The Joys of OEM Co-op-etition

I was recently mulling over some examples of OEM co-op-etition in our industry:

• During the early 00’s IBM and Compaq OEM’d each others disk systems, the MA8000 from Compaq (sold as the MSS by IBM) and the ESS from IBM (sold as the CSS by Compaq) to give each other coverage in midrange and high-end storage. The fact that so few people know this even happened tells you something about how successful it was. I know that among some IBM sellers, the MSS was certainly considered ‘last cab off the rank’ when it came to solutioning.

• Dell has a long-standing OEM arrangement to sell EMC CLARiiON and VNX products, which compete with their own Compellent and Equallogic disk systems. In fact the OEM arrangement with Dell goes right back to the Data General CLARiiON days. Dell’s acquisition of Compellent must have decreased the value of the relationship from EMC’s point of view. Sure Dell has helped EMC to penetrate the SMB market, but now Dell has a foothold, skills and credibility which they can exploit with Compellent going forward.

• Netapp had a brief OEM agreement with Dell between ’98 and ’00. I don’t know what happened there, but I do know that Netapp tries to sell value, technology, integration and innovation. Back in the late 90’s Dell was all about price and urgent delivery. That’s a pretty big culture divide. I’m guessing that Dell simply didn’t sell much of the high-priced Netapp kit.

• Again, Netapp had an OEM agreement with Hitachi between ’02 and ’04, but it was just for gateways.  A gateway-only OEM agreement doesn’t really work for Netapp as a glance at their list prices will tell you that they make a lot of their margin from disk drives. I expect the agreement failed because most of the benefits fell on Hitachi’s side of the ledger.

• Most major vendors OEM low end tape products from ADIC/Quantum or similar. This has worked well for years because there is relatively minimal competition between the big vendors and their other own-branded channels. Occasionally there is disruption e.g. when Sun bought STK and then Oracle bought Sun, the STK OEMS were naturally a bit unsettled.

So what we learn from co-op-etition is that it’s designed to benefit both parties and their customers, but if it works it sometimes leads to changes in the dynamics between the three. If the relationship lasts only a couple of years it may be a sign that the dynamics weren’t right in the first place and the setup and tear-down costs are unlikely to have been recovered. If it lasts 5 or 10 years then I think you’d have to consider that a big success.

The IBM OEM agreement with Netapp dates from 2005 and continues to benefit both parties. IBM has provided Netapp with entry into large enterprises around the world and contributes about 10% of Netapp’s revenues. Netapp has leveraged IBM’s channel and benefited from the credibility endorsement. These days Netapp is on a roll fueled by VMware but they weren’t such a high profile contender back in 2005. One long-term benefit to IBM is that it now has a worldwide workforce experienced with NAS.

An example of the competition side of co-op-etition is that IBM has never taken Netapp’s Spinnaker/GX/Cluster-Mode product. Instead IBM was busy developing its own Scale-Out NAS offering which in 2010 was refined into SONAS, targeted at customers who have plans to grow to hundreds of terabytes or petabytes of file storage. In large environments the file-based ILM features of SONAS (including integration of HSM to tape) can be quite compelling.

While co-op-etition sometimes looks like  a strange vendor dance to an outside observer, as long as the customers get value from the arrangements then it’s really just a practical way of doing business.