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Whether you know them as AS/400s, iSeries or System i, Big Blue reckons recent price changes on its mid-range servers will open plenty of doors for resellers plying their trade in the SMB market. ARN, in conjunction with IBM and Avnet, brought together a select band of partners for lunch in Brisbane recently to discuss new opportunities.
Brian Corrigan, ARN (BC): These mid-range servers have been around for a long time. So what is new?
Raj Thakur, IBM (RJ): For the first time we now have a product that is truly aimed at what I would call the SMB market. That means a lot of different things depending on who you talk to. For IBM, an SMB customer could be something as large as Dairy Farmers. At the other end, some customers don't have a lot of people but spend a lot on technology. We are aiming at a point in the market that has traditionally been a sweet spot for Intel-based servers, particularly in the applications space at that price point. This is 40-250 users.
The opportunity for us is about how we are packaging the product in line with how SMB customers are buying their technology, particularly operating system licensing. We are moving to user-based pricing and employing a model where we deliver full capacity. In the past we have not given customers full access to the power within the machine; it was governed to a certain extent and you had to pay extra for more processing power. This means customers can now run additional workloads without additional costs.
BC: So where do the resellers here today see their sweet spot and what impact do you expect this announcement to have?
Norm Jeffries, Computer Merchants (NJ): We have a client in Melbourne that has been looking at refreshing old technology for some time. The server they are running now is seven years old. The solution they wanted would have cost about $300,000 for two servers and a little bit of high availability software. The new announcement has brought that price down to $200,000. It was unlikely they would get it into the budget at the old price but now it looks like it will go ahead.
We have some customers that might only have five or 10 users but currently run their business on System i. I guess they welcome any opportunity to see that sort of saving and it will definitely have a big impact for them. Our sweet spot is really servers around $50,000 and below.
Steve Murphy, Frontline Systems (SM): We have seen big price drops from various hardware vendors and our volumes have gone up. That has been great to see. As far as our sweet spot is concerned, it is definitely $50,000 to $100,000 server plus storage and managed services business.
Mark Johnston, Service Elements (MJ): We would be pretty much inline with what Norm [Jeffries] said. The new pricing really does advantage those organisations that have 5-40 users because user-based pricing fixes problems there. They might have been looking at boxes with a list price of $150,000 but now find they are a hell of a lot less than that. It's opened up opportunities for those organisations to stop and think whether they need to go away from an environment they have known and loved for years but perceived as very expensive to own. They can roll the dice again with a new box instead of turfing it all out and starting again with Intel machines.
Kon Kakanis, Sundata (KK): In terms of existing customers, reduced pricing is dislodging a few projects that were stuck. From a business point of view, as a reseller, if the price performance is such that it's now half the price, I have to sell twice as many to retain my gross profit. The challenge from our perspective is not just to take the easy deals but to leverage this change in pricing to effectively double the number of transactions we close. It's not going to go anywhere unless there are solutions and they are typically led by applications or mixed workloads. That means I can swan into a guy with 50 staff who currently runs Windows and nothing else with a story about why he should spend $50,000 on one of these [mid-range servers] instead of having three, or five, or seven Windows boxes running the same workload. There are only two places to grow - we are either going to start taking business off each other in the existing pool or we are going to convert users from Unix and Windows. I'm sure we will end up doing both.
Michael Costigan, Avnet (MC): Customers want solutions to business problems. The mid-market wants solutions that are reasonably priced and easy to install so projects don't drag on because they want to get back to doing business. The feedback we get from resellers is that they don't want turnkey solutions; they would rather have a couple of options. From an Avnet perspective, the System i box is powerful, reliable and scalable but can now be taken to customers that demand affordable pricing.
Paul Beks, Information Builders (PB): It's great to sit here listening to people talk about applications. We are doing things to enable boxes in the SMB market by providing an efficient reporting tool for that environment. Business intelligence is one of the most important things that people are trying to do. Some of the things we are doing to help IBM is increase the usage of machines, so customers can invest in getting full utilisation, and hopefully opening up new markets.
BC: What applications are top of the list for mid-range server customers?
SM: Companies such as Oracle are moving to a software-as-a-service platform in a big way, QAD is another one, and that means those applications are going to be ready for the smaller end of town to take on board. That is a great opportunity for us to fully manage those environments. If these mid-range servers are bundled with applications that can be fully managed then we are going to see some activity.
