Open Vs. Closed

The distributor has secured an authorization to sell Sun Microsystems one- and two-way servers and storage products that previously have not been available through an open sourcing model. The move promises to help fuel the ongoing competition between Intel-based servers and RISC-based servers in the corporate market and further blur the traditional line between the open distribution model of the broadline distributors and the closed model of the midrange distributors.

It's all good news to Sam Ruggeri, president of Advanced Vision Technology Group, a solution provider based in Hauppauge, N.Y. "We sell a lot of Intel servers into [the] Fortune 500. All major companies have diversified platforms. They're running Sun Linux for file and print servers. This will open up the industry."

Broadline distributors such as Tech Data have long maintained that they can effectively sell Intel-based servers and compete in the corporate market against Unix-focused midrange distributors such as Avnet, Arrow Electronics, GE Access and Pioneer-Standard Electronics. These midrange distributors favor the closed distribution model, which requires solution providers each year to sign on with only one distributor for their high-end Unix products. The model prevents price wars that erode product margin, they said. Since they handle more complex IT solutions, midrange distributors call themselves the "value" distributors to distinguish themselves from the broadline, or "volume," distributors.

Not surprisingly, Tech Data disagrees with that distinction. "We don't typically go head-to-head against those guys day to day, but certainly there are segments in which we feel comfortable playing," said Joe Serra, vice president of software and systems product marketing at the Clearwater, Fla.-based distributor.

Tech Data said there's plenty of room for everyone in the market. And the numbers seem to agree.

Midmarket IT spending is expected to increase to about $194 billion in the United States this year from $183 billion last year, a 6 percent increase, according to IDC. Midmarket server spending will increase even more, by 14 percent to almost $15 billion, the research firm said.

Tech Data and Sun executives also said the agreement is unlikely to create much overlap between Tech Data solution providers and those of the Unix-focused midrange distributors because the Tech Data partnership is focused on the midmarket and not the Fortune 1000. More likely, Tech Data solution providers will compete against CDW, Insight and PC Connection, which have carried low-end Sun products for about a year, the executives said.

SYSTEMS

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> Sun Fire V60x, V65x Linux-based servers

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> Sun Fire V210, Sun Fire V240 rack-optimized SPARC/Solaris servers*

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> Sun LX50 Linux-based servers

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> Solaris versions of Sun LX50, Sun Fire V60x and V65x*

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> Sun Fire V100, V120 servers

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> Cobalt server appliances

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*Slated to be available Aug. 3

STORAGE

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> Sun StorEdge 3310 SCSI, Sun StorEdge 3310 NAS, Sun StorEdge 3510 Fibre Channel storage arrays

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> Sun StorEdge 3000 family of products supporting Solaris, as well as Windows, Linux, HP-UX, IBM AIX

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> Sun StorEdge L8 Tape Autoloader

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> Sun StorEdge L25, L100 Tape Libraries

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> Sun desktop storage products (Sun StorEdge Unipack, Sun StorEdge Multipack, and Sun StorEdge Flexipack)

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> Sun enterprise backup

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software

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> Sun SAN solution products (Fibre Channel switches,

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host-bus adapters)

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> Veritas software products (Volume Manager, File System, NetBackup)

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> StorEdge Resource Management Suite

SOFTWARE

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> Web Server

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> Solaris

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> Star Office

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> SunONE Directory Server

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> SunONE Application Server

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> SunONE Identity Server

"Occasionally they will run into iForce partners. We have no illusions [that there isn't] some degree of competition out there," said Bill Cate, director of Santa Clara, Calif.-based Sun's iForce program, which includes GE Access and MOCA. "But I'm not worried about overlap. When you add up all the numbers for IT spending in the midmarket, there's way more opportunities for an expanded set of partner categories."

As might be expected, the midrange distributors downplayed the move as well. "The significance of the change is not as large as folks think," said Scott Zahl, vice president of the Sun business group at GE Access, Westminster, Colo. "We do a fair amount of business in that space, but we're focused on different markets. The relationships we have with our partners are with those interested in selling full solutions. That differentiation is pretty significant."

The competition from Tech Data will be minimal, said Rich Severa, president of MOCA, Arrow Electronics' Sun-focused division, since the Sun products Tech Data will now carry as a result of the agreement account for only 2 percent to 3 percent of revenue at MOCA.

Stonebridge Technologies, a $50 million MOCA solution provider in Dallas, also isn't worried about the competition that might come its way from Tech Data partners selling Sun products. In fact, Hank Johnson, vice president of the Infrastructure Solutions Group at Stonebridge, thinks the move may actually send some business his way. "I don't have a problem with [Sun] adding Tech Data. In fact, I would encourage it if the net result was that it would expose more partners and end users to Sun. And maybe as customers need more fully featured solutions, they will go to full-scale partners like Stonebridge," said Johnson.

