As the storage vendor community prepares to enter the Next Millennium it needs to prepare itself to embrace a new set of storage marketing challenges associated with the year 2000. Whether you provide storage products and services on an OEM level, through the Channel or Direct to End-users (or any combination of all of these), most of you will no doubt have observed that the landscape for selling and marketing these products has been broadening dramatically as we wound down the 1990's. This broadening of marketing influences has been brought about by many factors including the following:
- The continued commoditization of storage hardware, software and solutions as high-volume, low-cost computing platforms pervade the industry, IE: Windows NT, Linux, Solaris, etc.
- The further consolidation of the storage industry in respect to the number of vendors and the markets they serve.
- The Increasing complexity and performance requirements of storage solution requirements, coupled with the need to reduce storage administration burdens and overall Total Cost of Ownership (TCO).
In parallel with these Sales and Marketing challenges there has been a dramatic increase in the size and scope of the storage marketplace and its associated business opportunities. The storage marketplace opportunity is expected to be on the order of $30+ B by the year 2000 with end-user capacity requirements growing at a rate in excess of 60% CAGR. These major increases in the size and scope of the storage market opportunity have been fostered by many factors including:
- The growth of the Internet to become the gateway for all information
- The acceptance of E-Commerce as a preferred transaction mechanism
- The increasing importance of Storage in respect to Competitive Advantage
- The pursuit of universal Storage-centric IT Architecture
- The continued exploitation of increased capabilities and reduced costs of storage technology (per unit of storage) on an annual basis to meet basic growth requirements
To prepare and position your companies' storage product offerings to meet these challenges along with taking full advantage of the storage business opportunities in the Next Millennium, you will need to broaden your marketing messages to include all segments, yet hone your offerings to specifically meet each market segments' changing requirements (OEM, Channel, and Direct to End-users). These messages, and the vehicles used for disseminating them, must be much more focused on articulating your particular value statements, along with clearly differentiating your offerings and market leadership from your competitors. In the next three installments of this series we will discuss and analyze each market segment.
Part Two OEM Marketing Challenges and Opportunities
In Part One of our series, we briefly discussed the marketing challenges and opportunities facing the entire storage industry as it enters the new Millennium. These range from increased technology commoditization and cut-throat price competition to market growth far in excess of anyone's earlier forecasts due to the impact of new "killer apps." like E-Commerce and Internet Portals.
In this installment we will specifically focus on the OEM segment of the market. From an overall perspective this segment of the storage market faces some of the toughest conditions ever in the Year 2000 and beyond.
OEM Marketing Challenges and Opportunities
The business model of the OEM segment of the storage marketplace has traditionally been based on high unit volumes and low prices relative to previous generations of similar product offerings, with profits being taken in both the early stages of a new product's life cycle (based on constrained availability) as well as over its entire life cycle based on increased production yields, with attendant reduction in unit costs. This dynamic was in effect for a long time and, until just the past several years, it had produced fairly normal behavior (and profits) amongst the majority of the vendors in the OEM segment of the storage industry. However, in the past few years this model has fallen by the wayside in many respects. The computer industry at large has moved towards lower and lower cost desktop and server solutions where storage is still a key component, but purchased as a commodity with a fixed overall budget per system. For example: $100 worth of disk storage is purchased at today's spot market price for desktop systems to be delivered tomorrow. This commoditization of pricing has also been coupled with the requirement that the vendor provide the most advanced storage device (capacity, bandwidth, speed, etc.) in the smallest form factors to maintain competitive advantage.
This new market dynamic has virtually eliminated profitability for most OEM storage vendors. This has created an environment of downsizing and restructuring, while simultaneously serving a market that is growing substantially.
To maintain viability in this new world order most vendors have made strong movements towards serving requirements higher up the storage food chain (i.e.: solutions as opposed to widgets) while continuing to support traditional OEM requirements. This activity has created the need for what I refer to as Multi-Segment Marketing.
Multi-Segment Marketing is based on the concept of defining a marketing message for both the high-volume/low-margin commodity segment of the storage opportunity, while creating a vendor-specific identity and message around solutions-oriented product offerings that utilize the vendors' OEM products coupled with value and technology add-ons. These messages require careful consideration in regards to both market segments' customer requirements, along with choosing fulfillment vehicles that span multiple customer types.
