Due to fierce competition in the market, prices of networking hardware have never been lower. But does that mean unrestrained joy for the world?s IT managers?
The obvious target for the initial onslaught of price cuts in the networking market is servers. The first volley in the server price war was fired in the new year by Compaq when it slashed prices across its range and broke through the psychologically significant #1,000 barrier for the Prosignia 200.
Vesey Crichton, director of corporate business at Compaq UK, has made it clear that the market is shifting: ?The desktop and laptop markets are increasingly commodity markets. The server is still considered business-critical. What?s behind this price cut is sheer volume; it?s this which allows us to set such low prices,? he says.
UK manufacturer Elonex blasted back later in January, accusing Compaq of failing to include a hard drive and monitor in the price of the Prosignia 200. It also stated that the PC giant?s claim to have breached the #1,000 barrier for a server was ?fraudulent?. At the same time, Elonex launched its own all-in-one server, including network operating system, for #995.
The next player to enter the fray was Fujitsu ICL, which cut server prices by up to 35 per cent at the end of January. Janet Cropper, vice president of the server division at Fujitsu ICL, says: ?There is a lot of margin erosion, and what happened to PCs will happen in other areas. Companies with resources to use their own components for systems will survive.?
But perhaps the clearest indication that networking is becoming less a black art and more a supermarket-style experience, was the launch of Bull Information Systems? networking catalogue. Using a free phone number, business buyers can order networking products directly off the page. While many of the intended customers are already Bull clients, which means that Bull gets revenue from them with value-added services like support, the campaign is a clear step towards commodity networks.
Certainly, at the lower end of the market, no vendor will be making much money. ?People building small networks are increasingly buying on price,? says Nick Sears, business development manager at networks reseller Azlan. ?One of the problems is that the differentiation between the companies has been lost. Small vendors with innovative technologies now have to establish themselves in a niche and hope they are bought.?
IT buyers should watch the development of the networks price war carefully. While it is true that networks are fast becoming a commodity, businesses may find themselves paying for cheap purchase costs through other means.
And, as the market consolidates around a few major players in each industry sector, companies might find themselves left with fewer and fewer alternatives to the vendors that end up dominating the market.
What Microsoft has done for PC operating systems and applications, 3Com, Cisco, Bay Networks and a handful of others could do for networking. ?Open? standards should ensure that companies feel confident buying from any supplier.
But will the dominant companies allow new technologies that threaten their massive investment ? and their low margins which rely on volumes ? to emerge? Cheap products may mean jam today; but businesses need to be ready to work out what to do if tomorrow?s jam is taken away because of the basic lack of choice.
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