Sun wants Tech Data's solution providers to target accounts between 100 and 1,000 users, said Gary Grimes, Sun vice president of partner management and sales operations. "It's important that this be recognized for what it is. %85 Tech Data is interested [in going] where the market is. There are solution providers that have not been Sun-based for competitive reasons, for market dynamic reasons, for channel model reasons. It may be time to do something different from a platform point of view. This is an attempt to satisfy demand in a market that already exists."

Tech Data already distributed Cobalt low-end server appliances prior to Sun's purchase of Cobalt in 2000. Earlier this year, Tech Data added Sun LX50 Linux servers and has been eager to increase its Sun portfolio even further.

Now, with the current agreement, it adds the Sun Fire V60x and V65x Linux-based servers and the Sun Fire V210 and V240 rack-optimized SPARC/Solaris servers. In addition, Tech Data will carry the StorEdge 3310 SCSI, StorEdge 3310 NAS and StorEdge 3510 Fibre Channel storage arrays, the StorEdge L8 tape autoloader and StorEdge L25 tape library as well as SunONE, Web Server and Star Office software and other storage products. Warranty and other service packs are also available, Serra said.

The relationship was a year in the making, Tech Data and Sun executives said, because they wanted to make sure it would result in incremental business to Sun.

"We think we have a compelling, serious software and hardware stack offering at a price point [for customers] that never had access to those technologies from Sun before," said Grimes. "We see this as incremental. The market targeted by the traditional channel tends to be focused on horizontal solutions, as opposed to vertical solutions that Tech Data offers."

Said Tech Data's Serra: "We really believe, based on feedback from our solution providers, that there was a gap that existed in low-cost, high-performance, enterprise-level systems for the midmarket space."

Tech Data initially will aim the Sun products at about 220 solution providers, Serra said."The accounts we targeted may have competency in Unix and some have competency in Solaris and SPARC, but they are not purchasing Sun today. This represents an opportunity in heterogeneous environments, Sun mixed in with Intel," he said.

The agreement may be coming at an opportune time for selling into the Intel server space. Intel recently touted a record-breaking benchmark performance in which a Hewlett-Packard Superdome server with an Intel Itanium 2 processor running Microsoft Windows Server 2003 and SQL Server 2000 Enterprise Edition (64-bit) exceeded the performance record set by a 128-processor SPARC-based system by Fujitsu. Although Sun's x86 and Linux servers don't scale as high as its eight-way Solaris servers, the company said it is investigating ways to keep those lines competitive.

Tech Data will separate Sun solution providers into a "registered volume reseller" category meant for entry-level relationships with Sun for Linux-based solutions, and an "authorized volume reseller" category, which features higher-end products and solutions and requires partners to achieve Sun certifications.

Registered volume resellers will not be required to hold certifications, but they will have to register with Sun for identification purposes, Cate said. "The first level of partners will be feeling us out. We will count on Tech Data to know them much better than we will know them," he said.

Authorized volume resellers will need to work toward Sun certifications, Cate said. "Solaris is a pretty serious operation. If [Tech Data authorized partners are] going to sell Solaris, we'd sure like them to know the difference between Linux and Solaris. And the associated entitlements will be a little bit better. They will have better services programs, leasing, access to iForce initiatives, SunFunds," Cate said.

Some solution providers said they have concerns that Tech Data's authorization could lead to the commoditization of the Sun products. Grady Crunk, president of Central Data, Titusville, Fla., said it will be "interesting" to see the long-term effect on the exclusivity of Sun products. "If Sun is selling on price alone because they can, you'll see margin drops and value drops. In the short run, they will keep their numbers up, but a year from now that might not be the case."

Some also feel the commoditization of Sun began a couple of years ago when the manufacturer started selling end-of-life products via an eBay storefront and then through solution providers such as CDW, Insight and PC Connection.

Sun has heard the complaints, but its relationships with those three solution providers has not hurt iForce partners, Cate said. "At the time [we authorized CDW, Insight and PC Connection], we were pretty nervous that they would overlap quite heavily with our existing base. But it's been quite the contrary. Ninety-nine percent of business with those partners has been incremental in the one- and two-way [processor] sweet spot of the midmarket," Cate said.

Not content to leave high-end solutions to the so-called value distributors, Tech Data said it wouldn't count out selling even more complex Sun products in the future. "We want to go where customers ask us to go," said Serra. "Today, they're asking us for this sweet spot segment: enterprise level, midmarket base, not the cheapest cost system in this space. You never know how things progress. End users may move upstream. %85 I don't believe we would want to leave them without a solution. To me, that's not good business to leave a customer hanging."

So the question is, if Tech Data follows customers upstream, will it go with an open or closed distribution model?