The Hindu Business Line : A new stream of revenue

As the ripple effects of the global economic slowdown reach Indian shores, hardware giants such as Hewlett Packard, Sun Microsystems and Dell have begun to feel the pinch even in what has been their fastest growing market. Sales are dropping as customers turn cautious in a slowing environment.

However, as customers still continue to spend on technology to reduce costs and stay competitive, many of these vendors are now looking to increase revenue from relatively newer services and solutions, such as virtualisation, consolidation and de-duplication.

“Services have a longer resilience in terms of fluctuations around market. If the economy is going up and down, services continue to give you the cushion,” says Anil Valluri, managing director of Sun Microsystems India, while admitting that hardware sales at the company have been impacted.

From a non-existent services revenue some three years ago, Sun earns about a fourth of its India revenues by offering services around its products such as consulting, migration and implementation.

“The higher the services revenues, the better is it,” Valluri says, adding the company expects its services pie to go up to 30 per cent this year.

Notwithstanding the economic slowdown, growth in technology spending in the Indian market is expected to be in low double digits for 2009, while in developed markets such as the US and Europe, it is likely to remain flat or grow in low single digits.

Research firm IDC expects the technology spending to grow at 11.4 per cent in India in 2009 to Rs 1,04,937 crore.

IDC predicts that major services and solutions that are expected to grow at a rate higher than the industry average include virtualisation, collaborative applications, storage software and system and network software.

In the storage and server space, some of the hardware vendors expect a significant decline in the sale of physical server units in 2009 as customers are unwilling to spend on new hardware.

“In the number of physical servers that are being bought, probably we are seeing a bit of reduction,” says Pallab Talukdar, head of enterprise sales at Dell India.

Virtualisation — real benefits

Server sales are expected to grow only about 9 per cent in the current year, as against a strong double digit growth in the previous year, according to Naveen Mishra, Senior Research Analyst, Gartner. He says there will be some growth but the pace will be much slower.

Mishra says one of the top trends in the server space is the uptake in the adoption of virtualisation, which allows the creation of multiple virtual units within a physical unit, thereby enhancing the capacity.

Virtualisation also provides other benefits such as savings on power usage. Virtualisation as a trend has begun to become main-stream in the Indian market, especially in verticals such as banking and financial services, manufacturing and telecommunications. “We see a much stronger uptake in large enterprises and select mid-sized companies,” Mishra adds.

“Typically, the capacity utilisation of servers is 20-25 per cent. Virtualisation allows one to increase the capacity utilisation by 75-80 per cent,” says Talukdar of Dell. Besides enhancing the server capacity, virtualisation could help customers bring down their energy costs by as much as 80 per cent, he adds.

Companies such as HP or EMC who sell both hardware and services are not overly concerned about the decline in hardware volumes. “It potentially means lower hardware sales, but in the broader context of things we actually see it as a good thing because we are not only out to sell more servers units, but we really want to provide a more holistic ecosystem for our customers,” says Jim Wagstaff, Vice-President of Storage Works Division at HP Asia-Pacific and Japan.

Though virtualisation would bring down the actual number of servers sold, companies see revenue opportunities in services that are required to create a virtual environment. “When customers increase the utilisation of a server by applying virtual machines, network infrastructure and storage has to be built to support that. A lot of design expertise and applications go into that and there is management and training as well,” Wagstaff adds.

Although virtualisation impacts the quantum of server sales, it requires products of higher configuration, which helps vendors to offset the revenue loss. “Because of virtualisation, each server that is being bought is now becoming a little richer and bigger. Lot of times we are seeing that because of the richer configuration the revenue is not impacted,” says Talukdar.

Thin Provisioning

Besides virtualisation, technology vendors see strong demand for storage solutions as the volume of digital data continues to mount. “Customers obviously will have to spend more on storage and that includes hardware, software, services, networking and virtualisation,” says HP’s Wagstaff.

However, there are some clear trends in the demand for storage solutions, led by an insistence on technologies that would help customers reduce the amount they would have to invest, lower the overall cost of operations, and improve the utilisation levels.

Talukdar says one concept that is being worked upon is Thin Provisioning, a technology that enables the IT manager of a company not to buy the entire storage capacity that has been demanded by the different divisions in the company. “Because of the software the end users will think they have got the amount they have asked for, but actually the IT manager allocates much less,” he adds.

The reason this technology is helpful is that while everybody says they require a certain amount of storage, they never really require that much. The advantage is that it cuts down the initial procurement cost. The second saving is that when the company needs the additional capacity, it would be able to buy at a lower price because that is the trend in the industry — if a certain amount of capacity costs a certain number of dollars today, the capacity will be available at a lower cost at a later point in time.

Another important concept that is gaining popularity is the segregation of data based on the usage pattern, Talukdar says. “There is no need for all data to be stored in high- performance, high-capacity disk space that consume a high amount of energy. Only about 5 to 10 per cent of data is performance- critical and that is put on the high-performance disks.”

By segregating data, one can increase capacity and reduce costs because the slower drives are typically cheaper.

Enter de-duplication

Companies are also looking to consolidate storage because it makes it easy to share as well as manage storage capacity. HP says it sees an increase in demand for services such as de-duplication, which can help reduce the total cost of operation. De-duplication helps companies reduce the large quantity of back-up data by almost 70 to 80 times.

The compression comes from maintaining only the least amount of data required to provide back-up. “Companies are always trying to save. But now the urgency will be greater. I think that is the difference. I expect to see more demand for services such as de-duplication and virtualisation,” says Dave Roberson, senior vice-president and general manager of HP’s StorageWorks Division.

EMC Corp says de-duplication will be as wide-spread. “It has taken root in back-up and archiving and we expect de-duplication to make inroads into primary storage.”

“VMware is the fastest growing product within EMC. The second fastest would be Avamar, which enables you to do de-duplication,” says Mark Sorenson, Senior Vice-President, Storage Software Division, EMC Corp.

shamik@thehindu.co.in

With inputs from Vishwanath Kulkarni

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