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Public Cloud Ain’t Killing Server Sales (Really?)

When virtualization and then cloud computing gained traction, plenty of folks predicted the IT shifts would kill server sales. Fast forward to the present, and a growing number of contrarians now say cloud won’t kill server sales. At some point, all of those contrarian server fanatics could become a pseudo majority again — sort of like Trump winning the Republican nomination.

So where do I stand on the issue? No matter what the exerts say. No matter what the data says. I insist: Cloud services are slowly but surely killing traditional server sales.

The numbers suggest I’m wrong.  As Investors Business Daily recently reported: In December 2015, Gartner said Q3 server shipments rose 9.2% from the year-earlier quarter, and server revenue rose 7.5%. For the period Hewlett Packard Enterprise’s server revenues jumped 9.1% to $3.7 billion; Dell was up  9% to $2.4 billion, and even IBM was up 5.1% to $1.3 billion (not including the x86 server business that Lenovo acquired).

So there you have it. Pundits like Investors Business Daily say the server sales data proves cloud isn’t killing nor cannibalizing the server market. And yet I respectfully disagree. Why?

Exhibit A: The Unknown

Fact is, we don’t know what the server sales figures would have been if cloud and virtualization services didn’t exist. Businesses of all sizes — including small businesses — would need to be buying even more server hardware to handle all of today’s applications. Without cloud and virtualization, Microsoft would have kept on selling Windows Small Business Server. And resellers would have kept on making healthy dollars from on-premises Exchange Server, Sharepoint and SQL Server deployments.

And yet cloud and virtualization changed all that. Microsoft was wise to kill Small Business Server in 2012 — even before resellers were willing to let go of the platform. Small business phone servers, PBXs and email servers are all under pressure. Sure, server sales continue to rise. But the on-premises portion of the market would see even faster sales growth without cloud in the conversation.

At some point I think the overall server market will contract. Midmarket MSPs are getting out of the data center business, instead plugging into big IaaS public cloud providers. Small businesses aren’t in the game nearly as much. Enterprises are still buying, but their consumption of cloud services is growing faster than most hardware CEOs expected…

Exhibit B: Consolidation

When you’re in a mature market software suites begin to replace best-of-breed platforms. It happened on the desktop (Microsoft Office). It happened in business applications (Oracle, SAP). And now we’re seeing this in the MSP software market, where PSA (professional services automation), RMM (remote monitoring and management) and other capabilities are starting to blend together — often in single-vendor solutions.

Sure, millions of aging servers continue to chug along in the SMB market. Smart MSPs continue to monitor and manage those systems. Millions of additional SMB servers remain unmanaged — offering a blue ocean opportunity for MSPs to grab more recurring revenue.

Exhibit C: Somewhere, Out There

But frankly, I think the bigger opportunity remains somewhere “out there” — monitoring and managing cloud workloads for customers. The numbers and all the data still suggests I’m wrong. But I’m not.

Out in the cloud market there are at least 50 different cloud monitoring and management tools from which to choose. Actually, there are hundreds of options — but shameless click bait keeps me focused on that 50 number.

At every conference I attend, I keep hearing about hybrid cloud. But in the small business market I don’t think the server discussion will be a hybrid discussion. Small businesses will have networks. They’ll have endpoints. But growing server footprints? Not so much.

Think of it this way: Apple was in deep trouble with the iPhone even as iPhone sales continued to grow. Now, they aren’t. Everyone thinks the shift from iPhone growth to iPhone contraction happened overnight. It didn’t. Sometimes sheer momentum allows a business to grow even as it withers. (Ahem…)

The same will be said for server sales… soon.

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