SERVERS - Are you being SERVED?

A server can cost a mere £1,000 or a hundred times that. How can resellers carve themselves a slice of such a diverse market?

Like so many aspects of the industry, the server sector is all aboutn resellers carve themselves a slice of such a diverse market? focus. 'You can buy a server for £1,000 or you can pay £100,000 for one - but they are both servers,' says Ian French, PC and server business unit director at Ideal Hardware. 'Resellers and manufacturers have to decide which market they are targeting and adapt their products to fit that sector.'

Pete Reed, strategic marketing manager at Bull's server division, agrees there is little to differentiate between products and even less differentiation that anyone understands. This is why, he says, everyone has to be more focused.

'No organisation today - Var, distributor or vendor - has a business model that can profitably encompass all of the demands of an increasingly complex market. Those which succeed will be those that are clear about their role and can work alongside partners in a variety of ways to configure and deliver the right mix of systems. And as customers demand more, this will become an increasingly difficult task. It's time we took a fresh look at how we deliver technology to customers and partners.'

There are too many manufacturers and resellers chasing the same business with products that are not very different from each other. Servers are platforms for applications. The low-end is very price driven, but the high-end of the server market is a real money-maker - if you can get the business. Many users continue to place essential applications onto Unix boxes these days, but the threat from Microsoft's NT is serious.

Microsoft's system brings the price down but for the high end, has yet to prove its reliability and scalability. Even so, the NT era and the relatively recent arrival of Small Business Server (SBS) has sparked off more interest in the so-called PC-based server machines that use Intel processors and standard architectures.

With NT 2000 and 64-bit development still to come, and with the advancement of multi-processing and clustering continuing, there is plenty going on in the server market. But the revenue stream for resellers is changing and, for one reason or another, everyone involved in this sector has to start adapting to those changes or risk losing the shirt off their backs.

'Unless companies decide what they are doing and who they are doing it with, they will get lost,' says French. Andy Isherwood, director of channels and systems at Hewlett Packard, agrees. He says the server market is now 'totally applications driven', but it is essential that resellers embrace updated applications.

'The whole market is going to change and it will become very difficult to distinguish between the telcos and the ISPs,' Isherwood predicts. 'Data will become the mainstay and voice will be a commodity. Vars will either have to get into that business or die. ERP vendors are not having a good time at the moment and those that bank their business on ERP only are not going to be around for long.'

He predicts the areas that surround ERP - customer relationship, supply chain management and, beyond those, e-commerce - are the applications that will drive server sales over the next two years. Isherwood's view is backed up by John Toal, sales director at HP distributor PSL.

'In ERP there has been a slowdown because of year 2000, but that's a short-term issue. In contrast, the ISP and telco market has taken off.

Those firms have no choice but to invest because it is so competitive.'

HP has reorganised its channel groups and the focus for the enterprise business has been changed. The manufacturer is concentrating its efforts on selling systems and, as well as working with ERP vendors such as SAP and Baan, is looking for partners in the e-commerce, internet and telecoms sectors, such as PSINet and Broadvision.

French thinks manufacturers must adapt their products to meet the applications needs of users very specifically now - to be email servers, caching servers or to run a particular Unix flavour, perhaps Linux. Most vendors already do this, but with their own Unix version. However, in the mid-range of the market, Unix is increasingly not open enough when compared with NT.

But Unix is not dead, says Toal. When companies are looking at applications that really matter to the business, £10,000 more or less in price does not make a great deal of difference - what does matter is the reliability of the system.

E-commerce is becoming more important, adds Mark Byatt, marketing director of Sun Microsystems and HP reseller, Morse. 'Very few people are bringing in applications without thinking about the implications of e-commerce now,' he says. But ERP and other critical applications are still driving sales. 'Some business is ERP - SAP and Oracle - and a lot is special line business applications with niche applications vendors. Some of it is data warehousing and server consolidation,' Byatt adds.

Consolidation of servers - installing larger servers and cutting down on the number of boxes and thus the management of the servers - is a distinct trend now, according to Byatt. This is raising other issues, he says.

Servers may be consolidated, but network traffic and storage needs to be managed efficiently and storage will often remain highly distributed, not condensed into one location. Allocating the cost of the storage and its usage to different functions on the network is a problem - and thus an opportunity - in itself.

