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Volume 17, Number 43 -- November 10, 2008

A Few More Strands in the DNA of the Midrange

Published: November 10, 2008

by Timothy Prickett Morgan

Information about the midrange of the corporate computing market--the place where hundreds of thousands of companies worldwide generate tens of billions of dollars in server and storage spending a year--is a little hard to come by. I always have an eye out for statistics because it is so rare to see anything quantitative that is available to the public. I am sure there is plenty of data available on the midrange from the server makers themselves and the big IT market researchers, but that is the kind of information that costs big bucks these days.

That has not, however, always been the case. Back in the mid-1990s, when IBM, Digital Equipment, and Hewlett-Packard ruled the midrange with their proprietary minicomputers and HP and Sun Microsystems were Unix upstarts along with a seriously third-place Big Blue in peddling Unix minis to midrange shops, vendors threw all kinds of data around. But these days, with the midrange under a sustained assault from the Windows platform for the better part of a decade, no one wants to talk about it. But I have a long memory, and a loose tongue, and I do.

Take a look at this data, which IBM supplied to me when I visited the Rochester facility for an AS/400 server announcement back in 1998 (perhaps the best year for AS/400 sales ever). Here is a breakdown of revenue opportunity and actual sales against that revenue opportunity:



Look at how big the opportunity for platform sales was across those different industries. It is just immense. And look at how heavily involved in wholesale and retail distribution, manufacturing, and banking and finance the AS/400 was only a decade ago. (And look at how banking, finance, and insurance were separate categories! Ah, the good old days.) IBM was proud of these numbers, and rightfully so. Even after several years of price cuts and Windows pressure, the AS/400 was still doing relatively OK. So IBM was bragging a little.

In that same conversation I had with the head of AS/400 marketing at the time, she was point blank about what share of sales and shipments came from SMB and enterprise shops. Take a look:



Now, you just try to get that kind of information out of any of the server makers today. Forget it.

That's why I am always hunting and searching for any demographics and statistics I can tell you about this midrange market we inhabit together; it is also why, in the absence of data from third parties, I put the effort in to explain how the "System i" platform, meaning System i and Power Systems boxes where i5/OS or i 6.1 are the primary operating system, is doing when IBM seems hell-bent on distorting its own sales figures to make its Unix business look stronger than it is. (See IBM's Q3 in Servers, Redux: The i and p Platforms Do OK from two weeks ago for more on that.)

Last week, a midrange survey and report done by Enterprise Strategy Group, came to my attention. While a report about storage plans was what brought me to the ESG site, I found another (and slightly older) report based on a survey of 546 IT managers and other decision makers (I just love when they say that) at midrange shops in North America. This report, called Medium-Size Business Server and Storage Priorities, came out in June 2008, and it was based on surveys done in April and May of this year about their plans for the next 24 months. Yes, that was like a million years ago, and anything IT managers were saying back then about their plans in 2009 and 2010 is probably suspect. We hadn't hit the financial wall yet, and conditions are now radically changed. That survey, according to Jon Oltsik, one of the analysts at ESG, indicated that more than half of the respondents from these midrange companies expected "modest growth," by which IT managers meant more than 4 percent, in the IT budgets in 2009. I tell you this just for the record.

It would be interesting to see what these same managers are saying now.

But that's not the main reason I bring the ESG report up, which you can see a sales pitch summary of here. The reason I did bring it up is because the sales pitch has some interesting demographics inside of it. I realize this is a small pool of companies, and not necessarily a representative sample of the modern midrange, but I am just the reporter. Don't shoot me. Take pot shots at the server makers like I do for being wimpy about talking about their customer bases.

Anyway, in the survey data, 28 percent of those surveyed had between 100 and 249 employees, while 32 percent had between 250 and 499 employees and 40 percent had between 500 and 999 employees. Interestingly, the businesses polled had lots of locations where they were doing business, and lots of data centers (or perhaps data closets in addition to data centers) as well. Only 10 percent of the companies polled had one business location, and 28 percent had from two to five locations, followed by 25 percent with from six to 10 locations. Many of those polled did business in dozens or hundreds of locations, which includes retail locations, distribution warehouses, healthcare facilities, sales offices at real estate companies, branch offices at banks and brokerages, and so forth. There was a pretty large number of data centers among these midrange shops, even after more than a decade of cheap telecom and the commercialized Internet, with only 36 percent saying that they have a single data center. Another 27 percent said they have two data centers, and 26 percent said they have from three to five data centers, 8 percent said they had six to 10 data centers, and 3 percent said they had 10 or more data centers. Interestingly, only 1 percent of the midrange shops polled said they relied solely on data center hosting from third parties to run their businesses.

The industry demographics for this midrange IT study performed by ESG was also illustrative. Some 16 percent of the companies polled were in the manufacturing sector, followed by another 15 percent in the financial services area (which ironically and ominously had banking, securities, and insurance lumped together). Another 12 percent of those polled were in the professional services sector (including accountants, lawyers, consulting, and such), while 12 percent were in federal, state, and local government. Another 11 percent of the companies polled were in the healthcare industry, while 8 percent were in retail. Wholesale distribution, telecom, construction, mining, and other industries were all lumped into the Others category, for 27 percent of the companies in the survey.


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