Techaisle Blog

Techaisle's Big Data study of 3,360 businesses shows that mid-market businesses typically started their big data journey in one of four ways. However, the highest success rate (determined by reaching a successful implementation of a big data project within six months of initiation) was achieved when an external consultant or organization was brought in to develop proof of concept, advice on database architecture and ultimately develop the big data analytics solution.

Once a decision was made to embark on a big data deployment project, the mid-market organization tended to quickly align behind the initiative. They did realize that big data was not a typical cloud application deployment where independent department purchases could be made, nor was it infrastructure deployment where only IT could be involved. Big data required a new type of alignment between business heads, namely, Marketing, Finance, IT and a completely new set of players known as data scientists or data analysts.

Study shows that businesses are moving from “whack-a-mole” analytics to “business perspectives” to get newer insights into their operations and better knowledge about their customers as they rethink their marketing strategies because mobility, social media, and other transactional services have increased the number avenues for connections with their customers. There are many different tactical objectives for deploying big data projects but the top among them are sentiment monitoring, generating new revenue streams & improving predictive analytics. And businesses are expecting some clear cut benefits from big data analytics such as increased sales, more efficient operations, improved Customer service.

 

This article from the New Yorker brings out several good points about how Apple has lost some of its luster over the past months, but is still in good shape on fundamentals, although it did drop to below $400B market cap a few days ago. As we noted in December, Apple was coming under criticism for not being able to scale to demand for the latest iPhone launch and had several other hiccups to deal with, including questionable worker conditions in China and that its principal manufacturer, Foxconn, was rumored to have begun discussions to pick up the slack by investing in new factories in Brazil.

On the other side, Apple was in a bitter legal fight with Samsung, an important supplier and competitor (frienemy), and could not get an injunction to stick after a lengthy lawsuit. A recent ruling in the case reduced damages awarded to Apple from $1.05B to $600M and the appeals process is ongoing. Another cause for concern in our opinion was that Apple had slipped to 6^th place in the China mobile segment (the world’s largest and fastest growing major market), where local manufacturers Lenovo and Huawei were eating up share regardless of how much manufacturing was being done by Apple locally. Samsung leads the handset market in China, underscoring another competitive issue – in Korea, Apple is considered the most prestigious handset and it sells very well in the market, while Samsung is considered a premium brand in China due to early and broad Consumer Electronics investments by the Korean conglomerates; Samsung chief among them. China also has affinity with Korea based on the hope they can emulate the incredible economic growth shown by Korea over the last 25 years.

It was looking a little grim, but as noted at the time, Apple’s considerable war chest of almost half a trillion dollars was adequate to stave off short and medium term threats, however, as the above article notes, competitors are closing the gap and have introduced increasingly sophisticated models, most notably Samsung, with its’ Galaxy S line, which is seen as the strongest challenger to Apple’s technical leadership. Samsung’s newest version, the S IV is expected to be introduced this month, and in an example of raising the bar, is rumored to include “eye scrolling” technology.



 

The Big Picture

Apple has always been in a market crowded with well-funded competitors. Keeping the OS and architecture closed had major implications to the development of Apple, as seen above Apple never gained more than a 10-12% share of the OS market during the 1980-2000 boom of the PC market, which eventually forced them to accept both MS Office and Intel into their products to remain viable and while keeping a stubbornly loyal following for computing devices. It was really when Steve Jobs applied his design genius to a series of personal mobile devices starting with the iPod, which displaced the Sony Walkman, that Apple found a large enough consumer base to really explode onto the scene. iPhone followed with several versions and then the iPad was introduced in 2010 and the rest is history as they say…

The point here is that Apple became the largest technology company by using high-quality, high aesthetic design principles that allowed it to survive in the PC segment and applying them to a new category in the market: coveted personal technology devices that displace Phone, PC, Camera, Voice Recorder, Wristwatch, GPS, Media Player, Personal Planner, and other single use devices/apps combined into a single, small footprint high-tech productivity tool.