To achieve the desired results of multi-segment marketing, the vendor must craft a message that clearly identifies their core technological capabilities and competitive advantage(s) along with demonstrating how they have applied these OEM components to create high-value, competitively priced, storage solutions (finished products or sub-systems). This message must then be articulated in dissemination vehicles like InfoStor, which cater to all segments of the storage marketplace...decision-makers at OEMs and end-users alike.
Such marketing strategies have been long in the making and their success is paramount for those OEM vendors who must increase margins and ASP's in light of growing investments in technology and manufacturing that cannot be justified in the current "zero margin", "give away" business environment found in their core (OEM) market segment.
The OEM segment of the storage marketplace must find ways to move its marketing messages up the food chain in respect to the customers that it focuses on. OEM's must now create opportunities for their products and technologies that reach beyond their core constituency and attract customers who will utilize their value and technology enhanced solutions. Accomplishing this requires the use of a dissemination vehicle that reaches all customer segments in the storage marketplace. For example, InfoStor reaches all levels of storage professionals (decision-makers) in the marketplace. Crafting a multi-segment marketing message and associated campaign is much more practical when the marketing executive has such tools available.
In Installment Three of our series on Y2K Marketing strategies we will discuss the opportunities and challenges associated with "The Channel." This segment continues to undergo major transformations as many direct sales oriented vendors start to pursue Windows NT-based opportunities, while a number of traditional, "channel driven" vendors move to direct sales.
Part Three THE ENTERPRISE CHANNEL
In the previous installment of this series we discussed the challenges of marketing in the OEM segment of the storage marketplace and the need for the use of multi-segment strategies and the campaigns to move each vendor's messages up the gross margin food chain. Within this issue we will focus on the Distribution Channel driven segment of the market. This segment has been in transition for some time now, moving from a legacy of selling highly-commoditized components and rudimentary storage subsystems, to a new model which I have coined as the "Enterprise Channel" in which comprehensive storage solutions (including support and professional services) are sold via Resellers in partnership with Vendors and Distributors. Adding to this transformation have been the activities being pursued by those traditional Direct Sales oriented vendors who are moving their solutions offerings into the Windows NT (two-tier, channel-focused) space of the market during the same time period.
Enterprise Channel Marketing 101
The Enterprise Channel model is based upon creating an equal partnership between the Vendor, the Distributor and the Reseller, all acting as a team in pursuing enterprise storage solutions opportunities with a wide range of end-users. In terms of structure it generally conforms to the following constructs:
- Storage Vendors provide professional services offerings and storage solutions to Resellers via a two-tier Distribution partner.
- Distributors pass-through professional services offerings in the form of "technician in a box" certificates, as well as inventorying all necessary storage solutions components to support Reseller requirements, along with providing a variety of programs for Resellers and Vendors to use in maximizing the potential of each end-user opportunity.
- Resellers then provide "cradle to grave" storage solutions and professional services to end-users who take advantage of lower acquisition and TCO costs, while receiving support levels and expertise previously found only in direct sales relationships
This model has evolved both based upon the wide scale success of Windows NT and its recent pursuit of the enterprise computing market, as well as through the impact of corporate restructurings where more and more emphasis has been placed on sales through indirect methods, while continuing to leverage the organization's overall capabilities.
To be successful in pursuing this new business model, effective marketing techniques are necessitated. These techniques are oriented around the need for both "Push" and "Pull" activities in regards to a vendors' overall marketing message. Key to achieving this strategy is the use of efficient informational vehicles that reach both Enterprise end-users (Pull) as well as Integrating Resellers (Push). InfoStor's current demographics reach both of these segments quite effectively. From the onset of publication, InfoStor has pursued the storage professional as it's target reader. These professionals are comprised of Enterprise End-users, Vendors, Resellers and Distributors, all key components to an effective push/pull storage marketing campaign.
As an example of this tactic a Vendor could structure a specific message that caters to end-user needs and sensitivities, thereby creating strong demand for its particular products, while including a complementary message for its Resellers to reinforce their image as a "channel-partner with the most in demand solutions offerings and professional services options." These two messages are complementary to each other and provide a strong unified message overall for the vendor, without having to fragment it amongst disparate demographic media offerings.
