Lower-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 around $200,000. Stratus ftServers dropped the entry price point below $50,000. The impact, say VARs, was enormous. At $200,000, only municipalities with around 200,000 people could afford such a system. But at $20,000 to $50,000, cities and counties with as few as 20,000 people could afford these products, says Stephen Kiely, president and CEO at Stratus.

Stephen Kiely

For companies selling those products to the market, the exponential increase in the potential number of customers to target has translated into real sales, says Jim Hauserman, systems integration manager with Tritech Software Systems. In his case, the introduction of the ftServer line literally halved the entry price at which he needed to charge customers. He says the savings has attracted customers like never before.

Tritech, for example, took delivery of 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 generated approximately $12 million in sales last year, sold another 12 servers to local county governments in southern Colorado.

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

That's exactly what Stratus likes to hear. 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 more expensive, older line of products. In its most recently completed fiscal year, for example, the company racked up sales of roughly $300 million, down slightly from the year before. Sales are expected to recover somewhat this year, says Kiely, but not until late in the second half.

At present, he still sees a lot of deals delayed in planning. Projects that would have been a slam dunk a year ago now only go forward when there's a measurable ROI. For Stratus, however, there's a silver lining. Because its ftServers are so much cheaper than traditional fault-tolerant systems, the company is 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," says Kiely. "That has lead 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 situation improves."

One global 500 insurance giant, for example, recently deep-sixed a planned Unix systems roll out due to costs. An IT manager inside the company familiar with Stratus suggested the company go another way. 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. They're also giving him new customers. Of the transactions with the new product Stratus closed through the end of last year, approximately 70 percent were new customers.

The new price points have opened new channels and lead the company into applications situations that were not possible just a year ago. Now in business development mode, the company is focusing its energies on ATM and credit card authorization, plant floor manufacturing control systems and computer-aided dispatch solutions. Stratus, Kiely says, has secured agreements with 12 of the 20 largest resellers that target that particular market.

Resellers, he adds, are enjoying success upgrading customers from legacy systems. In one case, the company recently moved out an HP cluster system that was prone to crashing. When failures occurred, the systems administrator had to climb out of bed at all hours to manually get the cluster back up and running. The new Stratus systems have features that make that a thing of the past. They include an OnStar-like "phone home" feature that can communicate with a technician and facilitate remote management.

Today, the company has 86 ftServer partners on board and several more in training. (The company has a limited number of other partners that sell its legacy systems.) Roughly two-thirds of transactions and revenue flow goes through partners. Furthermore, the company's direct sales force is now incented to move sales through partners.

Individual partners, including Tritech, believe the company has made a sincere commitment to being partner friendly.

"From the CEO on down, Stratus has instilled a very partner-friendly way of doing business," says Hauserman. "That's especially true when supporting customers."

Tritech looks at the competitive landscape that includes direct competitors, such as Tandem and Marathon, and indirect rivals, such as plain vanilla servers from Compaq or others, and believes it is poised to take share from resellers pushing these brands. That, of course, bodes well for Stratus.

But not all is well at the company. For starters, it lost money last year. And it has yet to figure out a thorough Linux play, though it has OEM-like partners who are spearheading Linux development with its technology. These issues aside, Kiely believes his company can provide one of the best margin opportunities for any VAR in the country. Furthermore, he believes he can do it on the Windows environment.

"We do have a value proposition that is differentiated and it does provide for better margin for the VAR that works for us than in the case of the vanilla PC server," he says.

Though the company is privately held, it has several backers, including Intel, NEC, Deutsche Bank and others. The company says it hopes to close another round of financing in a month or so, and is considering going public, though it is not likely to in the current economic environment.

Return to profitability, build out its channel and continue to refine its technology--that's Stratus' winning plan.