Ian Davidson, UK marketing manager at Olivetti Computers Worldwide, says competitive pricing in the Intel-based server areas is also helping to drive SME demand and thus NT adoption. 'Faster, bigger configurations make servers more attractive to SMEs. This results in some switching from Unix to NT-based platforms.

'To be honest, a lot of this is related to demand for better, more resilient and easier to manage server platforms for established applications,' he adds. 'But we're seeing e-commerce increasing hunger at the high end for high-availability configurations to handle back office Web applications such as mail servers or host intranet or internet resources.'

Ken Batty, marketing manager at IBM's RS/6000 operation, says there is strong growth in the SME market. Applications are the driver here as well, due the increased competition in all markets. 'We're seeing business intelligence applications and data warehousing being downsized into the SME space as data marts.'

IBM's definition of the SME market is different to the one most resellers would recognise. Phillip Mitchell, managing director of Surrey reseller IntraLan, says SMEs are going for NT and the SBS product has really lit up server sales. 'We are probably doing one a week at the moment - either full monty Compaqs or our own-built systems,' he explains. 'Both the pricing and the functionality are sensible now and for the small end of the market, SBS has been a godsend. NT was just a little bit heavy duty before.'

Dealers can provide a 10-user version of SBS for £1,200, which makes it affordable for smaller users. Mitchell also stands up for the hardware sale in this sector. He agrees it is application driven and most of the profit is in the associated services, but two-thirds of his revenue comes from products still - one-third from the added-value services and ongoing support.

On server business, he adds, it is possible to make an overall gross profit of between 40 and 50 per cent. The service makes all the difference.

If an engineer's time can be sold at £700 a day and it costs only £150 a day in basic costs to run that individual, a 10-day launch project will make the dealership £5,000.

For dealers such as IntraLan, the name on the box is not very important as long as the customer wants it. In the lower end of the market with Intel-based boxes, the differences between systems are fairly minor. But significant differences remain between the top-end systems and product ranges as a whole, and they are likely to remain for some time.

IBM still has PowerPC chips in its RS/6000 range and Intel chips in its PC servers. Similarly, Compaq has the Alpha range and the Intel-based Proliants. HP has PA-Risc and Intel-based machines and has now joined forces with Intel on the 64-bit IA64 (Merced) development. But that is still trailing the advance of Alpha. Sun has only its Sparc products but is putting Solaris onto the Intel platform as well. That has been seen as a move towards the eventual abandonment of the Sparc architecture for the Intel 64-bit machine.

Everyone is still trying to claim uniques for their whole range. At the same time, the channel is trying to support whatever the customer wants supported - to be all things to all users. Ian Stewart, marketing manager at Siemens, says: 'In general, it is always good to focus on core areas, but we still put ourselves across as providing a full range of servers.

We have increased our focus on product areas - security, Linux and the year 2000 - as well as high availability and clustering.'

Linux demand is being driven by the need to do something about year 2000, he adds. But Siemens, in common with other vendors, is still supporting NT and just about everything else it thinks it might need to get its volumes up.

NT is the dominant force on the Intel platform, but Unix in various flavours running on a variety of Risc-based products provided by other vendors holds sway. All the top names still provide products that fit in both camps - with the exception of Sun at this stage, and it is not going to cull its ranges until it is compelled to do so.

The line taken by Richard George, Alpha server product marketing manager at Compaq, will certainly be mirrored by his counterparts at IBM and HP.

'Proliant is aimed at NT, SCO and Novell; Alpha is pointed at high-end NT and 64-bit. No one can touch us there. We also target high-end Unix and VMS for essential environments and if you want the ultimate in availability, we've got non-stop kernel products.'

Compaq, in line with its chief competitors, wants to offer systems that stretch right across the enterprise - from the small office server to the data centre system that never lets the corporation down for a second.

It is a massive task and one that cannot be done today with one architecture.

But everyone still agrees that the market can't continue to support such a confusing array of all-things-to-all-applications servers.

George thinks there will be only two processors in the game within a few years. 'IA64 will capture the volume market and Alpha will deliver the performance for essential applications, with something like a 70:30 split. But the really important area here is NT/Unix integration. They won't conflict and it will be down to us to make the interoperability as seamless as possible.'

