Monday, March 03, 2008

Dothill, Xyratex, NetApp & Your money

Recently Xyratex has lost its unique position of being the sole provider of disk shelves to NetApp. This is because the newest SAS shelves are coming from Dothill . If I were in Xyratex's position, I would be very worried about future sales and profits because NetApp seems to be using a second supplier, which is always a good way to keep a primary supplier in line on pricing. As any businessman understands - competitive pressures typically keep prices lower. This is why NetApp tries to Lock In customers into its proprietary OS and systems. Once locked in to NetApp, customers have a harder time getting competitive pricing unless they are willing to change their operating systems completely, which is also expensive.

In difficult economic times customers need to be able to play vendors against each other. For example, over the last few weeks we heard from a human rights organization in England that wanted to extend the life and maintain their R200's for a few more years. Their NetApp salesperson initially told them that their only option was to do a system upgrade and that they could not expand their storage on their R200's. They came to Zerowait and asked if we could help them, and indeed we could. So we quoted them storage for their R200's and then their NetApp sales person had a revelation and found that NetApp could provide storage for their R200's, as an added benefit NetApp could meet the Zerowait price. I guess this proves that competition exists even within the NetApp market niche, because this well known customer was able to get better pricing from NetApp by introducing a viable competitive solution.

Over the last couple of years NetApp has allowed IBM to resell its NAS units under the N-series label. However it seems that IBM resellers have to get approval to sell a deal from both the IBM channel manager and the NetApp channel manager. It would seem that arrangement cuts competition quite a bit, since it provides very little reason to compete on price since the same company controls the approval process in the end. Can you imagine the Congressional investigations that would occur if Ford or GM made every dealer register every sales opportunity for approval and Price Variance Requests? Would there be competition between dealerships in this scenario?

If I were a manager at Xyratex I would do everything I could to diversify my sales away from NetApp, which is taking too big a portion of their total sales and introducing competitive pressures within their partnership. Similarly if I were in an IBM salesperson's shoes I would be bristling at the thought of a competitor controlling my sales opportunities. The arrangements between NetApp and IBM, and NetApp and its suppliers do not build long term loyalty amongst the vendor and customer, because they are all built on controlling the sale rather than on providing outstanding long term customer service.

No comments: