Cover Story
Big Stories of 2009 That will impact IT Channels in 2010
Microsoft tried to erase its sins of the past by delivering a better OS in Win 7. Old friends HP and Cisco turned foes. Double taxation posed a threat to the survival of the channel. Key executives left HP and EMC. These were some of the stories that absorbed us in 2009—and will continue to impact us in 2010
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Microsoft’s big bang rollout
Year 2009 saw Microsoft launch a series of products—Windows 7, Exchange Server 2010, Server 2008 R2, BPOS and Azure—in what was termed as the “biggest launch wave in the company’s history.”
Windows 7 was the most important of these launches considering that its predecessor, Windows Vista, failed miserably in the market. Windows XP continues to enjoy an almost 70 percent installed base, hence it’s critical for the company that Windows 7 delivers. If it fails, Microsoft may lose its credibility as a company which can deliver a stable OS platform. This at a time when archrival Google is getting ready to launch Chrome OS in 2010. Failure could mean that enterprises would be compelled to consider Linux alternatives more seriously.
Fortunately for Microsoft, Windows 7 has received good reviews. Still, selling the product remains a big challenge in the current economic scenario, and more so in India due to the double taxation issue.
Windows 7 adoption will have a domino effect on other releases such as Exchange 2010 and Server 2008 R2. These incorporate features like virtualization and unified communications that work intrinsically with Windows 7.
Core to the Server 2008 R2 release is the enhanced Hyper-V. With virtualization evolving as a platform in itself, Microsoft would want to strengthen its virtualization offering to take on leader VMware.
BPOS and Azure mark the company’s entry into the cloud computing space where it needs to catch up with Google Apps and Amazon. BPOS has received good reviews, and Microsoft recently revised prices to make it competitive.
Azure could act as a major turning point in taking cloud computing from the hype to the realization phase. Considering the vast network of ISVs and software developers that Microsoft commands, the success of Azure will lend greater momentum to creating the cloud computing ecosystem.
Ravi Swaminathan quits HP
This can surely be termed the biggest executive move in the Indian IT channels in 2009—and a big loss for HP’s Personal Systems Group (PSG).
Ravi Swaminathan, President, HP PSG, who was often referred to by peers as the PC King, left HP after a stint of almost 15 years, first with Compaq and later with HP.
Swaminathan, who joined as the head of Compaq’s consumer business in 1995, was instrumental in creating a PC and server channel in the country. At a time when India was just waking up to personal computers, he helped catalyze its growth and penetration.
Many HP partners believe that HP owes its market leadership in PCs to Swaminathan, who built a strong and loyal channel and a channel-focused team.
HP has hired Sunil Dutt, Samsung’s former Country Manager for the mobile handset business, to take over the reins of PSG from Swaminathan. The appointment of Dutt is seen as an attempt to bring in a stronger consumer marketing focus because the PC market is expected to become as broad-based as the mobile phone business.
However, many partners believe that it will be difficult for Dutt to fill Swaminathan’s shoes. He also will face an uphill task in a market where competition from players such as Acer and Dell is intensifying, and a significant transformation is underway in the PC segment with the advent of new form-factors and innovations such as 3D and touch-screen technologies.
Double taxation on packaged software
The central government’s decision to charge service tax on all kinds of software, and the state governments’ decision to continue
collecting value added tax, is causing major problems for the software reselling industry. A recent CRN-ISODA survey found that 57 percent of the software resellers polled expected to end up with losses because of the high TDS cuts on service taxes. Almost all of them are finding their working capital depleting steadily. One out of eight respondents is actually thinking of quitting the business.
ISODA has filed a case in the Chennai High Court demanding an immediate resolution, but the case is not expected to come up for hearing at least till January 2010. What’s even more painful for channels is the lack of empathy from distributors, vendors and industry associations such as Nasscom.
Many partners are attempting to seek relief by getting a lower-TDS certificate from the authorities. However, what partners really want is a resolution to rollback the service tax on branded packaged software and licenses.
