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Brocade-IBM OEM deal toughens the game for networking VARs

A new Brocade-IBM OEM agreement will pit the Brocade channel against IBM Global Services and will change the landscape for all networking partners.

Channel partners from Cisco Systems and other networking vendors are likely to take Brocade's networking strategy much more seriously now that IBM is launching a networking business, selling Brocade equipment under its own brand name.

The Brocade-IBM OEM agreement announced Tuesday also puts Brocade's fledgling networking channel in direct competition with IBM's mammoth integrator division, IBM Global Services, as well as the company's other channels. Brocade, the dominant storage player, moved into networking when it acquired Foundry Networks last July. At the time, Foundry sold mostly direct, with only a handful of channel partners. But Brocade, which has a strong storage channel and numerous OEM relationships, has labored since last year to build a multi-tiered networking channel program that will officially launch later this spring.

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Still, that channel will include three or four distributors and only about 30 resellers in the first year. Although Brocade has touted itself as the only networking provider other than Cisco with products ranging from storage to the core, competitors haven't been too nervous. After all, Foundry held only about 2.2% of total networking revenues on enterprise switches, according to Current Analysis principal analyst Bill Terrill.
But IBM's decision to go with Brocade could soon result in heavy market penetration. IBM Global Services sells between $400 million and $500 million of Cisco networking equipment annually. IBM is also one of the largest resellers of Brocade's storage equipment as part of a decade-old OEM agreement.

Shakeout for Brocade partners

Brocade executives promise that the IBM deal won't threaten its own channel, and for now partners and analysts agree.

"We know where we have channel overlap. Foundry is strong in a couple of verticals. IBM tends to be in larger organizations and Fortune 1000 companies, which Foundry didn't have a lot of exposure to prior to the acquisition," said Brocade CTO Dave Stevens.

Brocade's channel program promises deal registration and level pricing, according to vice president of global channels Barbara Spicek.

"I have been introducing the right ecosystem and pricing model to make sure that IBM and Brocade are competitive in the marketplace," Spicek said.

In building Brocade's channel, she has focused on recruiting "select partners" and avoiding over-saturation in the market.

"We want to differentiate from Cisco and their 50,000 partners," she said.

But IBM, which will sell Brocade's product through its Global Services division and its other channels, will have tens of thousands of feet on the street selling the networking portfolio. IBM will, however, also continue to resell product from Cisco and Juniper Networks, a company official said.

"All's fair in love and war in the channel," said IDC analyst and vice president of channels and alliances Janet Waxman. "If you have a good practice and you're already competing with IBM, [Brocade's networking portfolio] is another tool for you to go compete with them."

If there is going to be a problem for Brocade partners, it will probably be down the road, Terrill said -- after IBM has penetrated the high-end market with its networking portfolio.

"IBM has been actively avoiding smaller and midsized companies, [even though] IBM has the products for these midsized sites," he said. But in a year or so, IBM will focus in on those companies, which could be a problem for Brocade's partners, he added. Even then, Brocade partners will still be battling Juniper, Cisco, Extreme and others for market share.

For now, the overall feeling among Brocade partners is that IBM will bring the company much-needed recognition, while not posing too much of a threat.

"Any time IBM gets involved, it's putting a stamp of approval on it. Also, IBM may have made an announcement, but how long will it take them to get up to speed?" asked Joe Fuccillo, president and CTO of Juma Technology Corp., a New York City-based Brocade partner that also sells Cisco, Juniper and Extreme.

Other partners question whether IBM will be able to handle a new networking business without their help.

"[Brocade] needs an army. We're more like the Navy Seals," said J. Dee Flamming, vice president of direct sales at Solid IT Networks, a Brocade partner in Argyle, Texas, which also resells Enterasys, Juniper and HP ProCurve equipment. "For all we know, the army may call us to hit the beach and run for them.

"Those folks [at IBM] don't have the expertise to do what we do as quick as we do it," Flamming said, adding that he believes IBM will look to companies like his to provide services to the lower end of the large enterprise market, as well as the midmarket.

Shifting strategies for all networking partners

IBM's new networking strategy is widely believed to be prompted by Cisco's push into the server market. IBM has been selling Cisco networking equipment since it sold its own networking business to Cisco a decade ago. In return, Cisco partners have resold IBM servers. Both IBM and Cisco have said publicly that they will continue to sell each other's product even after this announcement.

But Cisco's server move also pushed Hewlett-Packard to focus on selling its own HP ProCurve networking product and adding new data center switches instead of depending on Cisco.
Now Cisco is up against at least three vendors that offer end-to-end networking portfolios, and end users can demand that these vendors bid against one another on storage, servers and infrastructure.

"From a competitive side, and from getting more standardized bids, this is going to help enterprises quite a bit," Terrill said.

For partners, that means the need to offer competitive solutions from many vendors in order to compete in that kind of bidding process. Many partners rely solely on one vendor, typically Cisco. Partners will also have to rethink their product offerings and specializations.

"The channel will have to learn servers," Terrill said. They will also have to learn data center technology.

Brocade has begun to train some networking partners in storage.

"At the partner summit, they paid the expenses for our engineers to get to the summit and get trained in storage," Fuccillo said.

IBM's offering

IBM's networking portfolio will include Brocade's NetIron MLX series, re-branded as IBM m-series Ethernet routers; the NetIron CES 2000 series, re-branded as IBM c-series Ethernet switches; the FastIron SuperX line, re-branded as IBM s-series Ethernet switches; and the FastIron GS series, re-branded as IBM g-series Ethernet switches.

IBM will take the product to channel partners and their customers in May.

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