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A major benefit of cloud computing, according to its proponents, is that it reduces the amount of computer hardware and IT infrastructure companies need to run their businesses. So you would think that cloud computing would be bad news for custom system builders who make their living assembling computer hardware for their customers.
"It's a complete reversal from the traditional custom system builder approach," said Todd Swank, marketing vice president at Nor-Tech, a Burnsville, Minn.-based custom system builder. "We start with the hardware sale and the cloud is all about not having hardware."
"We're trying to figure out how this affects our hardware sales," agreed Joe Toste, sales and marketing vice president at Equus Computer Systems, a Minneapolis-based custom system builder.
But while the growing adoption of cloud computing could spell trouble for custom system builders, Swank is convinced there's a golden opportunity in them thar cloud systems. "It's going to be the wave of the future and how we make money on it is the question I'm trying to figure out," he said.
Some aren't buying the "conventional wisdom" that cloud computing means reduced computer hardware sales. "I only see it driving more server sales," said Toste. "Frankly, it's all about selling more hardware."
Why? Cloud computing will spur demand for IT hosting services from midsize, regional Internet service providers, Toste predicts. And the buildout of such facilities will boost demand for more high-performance servers. Some larger solution providers, to whom custom system builders sell their hardware products, are assembling their own network operations centers to provide their clients with cloud computing applications and managed services.
"Many of those guys have expertise to develop smaller cloud environments for their customers," Toste said. "This is no different than the Internet service providers of a few years ago."
Server virtualization might provide custom system builders with another route to cloud computing. Some industry observers see virtualization as a first step toward private and public cloud computing because it decouples users from software implementations, improves IT flexibility and agility, and leads to changes in software licensing and pricing -- all elements of a cloud computing strategy.
True, virtualization is usually equated with server hardware consolidation -- another potential business downer for hardware suppliers like custom system builders. But Nor-Tech's Swank prefers to see the glass as half full in that virtualization and server consolidation are generating demand for "bigger and better servers," he said. That's a potential opportunity for Nor-Tech and its HPC (High Performance Computing) line of servers, based on Intel Xeon and AMD Opteron microprocessors.
Todd Garrigues, North America channel manager at Intel, also cited erroneous predictions that virtualization would reduce server sales as a bellwether for the potential impact of cloud computing. "What we've seen is very much the opposite," he said, arguing that virtualization has boosted server sales. "I think cloud [computing] is going to be very much the same."
Intel is a key supplier of processors, system boards, server adapters, RAID storage technology, chassis and other components to custom system builders.
Intel also offers ISVs and system builders a number of programs that can assist their cloud efforts, including the Enabled Server Acceleration Alliance (ESAA). In addition, the Intel Cloud Builders program, at www.intel.com, offers case studies and blueprints for cloud computing for system builders, service providers and IT managers.
Virtualization and private clouds are increasing sales of high-performance servers with high-availability capabilities, servers with cutting-edge processors and high-capacity disk drives—all high-margin stuff. "It really is about redundancy," Toste said. Operators of mission-critical systems often install multiple servers with some serving as "hot spares," he added. "Frequently you're selling double capacity."
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