Another event that may either ease up—or further complicate the situation—is the goods and services tax, which is all set to roll out by April 2010.
Tax on back-ends
In February 2009, the back-end rebates issued by vendors to authorized partners came under the scanner of the service tax department, and notices were issued to hundreds of authorized partners of major vendors in Tamil Nadu (TN) to cough up Service Tax on all incentives, price protection discounts and rebates received since 2004.
The Service Tax department has also demanded interest for the delayed period, plus penalties. While similar notices have been reported in Delhi, Service Tax departments in other parts of the country are yet to take notice of rebate payments.
Channel partners blame the vendors and distributors, and have been asking them to bail the partners out. In July 2009, the Delhi-based Computer Media Dealers Association sent a notice to MAIT on the issue of back-end rebates, and threatened legal action if their requests were not given consideration.
Similarly, Confed-ITA had sent notices to all leading manufacturers to set up a policy of “upfront business” which essentially involves doing away with the vendors’ practice of back-end rebates.
While some partners are known to have paid a portion of their dues, others are preparing to fight a legal battle.
The biggest fear of some of the large resellers outside TN and Delhi is that during Q1 2010, taxmen across the country may raise this issue in a bid to achieve their collection targets. This could potentially wipe out many partners.
Changing PC market
While HP retains the top position in the Indian PC market, vendors such as Acer and Dell have gained ground. HCL, which was the market leader for nearly a decade since the mid-nineties, and which started as a close second at the beginning of 2009, has slipped to the fourth spot.
HP has been the PC market leader for more than two years now, and with a 17.1 percent share in Q32009, the company has a nearly 6-point lead over its nearest competitor.
Dell lost some ground in its traditional enterprise segment, which was affected by the slowdown. But IDC says it made significant gains in the consumer market due to its strong regional distribution policy. The vendor has strengthened its channel policies by announcing its rules of engagement for enterprise partners.
The major mover in the market was Acer, which began the year with a 7.1 percent market share and the fourth spot, and moved to 11.1 percent and the third position (behind Dell) by Q32009. Acer unveiled its multi-brand strategy at beginning of the year, and successfully launched Gateway and eMachines in the country. The vendor was helped by the fact that the consumer and retail market (where the company had been focusing on heavily) was more or less unaffected by the slowdown.
According to IDC India, HCL saw its market share drop from 13 percent to 9.8 percent. To counter the negative trend, HCL rebranded its entire notebook line using the branding of Mobile Excitement (ME), and also announced that it would revamp the existing HCL Digilife stores.
Lenovo, which had seen its market share slip over the past two years to less than five percent, restructured its channel plans, moved to a regional sub-distribution strategy, set up a separate SMB channel, began rebranding its Lenovo Exclusive stores.
Sudden departures at EMC
EMC India, which made big strides in tier-2 channels in 2008, saw the exit of its top leadership in a rather unceremonious manner in 2009.
Alok Ohrie, President, EMC India, and Vishwanathan Ramaswamy, head of Channels, quit in November 2009, leaving EMC’s partners confused and concerned.
EMC, which till 2007 was focused mostly on large enterprises and had very little connect with the tier-2 channel, rose to prominence in 2008 courtesy the channel strategy devised by Ohrie and Ramaswamy, which resulted in the company winning the CRN Channel Champions 2008 Award by beating archrivals IBM and HP.
Little wonder then that their sudden exit had partners concerned. The storage vendor rushed ex-India head Manoj Chugh from his Asia-Pacific posting to head its India operations in order to curb speculation and ensure business continuity.
Chugh has assured partners that EMC will continue to have an SMB focus. The company is in the process of getting a new channel team in place, and is redrawing its India strategy.
It’s the economy, dear
Even as the global economy saw one of its darkest years in 2009, the Indian and Chinese economies emerged as the two bright spots, both growing at above 7 percent despite what was happening in the rest of the world.