Of course, as a Compaq employee, George is expected to take this line - just as Sun would contend that Sparc will have a life and HP that PA-Risc will. In truth, it may all depend on just how much muscle and weight is put behind IA64. But that is a vendor affair and user comfort will probably drive the consolidation there eventually. The industry can expect a speed war to develop between Alpha and IA64 over the next few months, although it may be more of a war of promises than deliverables.

The acknowledged fact here - even if NT and Unix do co-exist for many years - is that there are too many architectures and products. This will have to end because it really doesn't matter what processor is inside the box, as long as the reliability and performance are there to support the application.

Unix is still doing well because of the uncertainty over when a sound, stable, proven 64-bit Wintel system will be delivered. Companies can't wait - they have to put new systems in before year 2000, cope with the euro, as well as stay competitive.

According to George, Unix unit sales dropped two per cent last year but revenue went up 20 per cent. More companies are putting critical applications onto the Unix server. This trend will continue, he predicts, because Unix is much more developed and mature and can adopt mainframe ideas more readily.

Its scalability is proven. NT is a long way behind in these terms at the moment. It comes down once again to applications - they have to run on these boxes, whatever is inside them.

Differentiation is not about power alone anymore, says Isherwood. 'Performance is one element, but it's also about support and finance. Users want to know if its going to work and how much risk goes with the application.'

This is also why the need for resellers will remain, says George. 'It's in the middle ground that the channel can add value, integrating applications and doing ERP and MRP. You still need people on the street doing implementations. Companies want to provide customers with something that none of them can do, and that comes down to software and service. Having 99.99 per cent uptime is all very well, but if the software crashes ...'

Sarah Fisher, marketing manager of enterprise services for Sun Microsystems UK, says the revenue potential in this area is increasing. 'We are selling a lot of servers into companies which are dependent on their systems and, as margins are squeezed, resellers have to look for other sources of revenue.

Services give them the opportunity to differentiate themselves and to talk to the customer about other issues.'

The UK services sector is growing at 40 per cent, she adds, and companies want to work with the channel. Sun, like most vendors, will allow resellers to sell its services on a commission basis, or it will provide them to the customer on the reseller's behalf. Alternatively, it will step back if the reseller is providing its own services.

Sun is looking to package its services to make their reselling easier.

If dealers want to play in this market, they have to invest, says Fisher.

'The channel wants to do more of the delivery now and we are looking at what we can package up and give them to deliver. But we need to look hard at that because customer loyalty and service delivery are all important in this market. We need to be able to guarantee the customer that they will get the same level and quality of service from a reseller that they would expect from Sun. That requires investment from the resellers.'

Davidson says the opportunities for resellers here are not confined to the big sales. 'Services and support are where the sweet spot lies. Resellers also have to get their heads around the potential of e-commerce because it is affecting customers faster than expected and there's a great deal of confusion, especially among SMEs.

'Value can be added by thinking more about the storage and associated infrastructure to ensure high availability. Vendors can help here, too,' he adds.

There has to be a concern that the services end of the business will also start to come under pressure as vendors see their own margins squeezed in other areas and they seek out higher margin areas of business. The encroachment of the direct model on the lower end of the server sector is already in evidence.

Most server vendors profess their commitment to the channel for server business, but a significant percentage of sales are sold direct. The pressure is on in the lower end of the server business - where boxes are available for sub-£1,000 - and Dell can't be ignored. At the high end, the nature of the applications means users continue to demand direct vendor contact.

It's what customers want, but it does not mean that Vars are excluded, says Isherwood.

'The customer wants the direct touch from HP, SAP and the other key vendors. But they also want to know the best way to implement and run the system. Can we do all that? No, we can't and nor can SAP, Morse or Computacenter. Other resellers are much better at the fulfilment, integration and implementation,' he says.

But Isherwood also thinks resellers have to do much more than they are at the moment to make the most of the server market. 'They are not doing enough themselves. All you have to do is look at how much business they get out of services - for corporate resellers it is probably something like seven or eight per cent.

'Resellers have to change that around and change their business model or they will not be around in two years' time,' he warns.