Dark horse or white elephant: will the white-box server market rally?

Dark horse or white elephant: will the white-box server market rally?

The white-box market has fortuitously avoided the PC curse of being dubbed clones. But when you're up against some of the world's biggest marketing machines, the likes of IBM, Compaq and Hewlett-Packard (HP), it's going to take a lot more than luck to succeed. So how does the unbranded server market continue to maintain its market share and prosper? In fact, the white-box server market is so healthy; most observers are touting it as a growth industry for the next six to 12 months. How does the channel succeed in this space?

Beating the odds

Last year was a particularly bad year for white-box servers globally, after several high-profile component shortages. What's more, according to research company International Data Corp (IDC), the worldwide server market has fallen 4 per cent in the first quarter of this year compared to Q1, 2000. Not a good sign.

In Australia it's more of the same. IDC reports the server market plunged 15.1 per cent in the first quarter of this year.

"Last year was very difficult for the white-box server market, but the fact the economy has been slow has given time for manufacturers to get components," says Logan Ringland, senior analyst of computing hardware for IDC.

According to IDC's definition, which excludes the top-tier local manufacturers, true white-box servers account for 4.4 per cent of the total server market. As Ringland points out, with 1.06 million SMEs (small to medium enterprises) in Australia, that's not necessarily a market to forget about.

Pitching the sale

Robert Lee, managing director of white-box distributor Adecs Computers, claims the best strategy for selling white boxes is emphasising the flexibility of the server. He claims additional options such as selling a RAID (redundant array of independent disks) server gives the reseller added leverage when it comes to satisfying customers.

Wrapping services like specialist configuration around product sales to provide the all-important solution sell is not a new concept. With the major server manufacturers hungry for more market share and dropping prices to get it, solution selling becomes a key differentiator for peddlers of white box servers.

Ringland feels that for white-box server manufacturers to survive they must extend their offerings beyond hardware. "White box manufacturers have to provide more than the box. Price alone is no longer the differentiator against branded manufacturers. They have to provide some kind of solution, whether it's training, or offering to network the box - either way it has to be a solution sell."

Intel Australia's Sean Casey, architecture product marketing manager, agrees. He believes resellers have to ask themselves, "what am I offering to the market?"

Marginal growth

Casey claims the channel is continually reinventing itself when it comes to selling white-box servers. The margin squeeze on un-branded PCs, and the PC market in general, has forced resellers to search out new opportunities. The obvious progression is to move into servers.

"If you look back over three or four years, we're seeing more dealers selling [white-box] servers now than ever before," says Casey.

"Price isn't everything. The growth is coming from servers that are moving up the value chain," he adds.

Effectively, bigger boxes mean bigger margins, at least for the time being. This is made possible, argues Casey, by larger companies' acceptance of white-box servers compared to major branded vendors.

When it comes to gruntier servers, Adecs' Lee feels a lot of SMEs are being sold servers where the computing power far exceeds the customer's needs. While it's great to offer scalability, he claims over-selling on power and features can be a Catch 22. According to Lee, resellers who over-provide on server processing power are running the risk of extending the natural sales cycle of the customer beyond the standard three years the company had initially intended to keep the box.

Racking up the sales

One sector of the server

market is becoming a hot ticket item for resellers, says Casey. It is the rack-server environment. Adding white-box rackable servers to a reseller's arsenal is a good way to round out a channel company's product range.

"It's all about having the right product for the right customer," says Casey.

Besides the rack option one of the big market drivers, according to Bob Harris, Queensland state manager for distributor BCN Technology, is proxy and Web servers. With more and more Web sites being built, plus the fact that for a large number of companies the Web or proxy server isn't mission-critical, white-box servers are a good option.

Harris, sees the white-box server market through the axiom, "more consulting than selling". He argues that sitting down with the customer to work out what they need is the key to out-positioning traditional product line offerings sold by the major server vendors.

With unbranded servers gaining acceptability, Harris claims one of the biggest advantages they have is being on the leading edge of technology. He says being able to combine the latest of components brings better technology to market faster than a vendor can launch a new model.

"White-box servers react quicker to market changes. Customers are more innovative than they were two years ago, we can build a server to suit what they need," Harris says. "The end user really knows what he wants, which makes life easier for everybody."

Silver linings

While the outlook appears promising for the white-box market, Alex Chan, vice president of authorised Intel assembler, warns there are some ominous rumours circulating in the channel. Word on the channel is, due to the worldwide market slowdown, the big server vendors have a lot of excess stock they could dump on the market. Chan claims this would really impact the sale of white-box servers, "but you never know until it happens".

Chan is one of the most ardent believers the white-box market is set to grow, but admits a national election coming up in the next six months will apply the breaks for the SME sector.

Meanwhile, resellers and component assemblers have been given another string to add to their bows; the introduction of AMD's chips to the server market. AMD launched its new Athlon MP (multiprocessing) chipset earlier this month. John Robinson, AMD country manager Australia and New Zealand, claims the release gives component assemblers a choice of CPU (central processing unit) platforms for the first time.

"Now we offer an alternative which will drive the market in a competitive way," says Robinson.

AMD signed up three manufacturing partners; ASI Solutions, Optima Computer Technology and Xenon. Robinson is optimistic AMD's entry into the server space will be well received by the channel as the vendor attempts to crack the enterprise market.

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