Putting Up with the Hardware Hassle

Arthur Cole

It's no secret that enterprise vendors have been struggling with hardware for some time. High volumes, low margins, manufacturing disruptions, shipping logistics, warranties — it makes one wonder why anyone would bother with hardware in the first place.

Of course, the simple answer is that we need it. Hardware is the foundation on which all data infrastructure is built, so even though it's a dirty business, someone has to do it.

It seems, though, that the one way to effectively sell hardware these days is to bundle it with software, services and other goodies that fall under the "enterprise solutions" label. That's the takeaway that ZDNet's Andrew Nusca sees when he looks at the steady stream of financial statements from the major vendors. IBM, for one, ditched its entire PC line in 2004, which cause quite a bit of hand-wringing at the time but turns out to have been a pretty smart move. Dell, HP and the rest haven't gone quite that far, but the fact remains that they continue to support their low-margin hardware platforms solely as a means to support their more profitable service and software businesses. It's a good bet that if they could find someone to take the hardware off their hands, they'd jump at it. But, alas, no one sees any benefit to a strict hardware play in the enterprise space.

This bundling strategy also explains some of the anomalies that have taken place in hardware lately. Cisco, for example, caused a buzz a few years ago when it launched its own server, putting it at odds with long-time partners like HP. The goal, of course, was not to simply get into the server business, but to launch the entire Unified Computing System (UCS) platform that combines network, processing, storage (courtesy of Fusion-io), software and services into a highly dynamic, cloud-ready enterprise environment. In this way, the company provides an all-in-one solution that utilizes its networking strengths as enterprises push their distributed architectures to regional, national and even global extremes.

On a micro level, many highly specialized industries are scrambling to shed their hardware pasts entirely. Norway's Encap, for instance, says large enterprises can save a boatload by shifting their mobile enterprise authentication platforms from hardware to software. A 3,000-person firm, for example, could cut $165,000 from the security budget through software, the vast majority coming from capex costs that drop from an average of about $200,000 for a hardware-based, one-time password (OTP) system to $9,000 for device-based software. Annual user costs, meanwhile, could drop some 60 percent.

And keep in mind that this whole idea of buying someone else's hardware and making it your own starts to break down as enterprises grow to gargantuan size. Google has long made use of its own server technology that it receives directly from manufacturers in Asia, and now it seems the company is applying this strategy to its network infrastructure. Other top firms like Facebook, Yahoo and Microsoft are also pursuing this route, so much so that if they ever decided to sell their systems on the open market they would pose serious challenges to established hardware vendors.

That's unlikely, however, considering that pesky margins issue. If you're making oodles of cash through software and services, why take on all the complexities of building, shipping, installing and servicing actual products? After all, you've already found an easier way to make a buck.



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