How 5 stages of server lifecycle influence vendor sales tactics
Learn about sales tactics that server suppliers like Dell EMC, HPE, Lenovo, IBM and Cisco use to try to win back market share from white box suppliers and how those affect you.
Organizations negotiating new or renewing existing server deals often come up short, spending a lot more money than they want or need to over the course of the server lifecycle. In fact, they typically end up losing tens of thousands of dollars, if not more, according to analyst Atish Patel of IT consultancy ClearEdge Partners.
Server deals make up close to 25% of the total case load at ClearEdge, and from what Patel said he and his colleagues are seeing, "there's lots of room for improvement in this area." Patel made the comment during the webinar Moments of Truth in the Server Lifecycle, where he and fellow ClearEdge analyst Danilo Milevsky explored what they called the "transactional game" name-brand suppliers play to get customers to spend more money.
Patel noted that "70% of the deals we're seeing are still sole source and haven't been introduced to any competition," while "67% have little to no planning and just don't have enough time to execute a leverage-management strategy." As a result of these two factors and the aggressive sales tactics of server vendors, Patel said he and his colleagues see, on average, $316,000 left on the table for the server deals that cross their paths throughout the server lifecycle.
ClearEdge breaks up the server lifecycle into five stages, which combine to form what Patel called the "hamster wheel," a repeating pattern where suppliers control the timeline and have ingrained sales tactics and pitches to get customers to spend more money and increase revenue. The first step in getting off this hamster wheel of server vendor control is to understand these stages and know the basic sales methods server suppliers use to aggressively approach customers at each stage.
Strategic vs. white box server suppliers
The major server vendors -- what ClearEdge refers to as strategic suppliers (exemplified by market leaders Dell EMC, Hewlett Packard Enterprise (HPE), Lenovo, IBM and Cisco) -- have lost a considerable amount of business over the last few years, even though their collective revenue has grown by 100%. Patel cited two reasons for this: a 38% increase in server revenue pricing (from $5,333 to $7,337) and cloud service providers.
The former is "responsible for some of the revenue growth," Patel said. "But the key driver here in terms of market share has been the effect of cloud service providers and their demand on this market. Cloud service providers typically source from what are termed white box suppliers or no name service suppliers."
As a result, the share of the market for those suppliers has grown considerably over the last several years. So much so, white box suppliers went from a 31% share early in 2016 to close to 50% in 2019 and are expected to surpass the big five strategic suppliers, if they haven't already, Patel explained.
"With all those changes in mind, [traditional] suppliers are implementing strategies to try and win back some of their market share from those white box suppliers. And they're doing it by playing a transactional game," Patel added. "This transactional game really revolves around the five stages of a service lifecycle. And in each of these stages, suppliers are doing or implementing different strategies to improve the level position or generate as much love as possible."
5 stages of the server lifecycle
ClearEdge defines the five stages of the server lifecycle as:
- Net new purchase
- Optimum performance
- End of OEM warranty
- Device becomes legacy
- End of life
At the net new purchases stage, it is time for a company to go out and buy new server hardware. One tactic suppliers will use at this stage is to approach enterprises with bundle deals that are set to "expire" soon.
Lack of transparency is the problem here, as the supplier typically won't share list prices or SKUs, Patel said. Hence, the offer doesn't provide any information on line-item discounts.
Optimum performance is the period when your servers are fairly new (from six to 12 months old). These servers should be the latest and greatest models available with no need for an upgrade or a refresh, right?
Well, "lo and behold, you have a sales pitch that comes up at the stage," Milevsky said. These rogue, unexpected offers, which come when customers are not worried about a refresh, may promise significant savings and a new and optimized run rate with maintenance included, for example.
On close analysis of these offers, ClearEdge found them too good to be true and a bit misleading due to "the clever way the sales rep framed the deal." With these offers, organizations often end up spending significantly more than they should, especially when compared to what's available on the open market.
The third stage, end of OEM warranty, comes into play when the end of your service agreement with your server supplier approaches. It is a time when you are asking yourself questions, such as, what should I do with my existing servers? Do I keep OEM maintenance, extend it, add extra services or move them over to third-party maintenance providers?
Danilo MilevskyAnalyst, ClearEdge Partners
Unlike the second stage's blind offer, the third stage is a natural point to get a sales pitch from your supplier. "This is going to happen, regardless of whether you want [it] or not, so you have to be prepared," Milevsky said. That's because the pitches ClearEdge sees here may often be short and to the point, but the window to agree is usually small (30 days or less) and the proposals themselves long, detailed and difficult (if not impossible) to understand.
"When you only have 10 to 15 days to review it, you just don't have the time and resources to break down that quote and really go into the weeds with it," Milevsky noted. "On top of that, they usually don't give a high discount on maintenance renewals because they don't want you to negotiate it."
The fourth stage is the point when an organization's hardware starts to become legacy and the maintenance agreement with its supplier is coming to an end. Here, the vendor uses the renewal notice as a natural point of entry to sell you something extra, Milevsky said, "whether you have to pay or if you have already prepaid the three years of maintenance and they're just invoicing you."
It becomes an excuse to offer you more hardware and get you to spend more money. The tactics the server supplier uses here is similar to the optimum performance stage, but it's not a rogue offer. "It is a much easier, much warmer cold call, because it is an easier sell," Milevsky noted. "'Oh, by the way, and we're going to offer you a really good deal on this stuff.'"
The fifth stage, end of life, is similar to stage four, except, here, your server equipment is approaching the end of its lifecycle and will no longer be supported by your supplier. This opens doors for the server vendor to approach you about a refresh.
Like the fourth stage, the vendor uses a quickly approaching date as a means of "forcing an upgrade, forcing you to make a decision, forcing you to spend more money," Milevsky said. "The tactics are pretty clear here, using that end-of-service line as a deadline."
Those are the five stages of the server lifecycle and the basics of how server vendors approach customers with new sales pitches. Now that we've introduced those, the next article in this series will take a closer look at each of the five stages by citing specific examples of sales tactics employed by server suppliers to actual ClearEdge customers. It will also outline the advice the firm gave to improve organizations' positions at each stage.
After that, we'll present what ClearEdge calls the buyer's playbook, which is a framework that acts as checklist or cheat sheet for when you start your server deal. The idea is to break down the supplier tactics of the server lifecycle to counteract them and control the timeline.
We will then cover server forecasting -- based on best practices around quarterly breakdowns, server refreshes and precedent accounts -- which is essential to have in hand when negotiating a server deal and goes hand in hand with the buyer's playbook.
About ClearEdge Partners
Founded by senior sales executives from large IT suppliers and informed by current market analytics, ClearEdge enables CIOs and their teams to make more competitive IT investments. By combining rigorous inspection and IT financial expertise, they identify risk and opportunity, align internal teams, and maintain leverage throughout the lifecycle of supplier relationships. As a result, their clients maximize the value of their investments by unlocking millions of dollars from legacy spending and redirecting funds toward IT modernization, digital and cloud transformation with confidence and speed.
Is third-party threat a viable server maintenance contract tactic?