Even so, IT spending in India failed to take off. Capital expenditure cycles in most sectors didn’t see any major revival in 2009, even though stock indices and other indicators (such as IIP) did well. Sectors like government and education were the only opportunities for solutions providers since other verticals were still focusing on consolidating costs.
The beginning of 2010 will be a deciding period for the Indian IT market because expectations from the JFM quarter are high. However, many in the industry remain cautious as they believe that the economic recovery in India and the rest of the world will take the shape of a W rather than a V, and that negative surprises can’t be ruled out in 2010. Let’s watch and wait.
Shrinking vendor universe
Year 2009 saw a continuing wave of consolidation. Vendors took advantage of the economic downturn to make strategic investments in the future, and, in many cases, to cut down the competition.
One of the biggest deals was Oracle’s $7.4 billion proposed acquisition of Sun, followed by HP’s proposed buyout of networking vendor 3Com in a move to converge storage and data networking and hit back at Cisco’s advances in that part of the market.
Also huge in dollar terms was EMC’s $2.1 billion acquisition of Data Domain, after a prolonged bidding war with NetApp.
Avaya picked up bankrupt Nortel’s enterprise unit in September for $915 million, thus expanding its portfolio in the networking space and consolidating its position in the voice and telecom segment.
In October, Cisco announced its intentions to acquire videoconferencing market leader Tandberg for $3.1 billion. This was aimed at giving Cisco a low-cost alternative in the videoconferencing equipment market to further its collaboration strategy in the SMB space.
Intel-AMD settlement
Intel and AMD settled several of their legal disputes in November.
AMD agreed to end its pursuit of antitrust claims against its larger rival. The settlement saw Intel pay AMD $1.25 billion to end its claims in US and elsewhere around the world, with Intel also agreeing to modify its business practices.
AMD’s claims centered on allegations that Intel used ‘secret rebates’ to pressure computer manufacturers to limit or eliminate their use of AMD chips. Also at stake was a dispute over the two companies’ x86 cross license agreement; the pair wound up the dispute by extending the agreement for another five years.
The Vblock coalition
November 2009 saw the official birth of the Vblock coalition of Cisco, EMC and VMware. The coalition is focused on developing a series of pre-configured, pre-tested solutions based on Cisco’s Unified Computing System and networking switches, EMC’s Symmetrix or Clariion storage arrays, and VMware’s vSphere server virtualization platform.
Vblock, part of Cisco’s push to consolidate storage, server and networking resources onto a single platform, was originally known as VCE, or the VMware-Cisco-EMC alliance when it was first discussed in April.
However, by November, VCE had morphed into ‘Virtual Computing Environment,’ and then into Vblock, supposedly because of concerns about VMware having such a prominent spot in an alliance whose primary competitors are HP and IBM, both of which are also VMware’s biggest partners.
EMC and Cisco have committed themselves to formalizing the partnership in the form of a joint venture company in 2010.
Oracle to buy Sun... maybe
In April, Oracle unveiled plans to snap up Sun in a deal valued at $7.4 billion. The acquisition, it was said, would bring not only Sun’s Solaris operating system, the MySQL open-source database and the Java programming language into Oracle’s portfolio, but also its line of hardware products, including servers. Oracle vowed to continue Sun’s hardware lines, despite widespread industry speculation to the contrary.
However, the deal has run into a roadblock as the European Union (EU) has launched an anti-trust investigation into the sale. The regulatory commission at EU is concerned that Oracle might limit future development of MySQL, which some see as a competitor to its own flagship database software. This even though Oracle has promised not to give up MySQL. US regulators have approved the Oracle-Sun deal without conditions, leaving EU approval the only hurdle to the acquisition.
