Why small IT shops pay more for storage

Being big means vendor discounts, says Steve Duplessie

Enterprise Strategy Group founder Steve Duplessie answers reader questions in his column “Since You Asked”. A reader asks how to take advantage of growing competition among datacentre vendors.

It seems the big datacentre players are competing on price more than ever. Will that continue, and how do I best take advantage of this?

I don’t think anything has really changed with regards to the competitive pricing dealings at the high end; it appears to be the same as always.

The core has long been dominated by the three big guys: EMC, IBM and Hitachi Data Systems. That hasn’t changed — they are the only ones with mainframe connectivity. They have always leapfrogged one another over the years from a “who’s got the best stuff” perspective, and depending on the mood of the times, have either held the line in terms of discounts or decided to buy back some market share.

Since most of the shops that buy mainframe-attached storage tend to be the giant folks, they have always been the ones with the pricing leverage. If you spend $5 million to $10 million a year on storage, vendors take you seriously. That’s always been the case.

My cohort Tony Asaro brought up a good point at the Storage Decisions conference in Chicago recently. He says the people who really pay the price, per se, are the little guys. The big guys get to squeeze margins out of the vendors simply because of who they are and how much they buy. The little guy almost never gets that kind of leverage, and since all those vendors make hefty overall margins, it must come at the expense of the average Joe.

So, I don’t think there is anything other than normal stuff happening as far as high-end pricing is concerned.

I’m more interested in what happens if the small and medium shops somehow get together and do some “community buying”. If you are in a storage networking user group or any sort of users group, why not ask your peers what their buying plans are for the next three, six and 12 months? I’m guessing you could find some folks with similar plans to your own without much effort, and if four of you get together to make a single buy, you’ll have far more leverage.

Never negotiate a long-term deal, always do it one at a time. Sure, it’s a bit more work, but this stuff never gets more expensive, only cheaper — and no matter how big a discount you get today, if you are smart it will still be cheaper next year when it’s time to buy again.

Fill up the boxes. Storage vendors love it when you buy a half-full frame because then, when you need more capacity, they can charge you outrageous amounts for drives, because it will still be cheaper than buying a new system from someone else (normally). Always negotiate apples to apples upfront (for example, 10TB versus 10TB), then when you narrow down the list, look at the cost of moving up in capacity to fill the box up. The one thing you can be sure of is that you are going to need more sooner or later — make sure today’s deal doesn’t kill you tomorrow.

It’s fine to work the best deal you can for your company — really, it’s part of your job. However, once you get to a fair deal, don’t keep pushing.

Some people think they win if they make sure their vendor doesn’t make a dime. That’s not only wrong, it’s stupid. Keeping your vendor solvent is a pretty good idea unless the stuff it sells is such a commodity that it really doesn’t matter — and storage isn’t there yet.

The vendor will naturally attempt to recoup costs in other ways, namely, in service. That’s why using the purchasing department to make all decisions rarely works in technology; there is a lot more to success than price haggling.

The low bid is almost never the best solution. That is not to say that, once you’ve made the best vendor/product decision for your company, you shouldn’t look for the best deal you can — but if it’s done in reverse, it almost never works.

So, unless the public markets come back within 24 to 36 months, then the storage business as we know it will cease to exist. There will only be the big guys. Then some of the big guys will screw up, and also be eaten up, making for even less choice. There is nothing worse than having a problem at the worst possible time and having to rely on the vendor to bail you out after making sure that you didn’t let them make any money.

They have nothing really to lose by letting you flounder — whereas if a fair deal was struck to begin with, the vendor would be truly incentivised to fix you quickly, or risk losing the next piece of good business.

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