KK: We have an application we built that was developed on a mid-range server using a technology that made it very easy to move to different platforms. Up until now, individual clients tended to move to a Windows environment whereas the infrastructure we are using to host the application in a software-as-a-service model is on a mid-range server. From our perspective it's a real no-brainer. If I want to run multiple organisations across the Web and host our application from one reliable platform with lower cost of ownership, then I'm going to stick it on a mid-range server. The real challenge is due to the fact that the business case goes over more than one year because budgets don't work that way. It's the same when you are selling blade servers or SANs. It's not about what's cheaper over the life of the product; they want to know what is cheaper over the first 12 months. That is the challenge we have had but the price adjustments mean we can compete in the 12-month assessment and offer even bigger benefits after that.
BC: With the increased capability of Wintel boxes and falling prices in the mid-range server market, how is that going to play out over the next couple of years?
Darryl Tucker, Avnet (DT): I think the System i business will keep growing. The good thing about IBM is that it has always been good at partnering people up to get solutions out there that combine hardware, software and even services. The more this happens, the more we can all make money. We are all in this to make a quid. We don't want to just sell a box. There has been a change recently where people are asking for solutions rather than cardboard.
BC: But when you are talking to a customer about Wintel and mid-range servers, why should they deploy one and not the other? What are the relevant advantages?
DT: The Wintel boxes are what everybody is used to but people are getting away from that. The good thing about customers is that they will tell you what they want. They just want you to make it easy for them. Solutions are based more on top-end boxes rather than putting 10 blades in.
KK: In the past five years there has been a real mantra in the Windows world about one application for one box. If you want to run Exchange you have an Exchange server; if you want to run SQL you have a SQL server. All of a sudden you turn around and you have 50 Windows boxes. It is reinforced by the fact that being a Microsoft Certified Systems Engineer [MCSE] with a SQL specialisation has become a legitimate career path. People come out of high school and say they want to be an MCSE; they don't say they want to be an OS/400 specialist. What's changed in the past year or so is the arrival of the virtualisation bandwagon. The iSeries has been doing virtualisation forever; it was 64-bit eight years ago and has had logical partitioning for 6-7 years. Virtualisation is part of how it works. Now people in the Windows environment are moving away from having 50 servers into a blade environment or a quad-core [Intel] Xeon environment with VMware on there and a SAN in the back. All they are doing is moving the workload into the model that the AS/400 has been doing forever. The goalposts are moving back to favour the mid-range approach, and Unix can say the same I think, so the religious arguments around Windows versus the mid-range will be a lot more interesting in the next year or so.
NJ: One thing we have to remind ourselves of in the iSeries space is that the 'i' stands for integrated. We are in the middle of a reasonable sized project at the moment with two iSeries machines doing high availability and automatic failover with blades all integrated to the iSeries. When all of the gear arrived at Avnet there were 97 cardboard boxes. The iSeries accounted for three of those including the rack. So when you talk about the amount of integration in this stuff, I think I would rather have my three cardboard boxes running a whole heap of applications that are virtualised as opposed to the other 94 that my two technical guys are still working on two-and-a-half weeks later. We are not selling the value proposition of these things and maybe unlocking the technology promise is part of the challenge.
RT: We are the only product on the market today that is fully integrated with the operating system, database, SAN and security all built into the machine. When the customer gets the product, all of that functionality comes straight out of the box. Small and medium business does not want to be integrating all of that stuff.
KK: If System i was released today with no history it would be called a five-in-one appliance and everybody would know what you were talking about.
RT: We believe we are at a crossroads where for the first time we have a fully integrated machine, the application and price point to go after a market that has been lost for some time. Applications are big but I still feel there is an infrastructure play around simplifying customer complexity. If they do have a complex environment - and most will have a little smattering of Unix, Wintel and something else running an application - there is an opportunity to go in and help them. Security is a big issue and we have never known a virus to take a System i machine down.
Ivan Hecimovic, Avnet (IH): Typically when an announcement is made I get partners asking for an explanation. With this recent announcement I have been handling Windows partner calls and that proves IBM has hit a sweet spot because those partners want to know how to position these products.
MJ: Or they want to compete against them, which is also a good thing.
SM: From a managed services perspective, we have something like 250 racks of customers now and 60-70 per cent of those customers don't even know what they've got running. If we can architect something that is robust and easy to manage then we are going to be putting that in every time.