Fatter margins, simpler servers

Remora is in the sweet spot for resellers set to capitalise on the trend towards simpler server architectures to deliver fatter margins.

Business customers keen to simplify their IT operations are tilting at systems that integrate storage with networking and processing. It saves labour and risk to design, build and test a solution from components and lets resellers sell higher-value services such as management and analysis tools.

The Melbourne integrator is training its 12 staff in readiness for the shift that threatens to unseat traditional server resellers. “We are focusing on getting our guys skilled across the portfolio of products so they can deliver them all,” says Remora chief executive officer Robert Silver. “That’s where we’re heading right now – application to disk where it’s a complete, end-to-end solution.”

The inherent optimisation that is in such systems eliminates a “fairly substantial cost from the systems integrator perspective”.

It is more expensive for customers up front but they will get their investment back on savings for professional services.

Silver smoothes this apparent contradiction: “You’re making money out of the infrastructure that you’re selling but also professional services in deployment, implementation and customisation. But time to deployment has been reduced significantly.”

And customers are so happy with faster project delivery that it engenders strong loyalties.

“It’s more about retention. On the other side of it your reputation as a systems-integrator partner will help you secure new customers because the speed to deployment is quicker and it will save the customer more money.”

Gartner data centre analyst Phil Sargeant says the payoff for the reseller is a “lot more margin than just hardware”. “An X86 (server) could cost $10,000 and one of these boxes could cost hundreds of thousands,” Sargeant says.

Sales projections are small and Sargeant estimates that of the millions of servers sold a year, integrated servers will count for only several thousand worldwide and just several hundred in Australia.

But the only companies with expertise and virtualisation skills to implement such systems will be big resellers – and vendors’ direct teams, Sargeant says.

“It’s only going to be the high-end partners who can do that. Lower-end partners will still be pushing product out the door. You can’t add a hell of a lot of value to a two-socket x86 server.”

First steps

Resellers can cut their teeth by turning first to optimised architectures. Vendors such as Oracle, HP and IBM dole recipes for solutions optimised for applications built from their respective hardware portfolios.

The goal is to reduce the design investment and to cut errors integrating components but the systems integrator still needs to put it all together. Silver’s Remora is going the Oracle route, following on from the reseller’s heritage in Sun Microsystems that the database software maker bought last year.

The Exalogic is in its sales pipeline but Silver expects that appliances will follow for Oracle software such as JDEdwards, PeopleSoft, Fusion Apps, Siebel and E-Business.

He says that although IBM and HP promote architectures for Oracle software, Oracle has a home- ground advantage because it owns the intellectual property. Chief technology officer for Oracle’s line-of- business, Angus MacDonald, says the VCE alliance, HP and Microsoft have to compromise their designs to prevent sharing too many corporate secrets.

“I couldn’t see the VCE effort doing something like what Exadata does,” MacDonald says.

“We’ve taken part of the database code itself and we’ve put it in the storage device.

That would be very difficult for VCE to deliver because it would require two or more companies sharing trade secrets that they might not be willing to share.”

He says Oracle has “no vested interest” to force the database work on to the server.

“We can say it makes more sense to do some of the database acceleration into the storage or it makes more sense to build some of the flash acceleration into the database. HP and Microsoft will have to do it by cooperation and I think there will be areas they will have to compromise on. We don’t have to compromise.”

Making the integrated sale

Most vendors are moving to a converged strategy with similar sales pitches.

HP StorageWorks business manager Mark Nielsen says resellers should stop focusing on the server: “It’s all about applications running on our infrastructure”.

I

ts integrated infrastructure portfolio is the Blade System Matrix, hardware in a rack; VirtualSystem, a Blade System Matrix with one of the three major virtualisation engines installed; CloudSystem Matrix, pret-a-porter management software and portals and the App System that adds applications. The first AppSystems is for SAP and SQL databases.

Nielsen says it’s “not a big stretch” for resellers who don’t have to spend more in training.

“If you look at the VirtualSystem, it’s a repackaging of what our resellers are talking to customers today,” Nielsen says. “Resellers are already talking about converged infrastructure but now they are packaging in the virtualised engine as well.”

“All we are doing is make it much easier to configure it correctly and getting it up and running in the customer environment quickly.”

But that doesn’t mean that any reseller can sell VirtualSystem: “I think the skills are there within our resellers today to go out there and have an intelligent conversation with our customers today”.

