Companies like Hewlett-Packard and Dell which sell computers off the shelf are losing sales in a key market because social media giant Facebook and search engine giant Google are building their own servers, reported Bloomberg on Monday.
Frank Frankovsky, Facebook’s director of hardware design said at a conference on data-center technology last month, “When we set out to build two new data centers, we weren’t able to get exactly what we wanted, and, hence, decided to build our own.
Jeffrey Hewitt, analyst at Gartner Inc. said that the customized machines now account for 20 percent of the U.S. markets for servers, which generated $ 31.9 billion globally, last year.
Slump in sales of personal computers and consumers’ shift to tablets such as Apple’s iPad has made computer makers dependent on servers. And, when large customers like Facebook, setup data centers with thousands of servers of their own, companies like Dell and HP lose out majorly.
Chief technology strategist for researcher In-Stat, Jim McGregor said, “It is definitely a threat to the traditional business model. Customers are finding solutions that the industry was not ready to provide.
Speaking at the Dell-Samsung Chief Information Officer Forum in California, Frankovsky said, “People want to be able to build it their way. Why should they pay for components, upgrades and backup services which they don ‘t actually want. It is like when people buy Burger King, they say, “I don’t like pickles. Why should I take pickles?”
As companies upgrade their corporate network and buy thousands of servers needed to run data centers, it is no surprise that the market for servers grew 20% in the second quarter. This should traditionally have spurred the demand for machines made by HP, Dell and IBM. However, increasing costs for running and maintaining the data centers caused Facebook and other companies to seek cheaper options such as building their own servers.
According to Gartner, HP’s revenue from servers that are used in cloud-computing data centers rose slower than the industry average in the second quarter.
As far as Dell is concerned, its revenue from sale of servers based on PC chips grew 4.4 % in June.
Intel which manufactures chips, understood that cloud data centers has different needs and, hence, could increase its market share to 90% from a low of 35% in 2007.
“The servers for cloud-computing data centers are completely different from corporate servers,” said Rejeanne Skillern, head of marketing at Intel’s cloud computing division.
Google, Facebook and Microsoft have designed servers that contain the minimum amount of components required for their specific task. For eg. Facebook’s servers have custom power supplies and circuit boards in sheet metal enclosures designed to maximize airflow with the minimum number of fans. According to the company, this has boosted efficiency by 38% and reduced the cost of building a data center in Oregon by 24%.
Likewise, Google’s servers are also built to company’s specifications with hardware limited to what is needed for applications to run. The machines run a stripped down version of the Linux operating system which leaves out unnecessary code.
Microsoft on the other hand designs its own servers but gets it built by companies like Dell and HP.
All of this implies that computer makers must come up with products that fulfill the needs of data-center builders.
“Many of them are realizing they’re going to have to address that,” said Gartner’s Hewitt.
Hewlett-Packard sees the market as an avenue for growth, said Jim Ganthier, vice president for marketing in the company’s server unit. “We have got entire design teams and execution teams that wakes up every morning thinking about this. If you think you are going to go in there with a generic off-the-shelf product, you are going to lose.”
In the meanwhile Dell supplies customized servers to Microsoft, as well as to Chinese Internet companies such as Tencent Holdings and Baidu Inc., said Tim Mattox, VP, Worldwide Enterprise Product Management.
In this age of innovation, in order to survive, the computer industry has no choice but to adapt in order to keep itself relevant.