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Oracle: Banking On Engineered Systems
Oracle, of course, once sold only software. But the company became a hardware player when it bought Sun Microsystems in 2010. Since then, Oracle, Redwood Shores, Calif., has launched a line of converged infrastructure products called Engineered Systems that combine server, storage, software and networking components. The line includes the Oracle Database Appliance, sold largely through the channel, as well as high-end systems such as the Exadata Database Machine, the Exalogic Elastic Cloud and the Big Data Appliance.
Oracle Platinum partner Enkitec is one of the top Exadata partners, with some 200 installations to its credit.
"It's skyrocketing for us," said James Garner, sales vice president at Irving, Texas-based Enkitec. Most customers are either consolidating many smaller servers or are looking for systems with more performance to replace servers that no longer keep up with processing demands.
The company resells Exadata systems and offers a range of services around them, including implementation and configuration work, data migration and database-tuning services, and total-cost-of-ownership analysis and other consulting services. While Garner said his company makes good margins on Exadata (he didn't disclose details), it resells only about 30 percent of the systems it provides services for, with customers buying the rest directly from Oracle.
Enkitec did make some big, up-front investments in that it acquired three Exadata systems, an Oracle Database Appliance and other Oracle Engineered Systems to run in its lab for development, testing and demonstration purposes. The company also had to get its sales and technical consultants certified under Oracle's Partner Network Specialized Program—not just on specific products such as Exadata, but in practices such as data warehousing.
The situation is quite different for Cloud Creek Systems, also an Oracle Platinum partner. Cloud Creek, Westlake Village, Calif., only sells the Oracle Database Appliance and Executive Vice President Rhos Dyke said the money isn't in the system and its tight margins.
"I make no money, zero, on selling the equipment," he said in an interview. "The box is a vehicle. You know the razor/razor blades model? You know how Hewlett-Packard makes money on printers with ink cartridges? It's the same model."
Cloud Creek focuses on selling software and services around the Oracle Database Appliance, including database upgrades and tuning. "There's always a service component to it," he said. Many customers, for example, are still on Oracle 9i or 10g and want to move to the current 11g or get ready for the upcoming 12c release, he said.
Oracle Database Appliances are sometimes installed in a Real Application Cluster environment and need to be deployed correctly to take advantage of RAC's failover capabilities, Dyke said. And the Oracle Database Appliance's high performance often leads customers to consider bigger projects such as assembling a data warehouse. "All these other capabilities become possible," he said.
Selling converged infrastructure systems can be challenging. Prospects don't call up asking for a converged infrastructure server, Dyke said, they call because they want to cut costs or they have a business problem to solve. Oracle's Engineered Systems, with their vertical integration and reduced licensing costs, play into those needs. "The challenge is making people understand that you can do more for less," he said.
Some customers like the vertical-integration characteristics that eliminate the need for multiple vendors, Dyke said. But some are uneasy about vendor lock-in—committing to one vendor for so many IT components in one package.
Cloud Creek expects to make about 80 sales this year with at least 20 of those Oracle Engineered Systems—either Oracle Database Appliance or Exadata platform-based packages, Dyke said. "That order volume share will likely increase and grow to 50 percent of our transactions," he added. And he said Engineered System sales generally have a value 10 times or more than a typical transaction.
"Engineered Systems work [new and add-on sales] represented 50 percent of our total revenue in 2011 and 2012, and may grow to 70 percent in 2013," Dyke said in a follow-up email. "Oracle's converged or integrated Engineered Systems enable us to sell CPUs, storage, OS, database, database tools and extensions, data warehouse and BI applications—data storage, retrieval and analysis being the largest driver for investing in this technology—and provide the professional services [consulting] support to deploy and roll it all out."
New York-based Cintra, also an Oracle Platinum partner, sells both the Oracle Database Appliance—25 in the first 18 months since its debut and 20 in the two months since the X3-2 generation launched—and Exadata systems.
As with Enkitec and Cloud Creek, the key to selling Oracle's Engineered Systems is combining them with software, deployment services and management services, said Cintra CTO Adbul Sheikh in an interview. "The key thing is we're wrapping a complete solution, a complete bundle, around that appliance," he said of the Oracle Database Appliance. "We make a small margin on the hardware."
Because Exadata is such a "disruptive technology" that departs from how IT departments are usually run, Sheikh said it can have a "high cost of sale" in that it requires a lot of customer education during the sales process. — Rick Whiting