While most believe that Oracle will eventually cross the EU hurdle, any further delay would have a serious impact on Sun’s business and partners. HP and IBM are already taking advantage of the confusion prevailing among Sun’s customers and partners, and both have come up with focused initiatives to lure Sun’s customers and partners through a series of programs, schemes and rebates. They have also released migration tools to move customers from Solaris to their platforms.
Most analysts believe that crossing the regulatory hurdle is only the beginning of the problem, and that the integration of Sun’s hardware business and channel will be the toughest challenge for Oracle.
Everything’s cloudy
Perhaps, the biggest story in 2009 was about cloud computing. Even as some pundits continued to debate the definition of cloud computing, almost every IT hardware, software and service company sought to define (and in many cases, redefine) itself as a cloud-computing vendor.
Not surprising, perhaps because Gartner put the 2009 market for cloud computing services at $56.3 billion, and growing to $150.1 billion by 2013. (Merrill Lynch goes further, predicting that revenue from cloud computing services and applications will hit $160 billion by 2011.)
Obviously, cloud computing isn’t a flash-in-the-pan. It’s a new concept that helps IT managers leverage resources outside their data center, potentially lowering costs and providing unprecedented levels of flexibility.
But Gartner also had a point earlier this year when it called cloud computing the most hyped subject in IT. Then a McKinsey report added fuel to the fire by questioning the value of cloud computing, even saying that it could double data center costs for large companies.
At times, in 2009, all the talk about cloud computing had faint echoes of the giddy dotcom era of the late 1990s—and we all know how that turned out. Here’s hoping that the promise of cloud computing proves to be more real.
HP vs Cisco
It’s not easy to say which vendor fired the first shot, but 2009 will be remembered as the year when peaceful co-existence between HP and Cisco became a thing of the past.
HP versus Cisco is one of the hottest rivalries in IT these days. One that has the greatest implications for the channel because some solutions providers, who carry both vendors, fear that they will soon be asked to choose sides.
The competition between the two has been a see-saw battle the entire year. No sooner did HP begin a more dramatic positioning of its once-quiet ProCurve line as a true Cisco alternative than Cisco rolled out its UCS, pushing it squarely into territory—data center, virtualization, and storage—where it had never quite been before, and where HP thrives.
The day after Cisco unveiled its UCS, HP issued a press release stating: “HP to Cisco: You Have A Lot To Learn About the Data Center.”
Ever since then, every major networking or data center announcement by Cisco or HP has carried the pungent scent of rivalry, including announcements about HP’s new BladeSystem switches and Cisco’s Borderless Networks architecture. Key channel executives from both companies don’t seem to be backing down from attacking each other.
Channel activism
From being purely places where partners could network once in a while and where vendors could launch products and make announcements, many channel associations are slowly becoming hot-beds of activism and places where a number of initiatives are mushrooming in the larger interests of channel partners.
Associations are becoming power centers and podiums of arbitration. They have been swift to change vendor and distributor policies by even calling for boycotts. Whether it’s the local association in Amravati banning Lenovo, or Nanded’s banning Dell, or the powerful Confed-ITA taking on just about every distributor and vendor, partners have finally realized the power of unity.
Some associations such as ISODA have been formed in the wake of the government levying service tax on software. The association is fighting a legal battle questioning the extra-constitutional and draconian laws that the government has introduced.
Vendors are also joining hands with associations to resolve the business challenges they face, an example being Microsoft working with channel associations to reduce piracy levels.
There are also some humanitarian efforts, notably the SOUL project promoted by Confed-ITA which is raising a corpus that will cover even potential business causalities that the association’s members may suffer. The association is working with distributors, and asking them to collect Rs 100 extra on every Rs 1 lakh of billing done to an association member. Earlier, this association had started an initiative to cover each and every employee of a reseller member of the association with accident insurance of Rs 50,000.
Next year, it’ll be interesting to see how many dormant associations wake up and take inspiration from what some of the active associations are doing. There may be efforts among regional associations to create a larger conglomerate of associations at the national level so that they can become a lobby influencing even policy decisions of the government. |