Low-Cost Servers Open Doors for Stratus, VARs

Consider the following: Prior to the product's arrival last year, fault-tolerant solutions required to run 911 emergency-response centers typically started at roughly $200,000. Stratus ftServers dropped the entry-price point below $50,000. The impact, VARs say, was enormous. At $200,000, only municipalities with some 200,000 people could afford such a system. But at $20,000 to $50,000, cities and counties with as few as 20,000 residents could afford such products, says Stephen Kiely, president and CEO at Maynard, Mass.-based Stratus Technologies.

Still, the company faces some hurdles. For starters, it lost money last year. And it has yet to figure out a thorough Linux play, though it has OEM-like partners that are spearheading Linux development with Stratus' technology. Those issues aside, Kiely believes his company can provide one of the best margin opportunities for any VAR in the country. Further, he believes it can be done in the Windows environment.

"We have a value proposition that is differentiated and provides better margin for the VAR that works for us than [is the case with the vanilla PC server," he says.

For companies selling fault-tolerant servers, the exponential increase in the potential number of customers has translated into real sales, says Jim Hauserman, systems integration manager with San Diego-based Tritech Software Systems. In his case, the introduction of the ftServer line cut in half the entry price he needed to charge customers. Hauserman says the savings have attracted customers like never before.

Tritech, for example, bought one of the first ftServers and installed it at the San Francisco fire department. Later, it placed another server with Denver's police and fire departments. The company, which has sold to more than 125 public-safety agencies, sold another 12 servers to local county governments in Colorado.

"We need a Windows-based client-server solution, and this one has been a huge success for us," Hauserman says.

That's music to Stratus' ears. The company, which launched a new channel-partner program last fall for ftServer resellers, continues to recruit allies as it builds its business. Although its VARs are making gains with its servers, Stratus itself has yet to see a significant bounce in sales, due primarily to the soft economy, which has lowered demand for its older, more expensive line of products. In its most recent fiscal year, the company racked up sales of roughly $300 million, down slightly from the year before. Sales are expected to recover somewhat this year, Kiely says, but not until late in the second half.

Getting the Green Light

Presently, Kiely still sees many deals delayed in planning. Projects that would have been a slam-dunk a year ago now go forward only when there's a measurable ROI. But because the ftServers cost so much less than traditional fault-tolerant systems, its VARs are getting the green light on pilot projects and departmental experiments.

"Having a fault-tolerant server at $40,000 was just unheard of [six months ago," Kiely says. "That has led a lot of new customers to look at the systems because they are inexpensive enough to buy in quantities of three, four or five, and test them out in anticipation of a significant rollout down the road when the [economic situation improves."

One Global 500 insurance giant, for example, recently deep-sixed a planned Unix systems rollout due to cost. An IT manager inside the company familiar with Stratus suggested it take another route. Management authorized a try-and-buy pilot involving a single Stratus machine. The machine impressed the company so much that the project was moved from Unix to the Windows-based Stratus platform, saving the company a bundle.

Wins like that are giving Kiely increased confidence,and they're giving him new customers. Of the transactions Stratus closed with the new product through the end of last year, approximately 70 percent involved new customers.

The lower price points have opened new channels and led the company into application situations that weren't possible just a year ago. Now in a business-development mode, the company is focusing its energies on ATM and credit-card authorizations, plant-floor manufacturing-control systems and computer-aided dispatch solutions. Stratus, Kiely says, has secured deals with 12 of the 20 largest VARs that target the public-safety market.

Resellers, he adds, are enjoying success by upgrading customers from legacy systems. One company, for example, recently moved away from an HP cluster system that was prone to crashing. When failures occurred, the always-on-call systems administrator had to manually get the cluster back up and running. The new Stratus systems have features that make that a chore of the past, including a "phone-home" feature that can communicate with a technician and facilitate remote management much like an OnStar device does for drivers of vehicles.

Today, Stratus has 86 ftServer partners onboard and several more in training. (A limited number of other partners sell its

legacy systems.) Roughly two-thirds of transactions and revenue flow goes through partners. Further, the company's direct-sales force is now incented to move sales through partners.

Partners, including Tritech, believe the company has made a sincere commitment to its partners. "From the CEO on down, Stratus has instilled a very partner-friendly way of doing business," Hauserman says. "That's especially true when supporting customers."

Tritech looks at the competitive landscape, which includes direct competitors, such as Tandem and Marathon, and indirect rivals, such as servers from HP, and believes it is poised to take market share from resellers pushing those brands. That, of course, bodes well for Stratus.

Although the company is privately held, it has several backers, including Deutsche Bank, Intel and NEC. The company says it hopes to close another round of financing in a month or so, and is considering going public once the economy is more favorable.