Console Servers: Hidden Treasure in a Down Economy

With IT spending plunging, VARs are constantly looking for new products and markets with comfortable margins, as price cuts decrease profits and order sizes shrink. Global spending on IT products and services is forecast to drop by 3% in 2009 according to Forrester Research, and personal computers, servers, peripherals and storage gear will be hit harder than other tech sectors. But recently, several VARs have been finding relief in an unexpected place – the console server market. 

Hardware equipment costs, especially server and networking equipment, have already decreased radically in recent years, and customers looking to build out their data center are no longer standardizing on particular vendor for their equipment needs. Gone are the days of the straight Dell and HP shops, customers are now buying from a greater mix of vendors than ever before to create IT systems stunning in their heterogeneity. Nowadays, console servers can become a gateway for out of band management, a way to remotely manage and monitor servers and other network IT equipment, a critical strategy as the importance of 24/7 uptime increases. Additionally, console servers provide a way to unify the equipment in the data center because of their ability to manage and monitor a wide variety of equipment, including routers, switches, uninterruptible power supply (UPS) devices, firewalls and more. 

The interest in console servers is a rising trend, but until recently there wasn’t much of an opportunity for VARs or channel partners to capitalize on this growing interest. Historically, console servers have come loaded with proprietary software, or have been homegrown creations – commodity boxes with software coded in-house. However, the proprietary solutions were typically already heavily marked-up, and home-grown console servers, while more affordable, were often less reliable and required a considerable amount of time and effort to set up and configure. There was a significant gap in the market for a mid-priced solution, which has recently been filled with the introduction of console servers loaded with open source software. 

With the low margins that were common with proprietary console servers, the market segment was traditionally considered a pass-through business. Resellers would carry and sell console servers because they were considered a necessary part of the data center infrastructure, but there was little incentive to selectively partner with or promote specific vendors because all vendors were offering fairly low spreads. While VARs have previously only seen 3-5 % margins on console servers, the introduction of console servers pre-loaded with open source software has escalated margins up to 25%. Companies that have successfully exploited this niche include Opengear (www.opengear.com) whose console servers come pre-loaded with popular open source monitoring solution Nagios, in addition to open source environmental and power management software. 

Even though they offer higher margins than their competitors, open source console servers typically cost a fraction of the price tag attached to proprietary solutions, making them attractive solutions for customers looking to reduce their overall IT spend and increase ROI. The dual benefit, improved ROI for the customer and higher margins for the reseller, offer significant incentive for VARs to selectively work with open source companies in the console server market. 

While they have long been considered a pass-through market, console servers will not remain that way much longer. With a rising interest in the out of band management capabilities that console servers can provide and an interest in cutting back on IT budgets, companies like Opengear and others who fill critical holes in newly lucrative markets will become the bread and butter of smart VARs and system integrators. 

These companies can also expect to see an increase in OEMs and increased attention to their interoperability and size over the next few years. While the current economic crisis highlights the need for IT to become more cost-effective, equipment must still advance technologically, improving functionality, flexibility and reducing power use and physical requirements. Servers and motherboard components would be especially ripe for integration with console servers, creating additional opportunities for agile, forward-thinking players. 

As open source solutions absorb a greater share of the 200 million dollar console server market, manufacturers may look to include more open source software on their offerings, and data center and network IT equipment may become more compatible to reduce the problems of system heterogeneity. No matter what the future will hold, this year VARs will increasingly be looking for vendors who can revitalize a space like the console server market with high-margin yet cost-effective solutions as they brace for customers looking to get the most bang for their buck and lower IT budgets in 2009. 

This article was co-authored by Stephen WongAbout the CM4148

As President of Adge Corporation, Stephen Wong leads an Information and Communications technology company that provides a wide range of services to prominent businesses and government agencies. Adge offers a turn-key infrastructure solution to help customers safeguard their information assets. Mr. Wong has 22 years of experience in business and strategy development with senior management in a wide range of industries, including substantial experience in high tech. His technical and consulting practice focuses on turn-key business solutions, management of large and complex projects, and information security. Previously he served in leadership positions at Xerox Corporation’s business consulting services division; at The Future Now, in its professional services division; and at SiteRock Corporation, a managed services provider. 

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About Opengear

Founded in 2004, Opengear delivers next generation intelligent solutions for managing critical IT and communications infrastructure. Opengear’s solutions, featuring embedded Smart OOB™ technology, equip our customers’ networks with intelligent automation and bulletproof resilience, enabling them to optimize technical operations and secure business continuity. The company is headquartered in New Jersey, with a manufacturing facility in Utah, R&D operations in Australia and Silicon Valley, and sales offices in Europe, Asia and the USA. For more information, please visit www.opengear.com.

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