Amazon vs. Best Buy and the Storage Industry

After I wrote my last blog on IBM selling the x86 division, I heard from a friend of mine who added a few points about the U.S. economy. This got me thinking about the big box stores vs. online retailers and how in some ways this is no different than what IBM faced.

We all know that IBM has lots of smart, innovative people, and smart, innovative people are expensive. For IBM to have on staff lots of smart people configuring commodity systems with low margin is not much different than Amazon competing with Best Buy in a general way.

IBM has salespeople, presales people and architects all working to configure complex systems that the customer could easily buy from a lower-margin competitor if they choose. They just take the configuration and the parts, which are all commodity, go online and click, click, click to buy the equipment from someone else who may not have as many smart, innovative people. That is what commodity computing is all about.

Hardware is a commodity, and so is Linux, for the most part. What is not a commodity is support and applications. Best Buy did not do well with the Geek Squad for a number of reasons, but support is also a pretty low-margin business.

The industry with good margins the datacenter today is not hardware or commodity software but information generation. Something like IBM’s Watson system for medicine will be a non-commodity system.

I have been talking about appliances and the appliances model for storage for a long time, and I've been talking about the movement to appliances for data analysis for a while. I think IBM’s move could be the signal for the rest of the industry. The value in the future is solving problems not selling hardware.

Labels: Best Buy,hardware,Storage,commodity servers,Amazon,IBM

posted by: Henry Newman

Henry Newman, InfoStor Blogger
by Henry Newman
InfoStor Blogger

Henry Newman is CEO and CTO of Instrumental Inc. and has worked in HPC and large storage environments for 29 years. The outspoken Mr. Newman initially went to school to become a diplomat, but was firmly told during his first year that he might be better suited for a career that didn't require diplomatic skills. Diplomacy's loss was HPC's gain.

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