Open Hardware Movement Changing the Game for IT Vendors, Enterprises
"For us, [open hardware is] very, very important from a concept standpoint," he said, adding that demand from most customers is moving away from closed, proprietary infrastructure offerings. "In closed systems, you're getting the best of one vendor as opposed to an ecosystem of companies." However, the use of industry-standard technologies is also fueling another trend that is impacting the larger vendors. The growing demand for greater economics and efficiencies also is driving the increasing use of white boxes—inexpensive commodity systems built using industry-standard components by original design manufacturers (ODMs) rather than the likes of Dell, HP and Lenovo—not only for servers but also networking and storage. "There's enormous disruption happening today in the traditional server market and among traditional server vendors, especially in the general-purpose system environment," Pund-IT's King said. "A lot of this is being driven by server sales of white-box makers in China and Taiwan." In the first quarter, ODMs saw server revenues increase by 22 percent and their market share jump to 7.6 percent, according to IDC analysts. Dell'Oro Group analysts showed similar momentum in a report earlier in June, noting that more than a third of server shipments in North America in the previous quarter were white boxes.While Dell, HP and other top-tier vendors continue to move toward more open, standards-based systems, ODMs remain a threat to them, according to analysts King and Moorhead. The white-box makers can pull together the same industry-standard components to make systems that offer similar performance and economics that those from the larger players. "They're really afraid of it," Moorhead said of HP and Dell. "In their minds, this is one of the biggest threats they see today." HP's Gromala noted the rise of white boxes in the industry, but said that companies like his and Dell can offer support, services, trusted brands and scales of experience and supply chains that ODMs can't. In addition, the "brite box" approach the vendors are initiating—such as the Cloudline servers and Accton-built switches for HP and the Open Networking effort by Dell—will further help take some of the steam out of the white box push. Still, the white-box makers are leaving a mark, King agreed. "You may see ODMs skimming off only about 5 or 6 percent of the market, but they're doing it in the corners of the market" where massive numbers of systems are sold, he said. "That's going to hurt." What's got to be particularly galling to the likes of Dell and HP is that many of these ODMs are the overseas contract manufactures the OEMs have used for years to build their branded systems, King said. Those companies now have the skills to make their own servers as well. "It's a story of unintended consequences," he said.
"While the growth in servers destined for Cloud deployment has benefited various vendors, including the top U.S.-based server vendors, it has disproportionately bolstered the performance of white box server vendors," Dell'Oro Group Director Sameh Boujelbene said in a statement at the time. "This is because most of the growth in cloud data centers during the quarter was driven by the 'Big Four' [Amazon, Facebook, Google, and Microsoft], who are mainly deploying white box servers."