IBM: Focus On Form

For IBM, simply focusing on the right form factor was key to keeping customers happy. "In 1999, only about five percent of our volume servers were rack-mountable," says Jim Gargin, vice president of marketing for IBM's eServer X series. "In 2000, 52 percent of them were rack-optimized. It was such a phenomenal change in the market that, if you missed it, you didn't have time to catch up."

Gargin says IBM's entry-level servers also benefit from being branded as part of a single top-to-bottom server family. "With the eServer brand name, customers expect that the products in the line will interoperate and be productive together," he says. "We're pursuing a single strategy that will help resellers sell IBM servers regardless of how their customers' needs evolve over time."

The strategy is one that IBM president and COO Sam Palmisano, himself, has said will make IBM's marketing message catch up to the company's technological prowess in servers. The former senior vice president and group executive for IBM's Enterprise Systems Group, which is responsible for IBM's server family, Palmisano has openly conceded that IBM rivals have attracted customers with a more "crisp" marketing message.

Now, Palmisano's troops have not only focused their marketing message, but they've also tightened their pricing policies, according to Gargin.

"We've pursued a very aggressive policy," Gargin says. "In some cases, we're coming in at prices 25 to 30 percent below Compaq into the channel. We know we have to allow partners to retain more margin in this space."

Like IBM, HP took aim on the bottom line. "You can try to differentiate on hardware, but our programs for VARs are more focused on how to eliminate costs, how to beef up promotions and how to make sure the financial services are in place," says Marc Jourlait, director of HP's Netserver Business in North America. "In the commoditized part of the world, it's all about relationships and ease of doing business."

In the past year, the biggest step for the Palo Alto, Calif.-based company came when HP dropped prices on its Netserver line, Jourlait says.

"We are seen as a premium brand, and while that's a good thing, we always have to fight the perception that we're expensive," he says. "We worked hard on our server channel cost reduction efforts to allow us to compete. We want to give the channel Dell prices with HP reliability."

Part 2: Beyond a Box

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