While Apple survived the PC Wars, many (including myself), gave them little more than niche player status and came close to counting them out altogether. The current situation is similar in a couple ways as Apple looks forward, but instead of Microsoft and Intel the arch rivals are Google and Samsung. The chart shows how WinTel dominated the PC segment from 1985-2005, squeezing Apple to 10% of the market. Currently, the rise of Mobile Computing brings hundreds of millions of new devices into the market, passing the threshold where Smartphones eclipse PCs in both volume and installed base within the next few years, creating an Android camp and an Apple camp. This has many implications for Apple, a few of which include:

Innovation: Apple needs to continue to innovate at a rapid pace. In the first 20 years of the PC market, consumers accepted a very high churn rate in both hardware and software categories because each generation was substantially more efficient and productive than the previous one. To prevent a backlash from consumers, Apple and other players are going to have to make fundamental improvements like very accurate voice recognition and new visual interfaces, not just new form factors.

Price/Performance: demonstrated Price/Performance increases in the bandwidth, applications availability and usability for less money will drive higher adoption. Again, looking back to lessons in the Personal Computer market, there was a long period of time where $2,000 was what the market expected to pay for a quality PC, and new models came out at a regular pace with faster CPU cycles, larger memory and storage subsystems, expanded OS and App capabilities, while keeping within the price range. This worked for a long time, until the market became too crowded and some vendors, led by Dell, overhauled their cost structure by cutting out the channel, using direct sales and a more tightly integrated and automated supply chain, giving back to the consumer in the form of lower prices - then it was a race to the bottom. Remember when the hot new vendor was eMachines?. The de-facto premium price-point that has been set for iPhones and iPads in the market is ~$700 and to maintain it there will be pressure to continue delivering more for the same price or less, as the slew of competitors undercut Apple’s premium.

Cutthroat Competition: All of these segments are characterized by intense competition, and with Google’s ownership of both Android and Motorola brands, things become even more interesting in the handset segment. As Apple goes it alone against the whole market, similar competitive issues will appear as they did with PCs; many companies adding applications and value to a standard operating system (Android), diffusing the R&D costs among a whole ecosystem of suppliers while Apple concentrates on staying ahead of everyone by themselves. Ensuring a steady flow of high quality finished goods coming from China, concentrated among a relatively small group of suppliers, could also become an issue as trade friction, consumer backlash and other uncontrollable variables come into play in the global supply chain and domestic market.

As Apple looks to expand into Televisions there is a potential to tap into another ~$120B market, however, this is not going to be like the introduction of the iPhone; the market is mature and growing slowly, ironically dampened by the move to Tablet computers and Internet content, with a lot of heavyweight competitors led by #1 vendor in the world - Samsung. And Google is also waiting in the wings. Déjà vu all over again. If Apple can pull a rabbit out they may be able to add enough value to demand a premium in flat screen TVs, but that is going to be much easier said than done, the brand only goes so far when displayed next to a similar product priced 20% less on the Walmart showroom - Apple's retail success is based on a much different formula. No 35% margins here without the same kind of fundamental improvements discussed above; interface improvements, simple but deep integration with other devices and something like a super green carbon footprint on top of the demonstrated product superiority. Maybe.

Again, Apple proved very resilient as a survivor in the PC wars and many underestimated their staying power. The Market Cap remains near $400B and they have room to maneuver, it will just get harder over time, as it does for every company that gets to the top.

ML110 Proliant from HP is a favorite of VARs/SIs in India to sell to SMBs, especially small businesses. It is “robust, configurable and affordable”. In India where there has been considerable drop in sales of commercial servers within enterprises and government segments, VARs/SIs have turned their attention to the ever-elusive SMB market segment.

VARs/SIs from Delhi to Chennai, Mumbai to Kolkata, Lucknow to Jamshedpur, Pune to Hyderabad – you get the picture – hold the key to opening up demand for first server opportunity within the SMBs. They are doing so by delivering two key messages:

1. Servers help in Business Process Consolidation: With an on-premise server SMBs can install software solutions such as locally available ERP (not SAP), accounting and financial management, CRM and many different vertical applications to improve business processes and thereby grow revenue

 

1. Servers help in Email Consolidation: With an on-premise server SMBs can use email applications that promote scheduling, calendaring and sharing within the same domain name. There are still way too many SMBs in India that have employees using individual emails with no common folders

The messaging seems to be working. Channels are optimistic that the small business server spend in India will reach US$75 million in 2013, a jump of 13 percent from previous year. But they also say that the path to influence small businesses will not be easy.

The question is, why have the VARs/SIs taken the lead in creating server demand.

