Finding New Channels With Dell

Augmentix has a different strategy. It literally takes Dell's servers apart, then adds its own components, sheet metal cabinetry and specialized management components. From there, it sells the resulting hybrid server as its own for about $25,000. (Augmentix's initial product is based on a Dell PowerEdge 1750.) Its customized gear and applications monitor the status of a server and can detect when an application fails, if an operating system is hung or if a system is heating up beyond certain levels because of adverse environmental conditions.

"We can reboot or power-cycle the server remotely from our management card inside the system, and we work with the native Dell infrastructure inside their servers to reduce our costs of making these cards," says Chris Melson, Augmentix's CEO.

The company has found that using standard Dell servers as the basic raw materials for its own line is cost-effective and competitive with suppliers that use low-volume specialty systems with a much higher cost basis.

"We were getting beat up by our customers on our costs," Melson explains. "If you have your own manufacturing, it is still very low volume when compared to what the general systems builders are doing. We are building 10 or 100 units at a time, while Dell is building tens of thousands. This makes for a very high R&D investment to recoup, and it kept our costs high. We had to find a better way and began looking at commodity servers from Dell as a way to change how we supply systems. I am trying to make reasonably good gross margins and pass along our cost savings to our customers. The good news is that we can still make fairly healthy margins."

As a result of this philosophy, the company completely changed its business model from assembling its own servers to using the Dell PowerEdge servers as the raw materials for its own line. Augmentix doesn't hide the fact that it starts with the Dell boxes, and it has a good relationship with Dell"just don't expect Dell to come service Augmentix's transformed servers, something the company's customers understand up front. And they aren't alone: Check Point Software last month started selling an intrusion-prevention security appliance using the PowerEdge servers, too.

"Most of our customers are sophisticated, have their own service organizations and just want spare parts quickly when something goes wrong. We will offer 24-hour turnaround for spare parts," Melson says. "That is a lot easier to do than setting up an entire service operation. Plus, many military customers aren't interested in letting us on base to fix their gear because the equipment is in very sensitive places."

One of Augmentix's specialized applications is in the Navy's nuclear submarines. "The sub has more than 100 different servers that are used for its sonar analysis," Melson says. "This is the eyes of the sub, and these systems need to be in special racks that literally can be immersed in salt water and still keep running. We use an integrator for these racks, but provide the environmental instrumentation and applications to monitor the health of our servers."