Server market leaders say they’re lowering prices to aid partners, but channel impact could be much different
As Hewlett Packard Enterprise (HPE) kicks off its annual Global Partner Summit in Las Vegas, Dell Technologies is telling the channel that it’s lowering server prices to better compete with its chief rival and continue to gain market share. The Dell announcement is the latest in a string of pricing cut announcements by both companies as the server market gets more competitive and commoditized, bringing the net impact on channel partners into question.
The Lowdown: In a report by CRN, Dell says it’s made significant adjustments to the list price of many servers over the past several months to better position itself against HPE. Dell declined to give specifics on the models or the adjustments, but solution providers did say Dell is working with them to win in competitive deals. The inference is that Dell is getting more aggressive in special pricing than actual price adjustments.
The Details: In April, HPE announced a 5% price cut on its ProLiant server line as a means of stimulating customer buying consideration and gaining market share through direct and partner sales channels. At the same time, HPE announced price cuts up to 8% on its 3Par, Nimble, SimpliVity, and Synergy storage hardware products.
The price jockeying between Dell and HPE comes as the server market is showing signs of cooling. According to IDC, server sales in the first quarter of 2019 increased in revenue by 4.4% while the actual unit shipments fell 5.1%. The difference in revenue increases and unit shipment decreases is average sale price. IDC says average sale price increases offset the decline in product volume sold. In terms of market share, Dell maintains its overall leadership at 20% while HPE remains in second place with its share slipping by nearly 1% to 17.8%.
The Impact: Lower prices may help draw customers over the line in the sales process, but it’s not always healthy for partners. Details from Dell and HPE are scant, but partner testimonials indicate that both companies are working to win competitive deals and grow market share. However, lower pricing – particularly through nonstandard pricing processes – often works against partner interests and profitability. Special pricing will lower the cost to customers, but often compresses organic partner margins and limits partners’ ability to mark up their price to the customer.
Channelnomics Point of View: Lowering prices on already commoditized products is likely not a good indication for the channel. Businesses are increasingly turning to public and hybrid cloud infrastructure – particularly in the SMB and midmarket segments – as an alternative to buying and maintaining data centers full of servers. Lowering prices may maintain the status quo, but won’t do anything to turn the tide away from cloud adoption and migration. More promising are the Device-as-a-Service (DaaS) models, such as HPE GreenLake, in which customers subscribe to hardware rather than buying. DaaS won’t reverse pricing commoditization, but it will transform the sales and revenue relationship from transactional to persistent and increase the customer’s lifetime value.