The general consensus in enterprise circles these days is that even though future performance gains are likely to be driven by software developments, hardware still matters.
Whether or not it needs to be branded hardware, however, is another question entirely.
This is why we’re seeing long-time platform providers taking such divergent paths when it comes to their hardware portfolios lately. IBM, for example, recently turned its x86 server line over to Lenovo, which at first blush might seem like cutting off its own right arm – after all, IBM has been synonymous with enterprise infrastructure for nearly half a century – until you realize that the unit had been underperforming for some time. The company has also made no secret of its desire to shift to a more software/services-focused footing since the modern virtualization era dawned more than a decade ago.
But if IBM can’t make a go of servers, what makes a company like Lenovo think it can? Well, as Forbes’ Roger Kay put it recently, “one company’s reject is another’s potential goldmine.” In short, Lenovo is in a much better position to compete in the commodity server market because it can get by more easily on a lower margin basis, even against the new white-box manufacturers that are tapping into the growing hyperscale movement. It is the same dynamic that led IBM to sell its PC business to Lenovo in 2004, and the result is that Lenovo is now the market leader in that sector.
If you look across the board, in fact, nearly all of the top platform providers have had to scramble to reposition their hardware portfolios. HP recently teamed up with Foxconn to build low-end machines for cloud providers, while EMC recently unveiled its ViPR software to keep a foot in the door with the rise of commodity storage platforms driven by advanced intelligence in the management stack. According to the UK Register’s Jack Clark, the need for massive scale in both the cloud sector and the traditional enterprise space as it takes on Big Data and other volume-driving applications will only accelerate the race to the bottom on the physical layer. High-end, purpose-built infrastructure will still have a role to play, but the growth will be on the low-end commodity side.
In fact, EMC is emerging as a template as to how a long-time hardware-centric vendor might be able to manage the transition to software-defined infrastructure. The company’s Project Liberty features a virtual recreation of the VNX hybrid array capable of running on a commodity hardware platform, which can then be extended across cloud or remote sites. It is, in effect, a nod to the fact that future storage infrastructure will rely on advanced hard disk and Flash technologies, but not necessarily from one manufacturer. The project is still in its initial development phase, so it will be interesting to see if the company pursues a pure software approach or opts for a value-added hardware component the way some of the top networking vendors are positioning their SDN platforms.
The big question, though, is whether the margins, and the volumes, on the software side will match the expected declines in hardware. Sales and distribution overhead is generally lower on the software side, but development and back-end integration can be a real hassle. As well, a popular hardware platform’s lucrative revenue stream is not that easy to surrender, but there is also a danger in holding onto fading product lines too long, resulting in a lower sales price when the inevitable does occur.
IBM seems to have learned these lessons already. It remains to be seen whether they will be adopted by the enterprise vendor community at large.