Value-added services and the cloud may be changing the buying patterns in low-end servers, but the overall market for these machines will continue to be robust
By Jasmine Desai
The server market has always been dynamic and brewing with changes prompted by the emergence of new technologies, and the low-end server market is no exception. These changes are mostly driven by customer needs – leading vendors to gear themselves up. According to Sundar N Balasubramanian, Country Manager, STG channels, SI & ISV, IBM India/South Asia, “Nothing has or is changing overnight, but customers are asking for more business value proposition from this particular segment of servers. We do not look at volume or low-end servers as a basic features game. We align our strategy to what customer buying patterns are.”
For IBM, the low-end server market is targeted at the SMB market primarily. These are organizations that have basic application choices and do not have any sort of sophisticated IT needs. Their server deployments are for relatively simpler tasks.
Usage patterns
So, what are these buying patterns that are making server vendors change the course of their strategy? Sanchit Vir Gogia, Principal Analyst, IDC India, says, “HP, IBM and Dell are the strongest vendors in the market when it comes to low-end servers. Oracle’s acquisition of Sun derailed the entire low-end server market strategy. When it comes to buying, the most important thing that organizations look for is ease of manageability.” Scalability is another important factor in purchase decisions.
Apart from these, for organizations such as Apeejay Surrendra Group, there are other buying determinants as well. Mentions Subhasish Saha, CTO of the group, “The time has reduced a lot in identifying the right-fit server. For every requirement there are multiple vendors and an equal variety. But apart from the usual requirements like TCO and manageability, it is also important whether the box can operate in heterogeneous environments.”
For the Apeejay Surrendra Group, the use of low-end servers stems more from business constraints rather than choice. The organization operates on a virtualized consolidated environment. There are 72 server nodes on VMware platform. The organization has only one or two boxes managing the requirements of the entire group. The low-end servers are located in remote locations. There are certain business or productivity applications that need to operate in a hub-and-spoke model.
At the “spoke” or lower end of the hierarchy, only a couple of machines are needed and therefore did not have to be virtualized. For the majority of its 21 tea gardens, the organization needs local, low-end servers. For its Oxford bookstores retail business, it has a central server but for basic store operations like POS or local inventory management, there are local servers. The data gets updated to the central server from these individual nodes. Overall, 60% of the group’s servers are virtualized. Apart from the plantation and retail businesses, all other applications of the group run on virtual machines.
From the technology end, there are lots of changes that are creating demand for mass-market servers. According to Naveen Mishra, Principal Analyst, Gartner India, “There is an improved uptake of two-socket servers. Virtualization is leveraging these two-socket servers. A lot of customers are buying these servers when they are going for server refresh, especially x86 refresh, and that is where we are seeing a lot of uptake in low-end and midrange.”
In terms of offerings, every vendor, especially in India, is focused heavily on the low end of the spectrum, which accounts for more than one quarter of the market. There is a lot of traction for these among SMBs; in addition, a lot of large enterprises buy these servers for their peripheral applications or remote deployments.
There are two schools of thought when it comes to the question of vendors’ earnings and profit-margins from the low-end server market.
On the one hand, it is thought that this server segment does not offer much scope for profit. Says Gogia of IDC, “Vendors do not really earn on the percentage of these servers but how they earn is that they wrap services around these servers.”
Mishra from Gartner echoes the same perspective. “As low-end servers are predominantly commodity-type servers, there is not too much of a profit margin available. OEM vendors try to add value through management software and other kinds of utilities,” he says.
Vendors, on the other hand, do not agree much with this sentiment. Says Balasubramanian of IBM, “Customers are not buying servers for solutions or services wrapped around it. They are buying because of the value that it can add to the business.” Vendors definitely offer add-on services but those are due to the existing demand on customer end.
Nevertheless, overall the way IT is procured is changing. The services mindset is growing strongly and changing the enterprise purchase behavior. Says Gogia, “A low-end server would cost about Rs 4-5 lakh and it is not a server meant for everybody or that will serve all purposes. The way these servers are procured has changed fundamentally or is going to change. Vendors like HP and Dell are shifting their focus to the cloud as there is a lot of revenue potential there compared to selling low-end servers.”
Largely, low-end servers are procured through the channel partners, which has been the traditional way of procurement. Says Mishra of Gartner India, “The only difference is that there are a couple of added flavors wherein SIs are selling it with added value like virtualization, etc. Resellers are also acquiring new skills and adding the services component to the overall low-end server space.”
The cloud paradigm
Cloud computing has definitely contributed to an interesting twist or approach to these servers. The question is: would organizations still buy a box if given the alternative of a cloud service? The answer depends on the need and maturity of the organization and its overall approach toward cloud. According to Saha of Apeejay Surrendra, “I would prefer cloud to buying individual boxes unless it is something wherein there is a business constraint. I would question 20 times before buying a low-end box, because we now understand that more and more boxes do not serve the purpose in terms of TCO, and optimization of resources or power. Unless a business constraint forces you to buy these, never buy them.”
In future, the model around low-end servers will evolve through cloud providers, who will provide these capabilities on a pay-as-you-go model. It does not mean the cloud will pose a threat to the market for these servers. There will be a market for both cloud providers and organizations, especially because even organizations are implementing private and hybrid clouds.
All in all, the low-end server segment will continue to see demand. Says Mishra of Gartner, “The low-end range will continue to grow, especially the two-socket ones. Many organizations want to shift their mission-critical workloads on the x86 platform and, in that case, a two-socket server is emerging as a good alternative. I see a bright future for the low-end server market.”
