CRN Exclusive: Eaton VP Tardy On Driving A Power Management Software Renaissance And The Hyper-Converged Opportunity
A Software Makeover For Eaton Power Management Partners
Herve Tardy, vice president and general manager of distributed power quality for Eaton, spoke with CRN about the company's "Monetizing Software" initiative.
Hardy told CRN that partners can drive nearly $9,000 in software and recurring revenue with the sale of a single UPS under the new initiative.
That software sales charge comes amid a dramatic shift in the power management landscape. Backup power and power management are essential parts of every server closet and every data center. But shifting trends in how customers purchase and consume IT equipment, particularly in the face of increasing virtualization and cloud computing, is forcing changes in how UPS vendors and their channel partners approach the business.
Eaton wants to close the gap between traditional and future data center infrastructures by moving its emphasis from the hardware side of the business to software and services. Read on to see what Tardy had to say about the new initiative and more.
When Eaton talks about its 'power business,' what exactly is included?
When we talk about the power category, it's really UPSes, rack-mount power distribution units and accessories, that is to say, battery extenders, communication cords, power management software, these kind of things.
What is the size of the power market through the channel?
NPD [Group] reported $520 million in [U.S. 2014] sales through IT distribution. To this, we need to add what the IT OEMs -- HPE, Dell -- sell. ... There's probably about $673 million being sold at the reseller level.
Resellers, solution providers, we break them down into three: the large solution providers, the small solution providers, the DMRs and the others: retail, ecommerce, government integrators, etc. All in, at the end-user level, that's probably a $780 million-plus market today.
The big unknown, what is not reported by NPD, is what the large solution providers are buying direct from the vendors, bypassing distribution.
For the market in general, is the long-term trend increased or decreased sales for the UPS part of the power business?
The end game for us is to provide channel partners with the ability to sell one line of hardware, one line of software, and one line of services. Just like the storage industry, when you put in an EMC solution, you have three line items: hardware, software, services. There is no reason that for power you don't do the same.
What kind of opportunities are you talking about?
Beyond the sale of the [$1,500] UPS up front ... the opportunity is to sell, through software license, installation, [and] consulting services, an additional $6,750 revenue in terms of concurrent services on top of the sale of the UPS. And then, you will be able to generate, every year, recurring revenue of $2,150 [including] monitoring, annual synchronization assessments, or what we call the tune-up, and other types of services. And then, we are doing some kind of life-cycle management.
Around year four or five, you get the opportunity to replace the batteries. And, on year five-plus, that's going to be the time to basically refresh the entire infrastructure.
How big an opportunity is this for Eaton and its partners?
We really believe that we, and our channel partners, are leaving a lot of money on the table because we don't take advantage of our software and services. We never tried before to monetize this. Unlike the other IT hardware categories, the power category is a category where there is still money to be made on the hardware side. So vendors like us, and our channel partners as well, were just looking at the low-hanging fruit. We see hardware still makes money, and that's fine.
Talk about the Eaton software initiative.
[Software] is probably one of my top initiatives for the year. I'm not expecting for 2016 a lot of revenue. I may get a lot of revenue. That's great. That's going to be the ideal case, because here we're talking about breaking the wall. We are a hardware-focused company trying to break into the software world, trying to break into the recurring revenue model. I can do this in a channel-friendly way because historically Eaton has a very strong services business for our very large UPS customers. But that is a direct model. There was no channel play for that. What is new with what we bring is a channel-centric and channel-friendly model so that channel partners can really make money and recurring revenue.
Does the increased adoption of cloud computing imply that sales of hardware products like those from Eaton will fall over time as customers look for ways to simplify their infrastructures?
Yes and no. I would say if you look at the entire market for this category, you are absolutely right. You get an entire section of the market that is falling: data center infrastructure, especially [among] the large solution providers that had developed over time a power practice around data centers. These people are really badly impacted by the move to the cloud.
NPD said that the power market fell in 2014 while Eaton's sales rose. How did that happen?
Nobody's buying desktop PCs anymore. So this market is gone. This market is declining fast, 10 percent, almost, last year. Anybody who had a significant presence in this market suffered. We at Eaton decided not to play in this market.
What about the midmarket?
The middle is where the sweet spot of the market still is. Why? Because the midsize UPS is the one that you need for the edge. It's what you put in the network closet. We've moved away from the pure server-attached [UPS] for protection. ... The market is all about protecting the network switches to be able to access the cloud. And, when we see these new applications, this is why we focus so much on SimpliVitys and the Nutanixes of the world. Hyper-convergence is bringing a brand-new opportunity in what we call the ROBO [Remote Office, Branch Office] applications, remote offices and branch offices. This is still a great opportunity for power, especially for distributed power.
So the hyper-converged infrastructure market is one of the areas where Eaton hopes to find growth. What are you seeing with that?
Gartner said this market is expected to be $5 billion by 2019. ... This market is growing so fast that I would say those channel partners that are selling these solutions are rushing to sell the hyper-converged infrastructure solution, and they may not have the time to look at all the opportunities in everything else they could bolt on around SimpliVity and Nutanix solutions. Our mission is to evangelize the market around how easy it is to attach an Eaton solution around a SimpliVity hyper-converged solution or Nutanix to expand the solution for the customer to generate more revenue, to make more money, and to provide more business continuity and better risk avoidance.
Does Eaton have any joint marketing programs with these companies?
We do some co-marketing with them at trade shows. We have joint solutions and [other] things.
Hyper-converged is one opportunity. Besides that, we see a lot of opportunities in the education market. Every single school district in the U.S. needs to refresh their IT infrastructures. And [in each case] the power opportunity is in the six figures. ... This will be a rack-mount UPS, 5 to 6 kVA, plus PDU, plus software, plus installation services around it. These are big opportunities. We see the opportunity with higher-ed as well, with a lot of universities standardizing on Eaton.
How big are the changes the power management channel is going through with the cloud and the data center, and how important is it that channel partners step up?
[When you] see Dell acquiring EMC, HP splitting in two, etc., your business model [is] changing drastically. And you have to do something about it. You have to pick the vendors that will help you get there. Because it's going to be painful. It's going to be difficult. And it's going to be costly. Detecting those vendors that are not trying to protect where they come from, trying to protect their installed base, but really trying to look ahead to where's the market going, how can they help you, Mr. Solution Provider, get there.
How do you get your channel program in front of partners who are already dealing with a lot of channel programs?
A solution provider cannot manage more than five or six different vendor channel programs. Out of the five or six, there are five that are kind of mandatory, such as Microsoft, VMware, HP, Cisco, or whatever. ...
So this year, we have an initiative we call "Back to Basics." What are the key elements of a channel program? It could be deal registration. It could be MDFs. And two or three other things. This is what we will be focusing on. We will be getting rid of what I call the "fluff," the "nice-to-have, great-on-paper" features that nobody is using really because people don't have time. We want to focus on the key elements of the channel program to make it right, to make it easy.