Focus Moves to Data Center Services - Industry Comment
Posted on Thursday, May 14, 2015
As covered recently on the CDS blog, the storage industry is facing significant challenges as sales of new units continue to fall. The IDC State of Enterprise Storage Q1 2015 report highlights an industry-wide fall in sales, with one major vendor losing 1.2% of their market share for instance.
On the face of it, these figures suggest that storage manufacturers are facing a long, slow slide into financial oblivion. Looking at the full financial results from these vendors, it is clear that such losses are not restricted to their storage units either. Figures show reduced margins in every business unit, suggesting that something is wrong with the traditional hardware sales model.
Something big is happening – and it’s not Cloud
The reality is that the storage industry is changing as a whole. Fans of the Cloud will suggest that storage as a service offerings are eating into the market share of traditional hardware vendors. Cloud services are certainly growing in popularity, but nowhere near enough to account for the shrinkage in new hardware sales.
The real cause is down to cost conscious businesses choosing to extend the lifespan of their existing systems, rather than being driven by vendor-defined upgrade cycles. Knowing that their storage continues to deliver acceptable performance, CTOs are choosing to expand capacity, rather than replace arrays.
After many years of rigid upgrade cycles, vendors are struggling to adapt to this new world. Although customers may be wowed by the performance increases available with new systems, capacity remains of higher priority than speed. Which means that vendors are not shifting the volumes expected.
Whether this results in vendors extending the official operating life of their hardware, or offering premium end of service life maintenance coverage remains to be seen. The market is showing no signs of returning to previous sale trends however, so these vendors will need to react quickly if they are to avoid continued profit and share price markdowns.
There has been a corresponding rise in post-warranty maintenance services to ensure these systems are protected, like those offered by CDS. These post-warranty services ensure that CTOs receive OEM-standard (or better) support and maintenance for their systems for as long as they own them.
When “good enough” is good enough
Another potential cause of the drop in new unit sales is a surge in the refurbished market. Where a system is identified as “good enough” to deliver business services, CTOs can now choose to buy second user units from a reputable seller, benefiting from increased capacity without any learning or adoption curves – they already know how to use the system out-of-the-box.
And contrary to claims by the OEMs, such refurbished hardware is of at least the same quality as those bought direct. Here at CDS we not only check every second user unit is fully operational and in factory-new condition, we provide a full maintenance and warranty service for as long as the unit is owned.
Choosing this model, businesses can continue to expand capacity at a far lower price point than sourcing replacements. They get the capacity, service and support they need at a far lower price than OEMs offer.
The second user market is also undergoing transformation though. CDS now offers second user equipment leasing, allowing customers to adopt a utility model, and switch from traditional CapEx. Under the utility model CTOs have access to the capacity they need, covered by a fully customizable service agreement that protects the systems for as long as they are in use.
Ultimately falling sales figures for new units suggests that OEMs are having problems understanding their clients’ needs and motivations. “Making do” is no longer a failing, but instead an operational and financial strength, helping to explain the rise of the third party maintenance sector, and reduction in new units being sold.