Egenera Breaks Blade Software Free from Hardware

Published: October 30, 2007

by Timothy Prickett Morgan

Egenera has been a pioneer in the areas of blade server design and server virtualization and systems management since it was founded seven years ago. Up until now, if you wanted to use Egenera's PAN Manager virtualization management tools, you had to buy Egenera's BladeFrame platform. But soon, that will change. Egenera announced yesterday that it will be making its future PAN Manager Release 6 software available to OEMs so they can license it and sell it for their own server, storage, and peripherals.

I know what many of you are thinking. Another blade server pioneer, RLX Technologies, delivered the first commercial blade servers to the market in 2001, way ahead of the whole power and cooling issue than many server vendors since it chose the low-power Transmeta X86 processors for its blades. But even after expanding to more powerful X86 processors, by the end of 2004, RLX hired a new chief executive officer with deep experience in the software business, and then soon announced it was killing its hardware business. And it was only a few months later that RLX's Control Tower software disappeared in an asset acquisition inside of Hewlett-Packard to be heard of again only as a set of management tools that HP deployed on its BladeSystem machines running Linux.

This is not how the Egenera story is going to go, says Mike Thompson, the president and chief executive officer at the company. Egenera has no plans of abandoning its BladeFrame hardware business--not in the slightest. And for good reason. According to Thompson, in 2006, Egenera's sales rose by in excess of 30 percent to rise above $100 million. (Egenera is a privately held company with backing from venture capitalists, and has not yet gone public so the company does not provide any more specific details on its sales.) As for 2007, Egenera is adding between 20 and 30 new accounts each quarter, and it could do substantially better than that in the fourth quarter, helped in part though an OEM agreement that has Fujitsu-Siemens peddling BladeFrames in the EMEA market. So breaking PAN Manager loose from BladeFrame sales is not about not having a healthy, profitable, and growing server business.

"The core BladeFrame business is doing just fine, and now we are breaking out a new software revenue stream," explains Thompson, who took over from Robert Dutkowsky, the prior CEO, in September 2006 when Dutkowsky became CEO at IT distribution giant Tech Data. Thompson used to be director of worldwide sales at fault tolerant server maker Stratus Technologies, and he held various executive positions at Tandem (now a part of Hewlett-Packard) before that.

The Processor Area Network Manager is the secret sauce in the BladeFrame platform, which is used to provision, monitor, and manage virtualized blade servers, their related networks, and storage area networks that feed data to the blades. Egenera, which is headquartered in Marlboro, Massachusetts, originally supported only Linux on its platforms when they launched in December 2001, and it wasn't until May 2003 that Windows Server 2003 was supported on the BladeFrame hardware and PAN Manager Release 3 software. Over time, Egenera has added X64 processors from Intel and Advanced Micro Devices, and as 2005 was coming to a close, Egenera started to support Solaris 10 on its blades after promising a year earlier to do that.

It might seem somewhat paradoxical, then, that Egenera would want to break PAN Manager free of the BladeFrame iron, but regardless of how good Egenera's iron might be, there are customers who have already selected and qualified their hardware vendors and it is sometimes hard for Egenera to break into these accounts. Selling a new piece of management software is a bit easier a task. And after having put over 100 software engineers to work on the forthcoming PAN Manager Release 6 software, which is going to be generally available in early 2008, Egenera wants to make the most revenue and profits it can from that investment. And it is not worried about cannibalization of BladeFrame sales.

"There was not a lot of work moving PAN Manager to other company's hardware," says Thompson. "There will be some cannibalization of hardware, but we are also expecting for PAN Manager to be a pull for our hardware as well." The idea is that once customers try out PAN Manager on their own server hardware, they will be keen on getting the full capability of the software on the hardware platform that takes the best and most advantage of its features.

"We plan to continue to have differentiation in our hardware, and as long as we do that, we will be successful. But we realize that three, four, or five years down the road, the market will decide how they want to get PAN Manager." Meaning, on BladeFrame machines, which are made according to Egenera's specs by contract manufacturer Sanmina-SCI, which builds the BladeFrame machines in a factory in Rapid City, South Dakota.

According to Susan Davis, vice president of product marketing at Egenera, the company is branching out beyond its financial services roots--Egenera was founded by Vern Brownell, the former chief information officer at brokerage house Goldman Sachs, who is still Egenera's chief technology officer. Three years ago, says Davis, more than 60 percent of Egenera's sales came from the financial services sector, and in 2006 as the company was growing, it dropped to a 32 percent share of total revenues. Various service providers--telecommunications, Internet service providers, managed application hosting firms--now account for about 30 percent of sales, up from nothing three years ago. Sales into the public sector now account for another 20 percent or so, and this part of Egenera's sales is growing at an excess of 400 percent, says Davis.

The company is also diversifying in terms of platforms. Way back when in 2003 and 2003, all of the company's sales were for Linux blades, which was good since vendors were trying to get rid of expensive Unix systems and were moving to Linux. Egenera had what was arguably the most sophisticated Linux platform on the market at the time, and it is no wonder that Unix shops had an affinity for BladeFrames and PAN Manager. By 2004, after Windows became available on BladeFrames, Windows quickly accounted for 20 percent of annual sales, and has been growing share about 10 points per year since then. Davis reckons that about 50 percent of BladeFrame sales today are for Linux blades, followed by 40 percent for Windows and 10 percent for Solaris. Windows is particularly popular in the public sector, according to Thompson, and he says that Solaris is still emerging as a blade server platform.

Egenera is not yet saying who will be taking PAN Manager on an OEM basis yet, or what it will cost. Thompson says that there will be at least one tier one player--and given the fact that Dell has the weakest systems management toolset and a need to differentiate its blade server line, Dell seems to be the likely choice to be at the front of the line for PAN Manager. It will be harder to envision IBM, HP, Sun Microsystems, or Fujitsu-Siemens adopting PAN Manager for their respective X64 server products, but Hitachi and NEC might be interested, as might Lenovo, Acer, and Inspur (formerly known as Langchao). The Japanese and Chinese server makers above may not want to do the kind of investment for provisioning and management software that Egenera has spent the past seven years doing.

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