Seagate Keys In On The Channel

After years of focusing primarily on major computer manufacturers, Seagate for the past year has been quietly building out its system builder channel. In particular, the Scotts Valley, Calif.-based storage company is zeroing in on system builders in the whitebook space and segments where high-capacity storage is at a premium. Seagate channel chief Desa Zraick outlined the company's efforts to distinguish itself from its rivals in an interview with Editor In Chief Michael Vizard.

CRN: How engaged is Seagate with the channel today vs. a year ago?

ZRAICK: We've taken a lot of time to reach out and communicate with our partners. About a year and a half ago, Seagate went through an internal epiphany that the distribution channel was not the end customer for us. For us to really affect our run rates and our pull-through, we have to focus on the reseller to get phones ringing and requests specifically for Seagate. Seagate is now approaching all of its programmatic channel work with a focus on business composition enhancement. We want to focus on value propositions as to why someone would buy the product, why someone would sell the product or integrate the product. Everything that we're doing now with the new and improved Seagate Partner Program will ultimately enable small and midsize system builders to compete more effectively, accelerate their time to market, improve their ability to provide customer service, reduce their cost of doing business and potentially improve their product quality, while reducing their development costs.

CRN: Are you focused on recruiting new system builders?

ZRAICK: We're applying specific focus and recruitment efforts to system builders. System builders control the storage brands they include in their end-user systems. Specifically, we're looking at whitebook and white-box system builders and then VARs that either buy or specify white-box systems. Those are the guys who basically select which components go in their systems. We have about 12,000 total reseller customers that are registered in our STP program in North America. I think a very small percentage of them are system builders.

CRN: What are your goals in terms of reaching out to system builders?

ZRAICK: We'll probably look at getting somewhere in the 20,000 range of system builders in North America. If we look at Intel as a benchmark, they're somewhere in the 28,000 to 30,000 range of systems builders.

CRN: What differentiates Seagate from rivals such as Maxtor and Western Digital?

ZRAICK: If we look at breadth of product mix, none of the other competitors can equal the spread that we have. And if we look at the amount of R&D spent on our product and our technologies, again they cannot equal where Seagate is. The net of that delivers a quality of product at potentially a much more effective cost than our competitors. Now that doesn't mean that we're always going to be the lowest-priced player in the market. However, we have much more vertical integration of all the various aspects of hard-drive development. So if you put all that together, we stand alone as the leader in hard-drive business. CRN: How does that benefit the system builders?

ZRAICK: We're giving the average system builder access to our design service center. Our design service center had been the exclusive domain of our largest OEMs. In the service center, they can do all kinds of quality, qualifications and technical compatibility testing. They have the support of our technicians. That wasn't available to our average system builders, primarily because a lot of the services that the facility provides were really very pricey. What we've done for our new system-builder program is discounted a whole array of those services by 75 percent. We hope that will help them speed their own product development, give them a better quality and then hopefully reduce their development costs. Nobody else I know of is doing anything like that at this point.

CRN: There's a lot concern about how pricing is adversely affected by gray market activity when it comes to components. Has Seagate done anything to mitigate the effect that the gray market has on system builders using new drives?

ZRAICK: We've put out some very strict audit rules and requirements and policing mechanisms to prevent gray market activity. Any of the distributors or OEMs that move product sideways will get dinged. There will be penalties attached. There are a lot of controls that we've put in. We started these controls roughly three or four quarters ago, and initially we did see what you might consider a retaliatory response from the market. They didn't like the fact that they were being constrained from doing business the way they wanted to.

Two years ago, Seagate--like anybody else in the marketplace--was doing the standard quarter-end loading up of the channel. We've completely stopped doing that by implementing minimum and maximum weeks of on-hand inventory controls. What we've done is leveled out all of our product flow. We have no quarter-end stuffing, so there's no mid-quarter dumping going on. We saw a little bit of a dent in our run rates when we first implemented these controls, but we've grown back up again. And in actuality, all of the distributors prefer these controls because it's a lot easier for them to manage their assets. We've taken a leadership position. Is everybody else doing that? No. Some of the others are still stuffing and doing major price rebates, and a lot of their product is still moving sideways. I don't know that we can control that unless they determine that it is detrimental to their long-term business, as we determined it would be to ours.

CRN: Do you think system builders will move into the network-attached storage markets?

ZRAICK: I think that's kind of starting right now. There have been a couple of really large system builders in the United States that are definitely building storage arrays for that marketplace.

CRN: In general, are you beginning to see more activity in the higher end of the market with more system builders moving into the server and high-performance workstation areas?

ZRAICK: In the United States, there are definitely a higher percentage of our run rates in the high-capacity and enterprise-class performance systems. The amount of content that's going into systems and applications today is getting a lot more sophisticated and complex and, therefore, requiring that much more storage capacity. The mix is moving because there are a lot more PC-based servers out there. But even in desktops, they're just putting higher-capacity storage in them because they're getting a premium for it.