by Chris Gaun | March 29, 2013 | Comments Off on A Price Premium for Components of Integrated Systems?
Comparing integrated systems, which deliver a combination of server, storage and/or network devices in a pre-integrated stack coupled with software, can be difficult. By their nature, integrated systems typically have unique value propositions that derive from a particular strength of their respective vendors. Further, due to packaging differences, it can be challenging to compare the prices of integrated systems from different vendors. Intuitively, it seems clear that vendors expect to charge a premium for integrated systems in exchange for the total cost of ownership (TCO) savings that users can achieve from avoiding the challenges of integrating different systems components and software themselves. However, users may be concerned that vendors will also charge premiums for the components of these systems, in exchange for the “privilege” of supporting these components in an integrated systems environment. An informal review of the pricing for some the server components of several integrated systems shows that after considering a typical discount, there may not in fact be a significant uplift on the price for components of these systems.
Vendors typically claim that integrated systems have lower TCO than an equivalent set of commodity components that are deployed separately. For example, marketing for Cisco’s UCS server, which makes up the compute segment of Cisco and Netapp’s FlexPod integrated system, claims to save money on “network interface cards (NICs), host bus adapters (HBAs), cables, and switches.” Indeed, integrated systems may save on labor and other operational costs for a business, while making that business more competitive. The question then becomes: what is this convenience worth to a particular organization?
Gartner’s Tech Planner tool can be used to find pricing for many of the server components of integrated servers, down to the part level, and to discover competing products from all the server vendors (other components of an integrated system – e.g. networking – require a separate exercise). Based on a quick check of this data, some preliminary conclusions are as follows:
- Users may find that Cisco UCS blades have a higher non-discounted price when compared to competitors’ non-discounted price (leftmost bar in graph above). However, based on pricing information from resellers, government contracts, and industry standard benchmarks, the servers are discounted to be competitively priced with other vendors’ similar products (rightmost bar in graph). The percent comparison on discounted vs. discounted pricing was so close to be within a margin of error.
- Preliminary Takeaway: Publicly available pricing – i.e. non-discounted – often sets an upper bar under which less information is known by the customer and negotiation takes over. The discounted price on a Cisco UCS server may be less than the competitor’s non-discounted price (middle bar in graph). Like all negotiations, it is important to get as much information on discounting as possible to ensure competitive pricing.
- Vendors do not charge large premiums for individual parts for the servers of integrated systems. Although not graphed, a comparison of two complete identical builds of HP Matrix servers (one collected from parts, and the other assembled) shows no large pricing uplifts for a ready built complete server, compared to a bill of materials for that server. Furthermore, a quick side-by-side comparison of other integrated system server parts does not show a large markup on individual parts that are available elsewhere – e.g. Intel processors.
- Preliminary Takeaway: It is wise to consider the integrated system server as a whole. Digging deeper to a very detailed level on parts may not be warranted with integrated systems hardware with commodity parts.
- The server hardware in integrated systems, plus support, will have very similar pricing for equivalent products from different vendors.
- Preliminary Takeaway: It is important to do research into different products on the market, but most of the differentiation (savings or premiums) may be found higher up on the solution stack, or in the simplification of networking.
The above are all very early thoughts and more results are needed before it becomes actual research. The next step is to determine the difference in total cost of ownership of cabling, switches, networking and all the other cost in an integrated system. The goal is to derive a bill of material and compare with the cost of a pre-built system, which gives the premium. At first glance, though, it appears that vendors are not counting on marking up the components of integrated systems, but on charging for value offered at higher levels of their integrated stacks.
Follow Chris Gaun on Twitter
Note: This is an individual analyst’s blog and not a piece of peer reviewed, actionable, Gartner research.
Read Complimentary Relevant Research
Predicts 2017: Artificial Intelligence
Artificial intelligence is changing the way in which organizations innovate and communicate their processes, products and services. Practical...
View Relevant Webinars
How to Live Without Mobile Device Management
This webinar addresses the growing trend of users refusing to have enterprise management of their mobile devices due to privacy concerns....
Comments or opinions expressed on this blog are those of the individual contributors only, and do not necessarily represent the views of Gartner, Inc. or its management. Readers may copy and redistribute blog postings on other blogs, or otherwise for private, non-commercial or journalistic purposes, with attribution to Gartner. This content may not be used for any other purposes in any other formats or media. The content on this blog is provided on an "as-is" basis. Gartner shall not be liable for any damages whatsoever arising out of the content or use of this blog.