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StorageTek makes Sun a storage player; VAR questions remain

Despite enhancements to its storage line and sales staff, VARs are cool on Sun and its effort to push them toward its new storage focus.

For the first part of this analysis, sketching out Sun's product strategy, the additions made to it by StorageTek and the changes in Sun's approach to the storage market, read Sun becomes a serious storage player.

While many analysts agree Sun's product portfolio is sound, questions remain as to whether it's too late for the company to either gain a greater footprint with existing customers or capture new customers.

"What is the compelling value proposition that a company would have to choose Sun primary storage over the many competitors in the space like EMC and IBM?" asked Andrew Reichman, analyst with Forrester Research.

Storage buyers – who are responsible for protecting a company's information assets – are the most conservative customers in the data center, Reichman said.

They resist change and are attracted to companies with strong reputations. That makes them more likely to go with established storage vendors like market leaders, EMC, HP and IBM.

Some customers will feel more confident in those companies and their broad product lines, rather than in Sun, which sells a mix of products from companies like Hitachi Data Systems, DotHill and LSI Logic, Reichman said.

"There's a lot of risk for [customers], and I don't see a compelling reason as far as features and functions that would make customers take that risk," Reichman added.

Some VARs are seeing this resistance up close.

David Olson, vice president of operations at Information Management Group, a VAR that sells Sun-only products primarily to the state government in Albany, NY, said his company has more than doubled its revenues in 2006 from 2005.

Still he believes Sun could have captured more business with Albany's state government if purchasing managers were willing to take more of a chance with Sun.

"IBM pretty much owns those large accounts. Even if Sun had a more aggressive message out there, they could have the greatest and best thing going, but some of those agencies will still be with IBM," Olson said.

Many Sun VAR partners will be concentrating on small to medium-sized businesses (SMBs), which analysts said is the market Sun wants its VAR partners to focus on.

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Among companies with employees numbering between 500 and 2,500, Sun is also facing fierce competition, and has been late to offer a marketing strategy similar to vendors like NetApp, EMC, HP and Sun, said Forrester analyst Stephanie Balaouras.

"I think the challenge for Sun is that VARs typically don't just sell one vendor's equipment, they are also selling EMC, HP, IBM and NetApp," Balaouras said. "Sun is nowhere near – not even close – to what IBM, HP, EMC and NetApp are doing in this space," she added.

Olson said he hopes Sun pushes more into the medium-sized business with a campaign targeting manufacturing firms, accounting and law firms and other midsized businesses that are Information Management Group's growing customer base. Without a focused campaign, other companies are grabbing market share.

"This past year Sun came out with the 5000 series which is supposed to go up against the NetApps in the medium-sized market. We've had some interest in it, we have not sold any, and the problem is NetApp is so entrenched – [customers] customers like the boxes, they work and customers aren't feeling any pain to change to a different brand," Olson said.

Sun has to be very careful to nurture its relationships with such VARs, many of whom are already smarting from the recent announcement that Sun will cut the discount on maintenance contract renewals from 15% to 8% early next year, according to John Webster, analyst at Illuminata Inc. in Nashua, N.H.

Since Sun has not established an SMB strategy that is as effective as its enterprise approach, VARs' disappointment with Sun's support in the SMB market may go with other vendors, hurting Sun's business even more, Webster said.

Alliance Technology Group, a Hanover, Md.-based solution provider straddles the fence – acting both as Sun VAR Council member as well as a Network Appliance VAR.

"Sun's got the best technology in the world and we believe in the product line, we have a huge sales force here to work with, and we have legacy StorageTek relationships to leverage, but if we are not making money selling their product I will be going elsewhere," said Pat Edwards, vice president of sales at Alliance.

Edwards said he can make a lot of money selling Network Appliance storage products, and argues that while Sun will increase its discount on new contracts from 15% to 20%, Network Appliance can play that game too.

"NetApp has a NAS, SAN and security product line, and we have the opportunity to see anywhere from 18 to 24 points on margin when we sell their storage products," Edwards said.

Other VARs find Sun's products to be cost prohibitive.

"A fully loaded 6900 server is probably between $250,000 to $500,000," according to Dean Cappellazzo, cofounder of one-time Sun partner BEAR Data Systems Inc., Santa Clara, Calif. "An HP equivalent is half that and Dell is less expensive as well," he said.

Today BEAR Data is partnered with IBM, HP and NetApp, and said Sun has been slow to react to market changes, which has hurt it.

"Everyone is moving toward blades, Unix is tied to legacy, and what we are seeing is that more companies have gone to that less expensive solution than Unix," Cappellazzo said of the famously Unix-centric Sun.

In the meantime, Sun's O'Connor said the company has revitalized itself and is ready to take on the challenges ahead.

Being well positioned to address the storage market is one thing, but Forrester's Balaouras said the clock is ticking fast and Sun has to increase its profits soon.

"The time is now for them. If you look across their product portfolio there aren't any major gaps, so now it's really about field level execution; having the right bundling of products and services at the right price," Balaouras said.

And, will they succeed?

"Yes, I think they'll succeed if success is closing the gap and turning a profit. The other question is how much can they regain significant market share in storage overall," Balaouras added.

For the first part of this analysis, sketching out Sun's product strategy, the additions made to it by StorageTek and the changes in Sun's approach to the storage market, read Sun becomes a serious storage player.

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