Virtualization & Vulnerability: Changing Server Market in Economic Downturn

Modest industry spending rebound leaves Oracle at its weakest point in recent history; Dell makes a rating jump

NEW YORK: TheInfoPro, an independent research and advisory company for the IT industry, today released its latest server study, which yields some surprising results. For one, server spending remains weak, and the anticipated rebound from the 2008 economic downturn is minimal at best, with 25% of end users expecting to spend more and 39% of end users spending even less than in 2009.

The study details the continued impact of the economic downturn on the industry landscape, and provides insight into which vendors are adapting to the crisis – and which are not, including a roadmap for what to expect in the coming year.

On the hardware side, this spending drop can be directly attributed to virtualization, which seems to have permanently dampened demand, despite the fact that actual adoption rates remain slower than expected. In fact, nearly 40% of enterprises report that 10% or fewer of their servers host virtualization. And, while demand for desktop virtualization is real, its footprint is extremely limited and expected adoption even more modest than server virtualization.

Server software spending, meanwhile, is up across the board, with Red Hat, IBM and Microsoft all showing particular strength. Prospects for continued growth in 2011, however, remain dim.

Economic Climate, Budget Concerns Drive Industry Trends
The struggling global economy is reshaping the industry from within, forcing enterprises to adapt. Frozen budgets and excess capacity of hardware resources are acting as an “inflection point,” with companies moving immediate tactical goals to the forefront: 55% of end users report that their key virtualization goal for 2010 is “reducing the number of physical servers.”

Yet, concerns remain over virtualization efficiency, with enterprises experiencing problems with performance under load and manageability with an increasingly mobile application base. In fact, while virtualization is supposed to be the solution to the market’s two biggest pain points – server sprawl and unchecked growth – it is itself ranked as the third biggest problem due to increasing complexity and scope.

Oracle Vulnerable; Dell Makes an Unlikely Comeback; Microsoft Remains a Threat
Of the major vendors, Oracle seems to be at its most vulnerable; spending on its Sun hardware line is in rapid decline, and there is growing discontent among end users – an extremely high 21% of its customers are planning to leave Oracle for a competitor, with an additional 26% considering it.

In terms of software, Oracle is doing no better, with 18% of end users considering switching to an alternative server provider such as rival Red Hat. Poor strategic management, competitive positioning, weakened sales-force quality and low-functioning tech support are among the most highly cited reasons. The bright spot? Lock-in seems to be working in Oracle’s favor, as only 5% of customers say they think they can transition easily to another provider.

Dell, on the other hand, is inspiring confidence from its price-sensitive customers since the last survey round. The company’s customer ratings improved in every category; the number of respondents indicating they were planning to make a switch was cut in half, and Dell is listed as in plan for a number of x86 groups, indicating that the company is gaining new consideration among “mature” tech companies.

Microsoft scored lowest on the vulnerability index of any vendor and seems poised for another strong year. Surprisingly, Hewlett-Packard quarterly spending is trending flat, despite the company sharing the title of most “exciting vendor” with VMware. While continuing to secure high marks for performance, the drop may be attributable to poorer overall service – customer satisfaction with HP dropped slightly across many categories.

The Cloud – and Other Trends to Watch
Cloud computing is certainly attracting the buzz, but in use remains low in the server industry, and 69% of respondents report that they do not have cloud computing in plan. Still, there is potential for growth. Thirty-five percent of respondents indicate that they are investigating cloud computing, a substantial boost of 15% since Q1 2009, with 33% indicating internal plans and 16% using externally provided services. Of this, VMware and Amazon are the main beneficiaries.

While 49% of enterprises believe blade servers are “critical to business,” the “space savings” come at the cost of heat, space and power issues. Will environmental concerns derail the blade?

Finally, Cisco may be poised well for the coming year. Although a low percentage of respondents indicated they will spend money on UCS this year, the offering was the most repeatedly mentioned product, and the company was tabbed as the industry’s third most “exciting vendor.”

About TheInfoPro Server Study
TheInfoPro’s server study was completed in May 2010 and takes an in-depth look at key trends across the server industry, as well as the performance of individual vendors. The study is completed biannually and based on hourlong interviews with 252 server professionals and key decision-makers at large and midsize enterprises in North America. The interview results are collected in comprehensive research reports that provide continuous business intelligence within key areas such as technological road maps, spending plans and vendor performance.

About TheInfoPro
TheInfoPro is a leading advisory and research firm that provides real-world perspectives on the customer and market dynamics of the information technology landscape by using a unique research methodology that harnesses the collective knowledge and insights of leading IT organizations worldwide. Through a combination of expert advice, actionable analysis and our extensive network of IT professionals, TheInfoPro serves as a conduit between IT decision-makers, technology providers and institutional investors. Founded in 2002 by alumni of Gartner, Giga, EMC and Bell Labs, TheInfoPro is headquartered in New York City.