide spectrum of potential customers. We are talking about anywhere from 50% to 70% of our business and this is where we are becoming increasingly reliant on the channel.” The space between low-end and high-end servers is very distinct and is mirrored by vendor strategies. “The partners that we have had tend to be corporate-oriented and they have looked to sell our kit into the large named accounts,” says Graham Porter, marketing director at Sun Microsystems MENA. “We have had some great wins through these people but this is a specific niche and not for volume play. We need to find a different style of partners for the volume business. All of us in the server industry are looking at how to tackle the volume space. The people that sell the lower-end products tend to work differently and the relationship is different. We are working on setting up new channels.” But finding the right channel partners in the server market is fraught with difficulties. While servers are increasingly becoming a commodity product there has never been such a need to move away from the box shifting mentality. “Many of the channel players that are around today in the server market are long term,” notes Jim McMahon, enterprise business manager at Dell Middle East. “There is no difficulty in recruiting new partners but the channel is now realising that it has to differentiate the range of services and solutions on offer. It is not just a case of supplying hardware anymore. Box shifters will always be operating in the market but what customers want are solutions and companies that can support those solutions.” ||**||Solution value-adds|~|AndyParkinsonIBM-side.gif|~|Andy Parkinson, Middle East and Pakistan sales manager for the xSeries server|~|Importance is shifting away from the hardware itself and other elements of the server are becoming ever more important to customers, both in terms of price and performance. “With new technologies such as multi-threading and multi-core you need an operating system that can keep up with the hardware,” says John Foster, volume systems product manager at Sun Microsystems MENA. “You need an operating system like Solaris, which is upgradeable and provides functionality. We can put together a very compelling package for our customers. The Linux interest is there and this is driven by licensing costs for sure. The adoption of Linux is not as fast as in other regions but it is happening.” Software and hardware alliances are coming to the fore as a major value-add and brand differentiator. “You will see a lot more emphasis on the relationships with independent software vendors,” adds Foster. “Some relationships are driven on a global level and others cater to local needs. What our local channel development partners do is they identify partners who have particular software solutions and work with them to provide that solution on our platform. It can make a real difference when you find an application written for a specific market. When we identify a solution like that we will work with the company to make it available across the entire region and not just in the locality.” With all the changes in technology vendors are investing heavily in education. All the major names — Fujitsu Siemens, IBM, HP and Sun — hold regular training events to roll out the latest in trends and technologies for partners. Big Blue recently debuted its Business Partner Open Days in Dubai. “When pushing out the benefits of our technology rich solutions it’s all about education,” according to Andy Parkinson, Middle East and Pakistan sales manager for the xSeries server. “We held a series of events where we have been talking about the technology, pushing our messages out and explaining how we are different.” Part of that channel message is explaining how server partners can maximise their revenues. Front-end hardware prices have dropped dramatically and vendors need to go out and assure partners there are still good margins to be made through services. “If you want to maintain channels, then keep them happy by showing them profitable revenue streams,” explains Jeff Maslen, business development manager volume channel sales at IBM Middle East. “Give them control of their services revenue as margins traditionally only do one thing: drop. That is the raw end of customer satisfaction and they stand or fall by that.” ||**||Service margins|~|Andy-Nehme,-ISS-Sales-Manag.gif|~|Andy Nehme, ISS sales manager for HP Middle East |~|The issue of cost is of huge importance to the channel and HP is taking a different approach to the server market. “The Middle East is sensitive on pricing, just like other regions,” admits Nehme at HP. “Initial capital outlay occupies much of the attention of our customers. What we have done a good job of delivering is the total cost of ownership message and return on IT. Where we are stronger and why we dominate the market is that we tell our customers the cost of managing, deploying, and servicing the server is factored into the initial purchase price. You realise that going with a HP solution saves you money in the long term.” With front-end costs being so low the temptation is there for vendors to hive off revenues by taking services away from partners and locating them in-house. But Maslen warns against such practices and the long-term damage it can do. “If you look out into the market some vendors have started cannibalising their partners and taking away their services revenue by saying the product is now offered with services included. Unfortunately for partners they will lose this money to vendors who decide they want the income. We want our partners to be profitable and be in control of the account, relationship and also the after-sales revenues. It may not be financially sensible for us to do it, but all the customer wants to know is that we are behind the partner if something goes badly wrong which we are.” Looking to the future, most vendors are betting on blade servers making a huge impact in the Middle East market. Blade servers have already proved popular in Europe and the US, and analysts at Gartner predict that blade sales