Let us take the example of VARs/SIs in Kolkata. West Bengal is a “dead state”; State government is not spending on IT, Central government is not giving any budgets to the State to spend on IT; therefore VARs/SIs instead of sitting idle are busy pounding the streets of Kolkata, seeking out SMBs and discussing the above two key simple messages which seem to be resonating well. On the other hand, in Delhi NCR region, a hot bed of technology adoption, VARs/SIs are targeting pockets of areas such as Gurgaon and Noida.

Selling to SMBs is a very time consuming and pain-staking process. As one SI put it mildly, “there are no green pastures anywhere; we have to plant the seeds”. These channel partners have to overcome three important barriers to adoption:

1. Lack of awareness of technologies: Too much information and technical jargon is being thrown at the SMBs forcing them to “tune-off” creating lack of awareness. VARs/SIs therefore are engaging SMBs, one at a time, to make them aware what servers can do for their business

 

1. Lack of time: SMBs generally do not have time on their hands to search for a channel partner to help them understand technology. Even if they have the time, business priorities in many cases trumps technology and decisions get pushed to the proverbial eleventh hour

 

1. Affordability: Price is still a major factor for purchase of servers and accompanying solutions.

At the other extremes are cities in southern India (beyond Bengaluru and Chennai) such as Kochi, Madurai, etc. where channels are fighting a different battle, the infamous “power-cuts” for nearly 8-10 hours each day. The SMBs in this region are first focused on their usual business continuity before turning their attention to IT adoption. But the relentless channels are not giving up on their pursuit and messaging.

Server vendors like IBM that do not have affordable server products for the small business segment are paying attention to the messaging from VARs/SIs and have begun working with them selectively to organize road-shows in Tier 2 cities from northern to western India, from Lucknow to Nagpur and Bhopal.

Still there are many SIs across the country in India who are unhappy by the continuous evaporation of margins on hardware. Some even have gone to the extreme and said that “the way some vendors are working on lowering the margins on servers and storage, SIs will be forced to alternate business models in the next few years”.

India is a more complex IT market than we usually imagine. Based on local infrastructure capabilities and capacities, India has three different segments:

1. Totally mature,

 

1. Immature, and

 

1. Not Mature at all

Nevertheless, the SMB server market is still a massive, slow-moving glacier which has not yet reached the precipice of a waterfall. Till that happens, VARs/SIs are creating the demand and trying to grab the opportunity.

Gitika Bajaj

Small and Mid-Market firms will invest over a quarter trillion dollars in Datacenter Technology in the period between 2012 and 2016, according to the most recent report from Techaisle. Datacenter segments include Servers, Networking including Security Appliances and Storage solutions. We can also begin to add Virtualization within the context of data center as virtualized data centers are becoming front-and-center. As seen in this bubble chart, the nine key segments include each of the three product categories in the three largest regional markets, North America, Asia Pacific and Western Europe.  As we have shown in recent reporting, the rise of China continues to offer some of the most interesting market opportunities for vendors marketing to SMBs; the Asia/Pacific Storage Market being is the latest example, with combined spending over the forecast of $16B alone at a CAGR of over 22%. This is followed by the Asia/Pacific Networking Market, which is expected to reach $24B at a 14% rate. Although not growing as fast at 7%, the Asia/Pac Server Segment is expected to reach ~$17B. Other important points include:

• Growth rates for the combined Datacenter volume by region are forecast at 14% CAGR for Asia Pacific, 7% for North America and 5% for Western Europe. Worldwide is estimated at 8%. Combined market share of these three Regions accounts for 80%+ of Spending over the period.

 

• The North American Market with lower growth rates manages to stay ahead in volume overall for the combined spending, but as is happening with Japan and Western Europe already, the US Market will most likely be eclipsed in volume by China in the following, post-2016 forecast.

 

• Western Europe Networking and Server Segments will be overtaken during the current forecast, again squeezed by increases to Asia/Pacific by China.

 

• Latin America is growing relatively quickly at over 9%, driven by rapid Networking and Storage adoption but Spending is limited to <6% of the WW Total.

As mentioned, North American SMBs will spend the most, with Storage expected to grow fastest at ~11%, and while Western Europe Spending remains stable, Storage is also expected to grow the fastest at ~7%.  Asia/Pacific at ~14% overall is influenced by rapid growth in all three Segments, especially Storage, which was the fastest rate among all Regions and Segments that had real volume, i.e. 2%+ WW Share.

As per Techaisle's upcoming channel report, over 35 percent of VAR channels have started to address data center solutions. And as always, China is an anomaly where over 40 percent of VAR channels are now offering data center solutions.