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Taking a peek into the minds of vendors

Taking a peek into the minds of vendors

Randy Kerns
Partner, the Evaluator Group
Randy Kerns is a partner at the Evaluator Group and is responsible for storage area networks (SAN) and network-attached storage (NAS) analysis and education as well as company and product strategies. He has over twenty-eight years storage product development, including work for IBM, Fujitsu, Vice President of Engineering at the Array Technology subsidiary of Tandem Computers and Director of Engineering for Enterprise Disk at Storage Technology Corporation.
Several major vendors have announced storage systems from other suppliers or extended relationships with suppliers that produce storage systems. Notable were the IBM announcement of the new FAStT model which is sourced from LSI Logic Storage Systems, the Sun announcement of the extension of the relationship to resell the Hitachi Data Systems 9900 V storage system and the Hewlett Packard announcement of its extension to the arrangement with Hitachi Limited to resell the 9900 V storage system.

One question that I get asked about quite often is why would a major vendor, one that has other internally developed storage systems and the engineering prowess to develop its own storage systems, OEM a product from another company. It is interesting to review the reasons for this type of arrangement.

There are several potential reasons and in the recent announcements, the rational may be some or all of these reasons. Indeed, these companies are very capable of developing their own products. But it makes sense not to in many cases. These reasons include:

Time to market -- the timing of getting a product to market may be longer than is acceptable. There is a window of opportunity to meet customer need and if a company misses the window, the opportunity for sales volume decreases rapidly. Judging when and for how long that opportunity exists and contrasting that with development realities is part of the strategic planning for a vendor.

Development competency - a product in a specific area of the market may not fit the core competencies of the development staff of a company. Certainly there could be training and additional staffing but that represents both an investment and a delay in getting to market. Additionally, there may not be the staffing with the correct foundation of experience available.

Development resources -- most companies have a set amount of money to spend for R & D. This is usually expressed as a percentage of revenue and is watched very closely by investors and financial analysts. Companies will make very hard choices where to spend those R&D dollars. The easy thought is that the money is spent for products that return the highest profit. Where the decision gets complex is spending it on technology and future products that have an unclear or ambiguous return. Some might call this "rolling the dice" while other might say its anticipation of market demands at a future date. Whatever the case, the R&D money may not be there to development the product so reselling one makes the most sense.

Strategic direction -- related to the development resources reason is one about the strategic direction a company is headed. It may be that a company needs to supply a product for a particular market but long term, it is developing products that move the company in a different direction. In this case, it makes sense to source the products for the current market and keep the development focus on the long-term strategy.

Regardless of the reason, a company sourcing products to answer the market demands is a good thing on many levels. It's good for the vendor to have the product offering, to generate revenue, to conserve their own R&D dollars and to satisfy (and keep) their customers. It's good for the sourcing company. It gives them a market for its product, drives up volume that will drive down the cost and ultimate price to be paid and allows them to continue developing other products that they can source. It's good for the customer. Customer's do have vendor preferences and can buy the solution needed from their preferred vendor.

The "whys" of sourcing a product is really a classic make vs. buy decision. The reason for doing so may vary and may not ever be entirely clear outside the small circle of decision makers. It is often a straight business decision -- is it less expensive to source a product and integrate it in an offering or to develop it? What is clear is what the customer has to pay and the support and service provided. That is the real determining factor, much more so than the name.

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