will take a quarter of the global market by 2007. “For the last couple of years blade servers have become much more popular and customers are increasingly considering the solution due to features such as its smaller footprint and lower running cost,” surmises Ashraf El-Arabaty, enterprise product marketing manager at FSC. “This trend is not moving through the Middle East at the same speed as through Western Europe and US but we are receiving more and more enquiries about blade server solutions, about how people can consolidate multiple servers into a single server and we already have the offerings for it.” For channels that want to capitalise on growing trends such as blade server products they will have to take the step up to the next level, invest in training and specialise to pick up partner status or else miss out on future business. “Blade server solutions are very unlikely to be sold through channels,” adds El-Arabaty. “It is more likely to be sold through system partners. Technology trends may not really affect the channels. Mainstream products such as entry-level dual processor are most required here in the region by channels. But blade servers will not be moving through channels.” Companies who have already reached skilled partner status still have a healthy corporate market to sell into and will also find that vendors are eager to sign them up. “Middle East growth is high compared to most of Europe, where is the growth rate is running at 6% per annum,” notes Foster. “Compared to more saturated markets, there are so many opportunities here. I guess next year’s growth could exceed 20% on the servers — faster than other regions for sure. Six or seven years ago you had a lot of single vendor partners which is not the case today and many have multiple server divisions. We are finding many smaller partners for the SMB market but we are not finding large partners to recruit.” ||**||Emerging verticals|~|Ashraf_El_ArabatyFSC-side.gif|~|Ashraf El-Arabaty, enterprise product marketing manager at FSC|~|The usual verticals — most notably oil and gas — are driving the increasing growth but there are others emerging. “We are seeing a great deal of growth — not so much with standalone servers — but storage for verticals that require space for all their digital media,” says Dell’s McMahon. “Servers are required to process that data. We are seeing more clustering in the high performance markets of oil and gas and research. The improvement of telecoms throughout the region has also had a knock-on effect for the server market. Small companies can now establish themselves on the internet with a web presence more easily than they could have done a few years ago by using a server and simplified web tools.” Server power is integral to IT infrastructure projects and the trend of package selling seems set to increase. “Most sales of our servers are now in a solution area such as the storage area network (SAN) market,” continues McMahon. “Customers are coming to us asking for SAN type solutions and that impacts the servers as they are required to provide the processing on the front-end capability. So SAN solutions are certainly an area which most companies, both SMBs and corporates, are looking at as they plan their server consolidation as well as their storage consolidation.” A number of trends have yet to take off in the Middle East, most notably 64 bit computing. “At the moment we haven’t seen too much of a push for 64 bit computing except in certain niche markets,” admits Ferhad Patel, Intel’s MENA market development manager. “But there are obvious advantages in the increased performance. With 64 bit operating systems being launched over the next year or two, expect to see platforms such as Nocona become ever more common in the Middle East.” Buoyed by Intel, other players are trying their luck and moving into the server market. DTK branched out into the server market and is confident that it can succeed in the competitive server landscape. “We are a latecomer to the server market,” says Nimer Al Attal, managing director at DTK Middle East. “However we are catching up fast and our numbers show great growth thanks to our customer service, pricing and product performance.” Andrew Lamb at Acer comments: “White box assemblers might be losing market share in fact. With the prices of branded products constantly dropping and major vendors trying to get market space in the SMB market, such assembled products are going to come in for some serious competition in the Middle East server market.” Demand prediction is the one potential inhibitor to server growth. “The region’s economic situation obviously influences demand and this depends on factors not related to business,” says Lamb. “A very significant part of the business comes from tenders — up to 10% of server numbers. As not many customers show too much loyalty this can have a significant impact on volumes from quarter-to-quarter. Other players such as Sun are more confident. “Server numbers are fairly predictable,” explains Foster. “It follows patterns as with any other region. I track the trends in regards to my product set and have done over the last three years. I can get pretty close to what we will deliver on a quarter-by-quarter basis for sure and that takes into amount peak and off-peak seasons as well.” As hardware prices continue to fall servers will become ever more common in IT infrastructures across the Middle East. Volumes seem set to rise dramatically but margins will fall. As in every other part of the industry, channels will have to go to the next level and provide value-add services and support to buyers or else the most important factor when it comes to making a purchase will be price. “The competitive landscape is tough at present,” adds Foster. “Sometimes the decision to buy comes down to pricing which is a shame. I think there is more to buying a server solution than price. There are a lot of differentiators out there. Channels need to understand the benefits of a platform and then go out and evangelise.” ||**||

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code