The Enterprise Channel business model has been in development for some time now. Key to embracing it successfully by any vendor is the crafting of comprehensive push/pull marketing campaigns that clearly articulate marketing messages to all necessary parties; end-users and resellers. The use of a marketing and information dissemination vehicle such as InfoStor is critical to achieving the campaigns' desired end results. Based upon readership, demographics and editorial, InfoStor is uniquely positioned in this regard.
In the final installment of our series on Y2K Marketing strategies we will discuss the growing challenges associated with the Direct Sales oriented segment of the information storage marketplace. This segment faces numerous obstacles as vendors using this model try to maintain high gross margins and ASP's through direct sales, while serving the Channel simultaneously with no conflict.
Part Four THE changing direct sales model
In our last segment we discussed the emerging Enterprise Channel distribution model, a new approach to the channel which is being embraced by many traditionally direct sales-oriented vendors as they pursue the Windows NT-based business opportunity. In this final installment of our series on Y2K Marketing strategies, we will discuss the growing challenges associated with the direct sales driven segment of the storage marketplace. This segment faces numerous obstacles as vendors continue to embrace this model while trying to maintain high gross margins and ASP's through direct customer relationships and serving the Channel simultaneously, all with no conflict. This is a tall order in today's storage solution sales and marketing environment.
Direct Sales in the New Millennium
As the storage industry moves universally towards a more indirect approach in its pursuit of market opportunities, the need for the traditional direct sales model to evolve substantially in order to survive has never been more paramount. Direct sales is no longer a "schmooze and order taking process" centered around must-have solutions and insider relationships, but a delicate account team balancing act performed well by only the most skilled of vendors. This account team usually consists of many players who are directed by their account representative. Typically, there are regionally based product and professional services specialists from the vendor side on this team, along with business partners and outside consultants, all of whom interface with the "customer" on some level during the sales and delivery process.
This methodology requires the vendor to obtain high levels of gross margin from each sale in order to support such levels of overhead. In today's competitive, commodity-oriented, storage solutions market, this requirement can rarely be met without the vendor offering some type of key differentiator in respect to their offerings versus those from their competitors (both direct and indirect oriented). Key points of differentiation can be found in the form of technical and performance specifications pricing, TCO, perceived value, etc. Creating these points is traditionally the role of marketing, a major component of all direct sales oriented vendors go-to-market activity sets.
Successful Marketing Based on Differentiation Schemes
Creating unique and sustainable areas of competitive advantage is critical to all successful product and services offerings. A key method to use in achieving such sources of competitive advantage is the effective differentiation of prospective vendors' offerings in respect to all others, via the use of specialized marketing campaigns. These campaigns are focused on creating market pull in respect to end-user demand and require the use of dissemination vehicles focused on the target demographics.
Campaigns found successful in the past focus on specific end-user oriented messages that are well articulated, in plain language, and hammer home the specific differentiator that the vendor is emphasizing in respect to their product or services offerings. These campaigns are usually accompanied by editorial, road show presentations, white papers, dedicated web sites and other vehicles to get the vendor's message directly to the targeted end-users. The most critical of these terms of generating initial demand is the traditional print advertising component which provides the basic message and its hook which the vendor has created to attract end-user interest in their offerings.
In respect to meeting the requirements of such a campaign, InfoStor is right on target in respect to both its focus and reader demographics. As the only "storage only" monthly publication in the technology industry, its readership is dominated by end-user IT decision-makers who are looking for broad-range solutions to growing enterprise computing environment storage problems.
Pursuit of business opportunities in the Direct Sales oriented segment of the storage marketplace is more challenging today than ever. Many vendors are re-thinking their long-range strategies in this segment in respect to more effective methods of differentiation as a source of sustainable competitive advantage. Critical to these efforts will be the development of effective marketing campaigns to articulate each vendor's specific points of differentiation and leadership.
Richard R. Lee is president of Data Storage Technologies, Inc., a management and technology consultancy headquartered in Ridgewood, New Jersey. DST's current industry focus is on supporting enterprise organization's as they plan for the orderly deployment of SAN's in their computing environments. He is also the author of Osborne/McGraw-Hill's "Windows NT-Microsoft Cluster Server" c1999. You can reach Richard by email at firstname.lastname@example.org or on (201)-251-6620.