In as little as four years, the majority of data centre hardware could be sold as part of engineered systems and platforms for customers demanding turnkey solutions for their cloud-based businesses, estimates Chad Sakac, head of Dell EMC's converged platforms and systems business.
The transition is already putting intense pressure on vendors, as well as solution providers. Just last week, research firm Gartner's third-quarter data showed significant, across-the-board declines for the server market's major vendors in both revenue and shipments. Major solution providers also have posted steep declines as the market shifts, and many are wary of committing resources to hiring and development of a hyper-convergence practice before booking any revenue in that area.
"If their business was in the assembly of goods, packaging things together for purchasing or in assembly on-site, and that was the bulk of their value, that is getting to be harder and harder every single day," Sakac told CRN USA in an exclusive interview.
While Sakac, who became president of VCE, now known as the converged platforms and systems division of Dell EMC last January, recognizes that the vast majority of server and storage hardware sales still follow traditional patterns, growth in that market has all but stopped, he said. And while growth in converged and hyper-converged systems has been explosive, that play still represents a tiny fraction of the market.
Sakac recently laid out a roadmap that brings Dell EMC and its partners through five "stops", as he calls them, from traditional reference architectures through bundles, validated systems, engineered systems and platforms.
Here, he talks about how channel partners can achieve profits and growth as the market for engineered systems and platforms takes hold, but he acknowledges that solution providers, like vendors, have to make difficult changes in order to be successful in the cloud era.
What follows is an edited excerpt of Sakac's conversation with CRN USA.
The changes in the market are having a big bottom-line impact on solution providers. How can they enter the engineered systems space, or the platform space profitably?
As you go from stand-alone products to engineered systems and platforms, the margin model of the business actually improves, it doesn't decline. Fundamentally, you're doing more for the customer. If you think of other things that are platform businesses, they include things like Salesforce.com, SaaS, those are platforms.
Hyper-scale cloud, those are platforms. When you look at the profitability envelope of those things, they actually match the profitability envelope that we see in enterprise hybrid cloud, which is that they're good margin and high-profitability businesses because the customers in essence are saying, 'Take this problem away from me so I can focus on other problems.' That's a big value statement. You're moving from components to outcomes. In any business, whether you look at retail goods or the automobile industry, the margin distribution is better as you're in the outcome business. You're delivering something that's of higher value to the customer.
Where's the opportunity for partners there? How can they capitalise on that shift?
It means a window for opportunity for partners in the middle of vendor and customer ecosystems. If their business was in the assembly of goods, packaging things together for purchasing or in assembly on-site, and that was the bulk of their value that is getting to be harder and harder every single day. We want that partner ecosystem to succeed and to thrive, but it means their business has to be disrupted too.
The strongest partners I see are building growing businesses above the engineered system lines and above the platform line. That's a skills shift. That's a business shift. I see people that build really good practices around enabling digital transformation on top of platforms. I see people building really good partner businesses around helping customers navigate around the hybrid- and multi-cloud world including SaaS. How do I figure out what workloads go where? I see them building incredibly high-value businesses around, not how do I build a data lake, but how do I get value out of data analytics? I see them building high-value businesses around IT services management.
And those things essentially drag the actual engineered systems along with them?
Exactly. All of the examples I just gave you are above the engineered systems and above the platform lines. Those business are all growing for our partners, and they're dragging engineered systems behind them, which in turn drag products behind them. That's the order of winning. It's not the other way around. The difficulty that we face, and that the partner ecosystem faces, and also our customers face is that for the last few decades it's been the other way around.
We've got human beings who have been trained for years to evaluate the technology at the component level and to operate that way. Partners have built their businesses around best-of-breed assembly, and their value proposition was built on the assembly of those components. While that's still the bulk of the business by dollars, it is no longer a source of growth.
And it's slowly going away.
Yeah. 'No longer a source of growth' is a nice euphemism for declining.
We hear a lot from solution providers about getting to the place you're talking about, but they're worried about things like hiring before they see revenue, for example.
The short answer to that is, 'yeah.' The longer answer is that these higher-value businesses that you create on top of engineered systems and platforms require a higher degree of unique skills. They require time, because inherently they're less transactional in nature. You have to hire, and build and plan strategically, but the reward at the end is a much more sustainable business and a business that's much more relevant for their customers, and it's a business that's high growth and high profitability.
Some of them will make it and some of them will not. The same thing goes for us and our competitors. If we can't play at each of those five stops – stops one through three being the bulk of the revenue and stops four and five being the bulk of the growth – then shame on us. It's my mission in life to make sure Dell Technologies does that better than anyone else.