“Now it is easier for them to talk about the whole solution, and it’s more difficult to get the solution wrong (because integrated systems are preconfigured). This just helps them configure those solutions more quickly.”

HP also sells appliances akin to mainframes, the latest of which is the E5000 messaging system for Microsoft Exchange suitable for organisations with 500 to 15,000 seats that starts at $30,000. “It’s not an expensive solution by any stretch of the imagination,” Nielsen says.

Its timing coincides with the deployment of Exchange 2010; Microsoft says two-thirds of users with Exchange have the eight-year-old version and that 78 million mailboxes will shift across in the next two years.

Spinning servers from networks

For a networking company, Cisco quickly sold a lot of servers. Analyst IDC’s Asia-Pacific x86 processor server tracker said that by May, Cisco’s UCS (Unified Computing System) had a 12 percent share of Australian and New Zealand blade servers for third place after about a year  on sale. And Cisco claims third position in global x86 blade server factory revenue, a slightly more obscure statistic.

Cisco’s Dylan Morison, data centre lead for Australia and New Zealand, compares the impact of integrated servers or “fabric” computing to the disruption caused by IP telephony.

The telecommunications market had many private- branched exchanges but technology convergence from IP telephony brought greater flexibilty, efficiency and new applications.

“What we learned was that you couldn’t get legacy systems and just plug a blade in and say we had IP telephony. You didn’t have the same flexibility, scale and other things,” Morison says.

“Servers are the same. You have legacy systems that are trying to put a software stack on top of the hardware and trying to give you the same flexibility.”

The step up from UCS, which combines networking and processing, is the vBlock that has EMC storage. As with other integrated server vendors, the focus is on the ease and speed of deployment for application systems or cloud environments.

Morison says vBlocks are sold to those looking for fast returns. NetApp’s version is the FlexPod but both cut complexity through integration.

“The vBlock only has one plug out of the back,” he says. “You literally power it up and off you go. From that point of view you’re delivering a solution you’ll tend to get better margin with a customer than deploying a blade or a switch or a router, where you’ll be commoditised down to a very low margin.”

He says the key to the integrated server sale is making sure the customer understands the benefits of architecture; it is flexible and efficient and that cuts costs in the long run.

Customers are not managing discrete silos; they can see all resources and networking is optimised for server workloads and tasks.

He says the customer doesn’t “care what piece of tin goes in there. They care about how easy it is to manage and support and how scalable it is”.

Cisco claims improvements of a fifth to a third in networking and half in processing performance. Cisco’s 

channel has a cut-throat reputation and the expansion into servers has accreted more resellers and how many products they sell. But it handles conflict “no differently to how Cisco operates normally”, says Morison.

He says at Cisco there has been consolidation, such as the merger of NTT and Frontline, and Cisco has a purely channel model and doesn’t compete with its partners in managed services or outsourcing.

“We’re out there competing against our competitors who are competing with systems integrators,” Morison says.

IBM Netezza ‘just like iPod’

IBM has also bought appliance vendors to bolster its position in the return to the mainframe. Witness its steps to challenge the data warehouse market when it bought Netezza. It has one job – to simplify the data warehouse, says IBM account executive Roger Walker.

A data warehouse has a database, processors, operating system, disk drives and communications. The Netezza replaces it with an appliance that he says “is just like an iPod”.

“You don’t need to know what operating system it’s running," Walker says. 

“If you’re looking at a warehouse that needs to be mission-critical then you need a system that’s designed to be self-regulating and healing. That’s what our bottom-level system is designed to do.”

The entry Netezza Twinfin is “a few hundred thousand dollars”, Walker says and the average price is in the millions of dollars.

But it may save customers millions of dollars in integration, Walker says. Costs for a data-warehouse project include the hardware, software and implementation.

The difference with data warehouses is in the complexity of the back-end and front-end interfaces. The back-end collects data to be verified before it comes into the warehouse and the front-end displays it through queries made using business-intelligence tools.

“The nice thing about Netezza is that you’d spend a lot of the budget on that middle aspect (integration) but now you can simplify that and bring the cost down,” Walker says.

“In the old days, you’d be talking tens of millions of dollars. Now there’s more room for resellers to get the front and back-end right and deliver better outcomes to customers.”

“We have examples where people have literally had the appliance arrive in the afternoon, we put it together, run diagnostics and then hand it over in the morning and it’s ready to go to load data.”