IBM, HP use big discounts to woo Sun customers

Sun's coveted server and storage clients who are uneasy with Oracle's pending acquisition are being targeted

IBM and HP are trying to lure server and storage customers away from Sun Microsystems by exploiting uncertainty caused by Oracle's pending acquisition of the company.

Sun's customer base includes many government agencies, financial firms, telcos, and other large enterprises highly coveted by rival vendors. Competitors believe Sun's customers are anxious about Sun being purchased by a software company, as well as rumors that Oracle wants to sell off Sun's hardware business and that Sun has canceled development of "Rock," a powerful server chip with 16 cores.

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Sales programs specifically designed to lure customers away from rival vendors are commonplace, but vendors have become significantly more aggressive in making competitive moves against Sun since the April 20 announcement that Oracle would buy the company.

"We're very focused on the top tier of Sun customers, which have been the hardest to crack in the past," says Scott Handy, vice president of marketing, strategy and sales support for IBM Power Systems.

But Sun customers were already showing a willingness to switch. "We made the decision to stop purchasing Sun hardware long before the [Oracle] agreement was sealed," says Rick Scherer, a systems administrator at the San Diego Data Processing Corp., which provides IT services to the San Diego municipal government. Scherer has been phasing out Sun hardware in favor of HP x86 servers running VMware.

Bigger-than-usual discounts
Sun users who consider switching hardware providers would do well to realize they have considerable leverage to negotiate prices much lower than the original discounts offered by vendors such as IBM and HP, says Laura DiDio, lead analyst with Information Technology Intelligence.

Multiple vendors are competing for the attention of Sun customers, and they are desperate for new sales in this economy. Worldwide, disk storage revenue has dropped 18.2 percent this year and server revenue has dropped 24.5 percent, IDC has reported.

DiDio said Sun customers who make large-volume deals to switch to another vendor can likely secure discounts of 30 to 40 percent off list price and can negotiate for free training, services, and software licenses. Large customers generally don't pay list price for hardware, but IT shops should take advantage of market conditions and try to negotiate bigger-than-usual discounts.

"If we're looking at this from a customer-centric angle, there's never been a better time to make a deal. The vendors are hungry for business," DiDio says.

DiDio advises customers to enter negotiations with a specific plan, with messages such as, "Here's how much I have to pay. I'm looking for a discount of this much, and by the way can you give me X number of days of free training vouchers, and can you give me a price cap for the duration of my contract."

"Customers have a lot more leverage than they know to drive price down, and I'm surprised more haven't done it," she says.

Where the deals are
IBM uses a healthy dose of FUD in its pitch to Sun customers, saying "the undefined future of Sun's hardware plus Oracle's lack of experience in running a hardware business puts your infrastructure at great risk for forced migration and increased cost."

On April 29, IBM doubled the value of its Power Rewards migration program for Sun Sparc customers from $4,000 to $8,000 for each processing core.

"For example, a Sun customer using a Sun Fire V890 system with eight microprocessors would now receive $64,000 in migration services, up from $32,000, to move the workloads to an IBM Power system," IBM said.

The only limit is that the value of the free migration services cannot exceed 50 percent of the negotiated price of the hardware, Handy says. Those negotiated prices can be quite low when a customer agrees to move a workload from a Sun box to an IBM machine.

"We generally let our reps discount deeper on a competitive deal to help fund some of the migration," Handy says.

Handy said customers don't have to trade in their Sun machines, they just have to certify that they are moving a workload off the Sun hardware and onto IBM.

HP also does not require customers to trade in their Sun hardware to obtain discounts, but if they do trade in old machines they can receive further credits and rebates, says Paul Gottsegen, vice president of marketing for HP's enterprise servers and storage.

HP on July 16 announced the Sun Complete Care program that combines discounts with financing options and free migration and TCO assessments.

Those assessments can be pricey when not discounted. For a customer with 1,000 employees, the assessment would cost "certainly five figures or more," Gottsegen says.

HP offers to Sun customers include zero-percent leases and deferred payments for up to 90 days on new HP leases; a 15 percent trade-in credit when replacing Sparc with Integrity and ProLiant servers; 30 percent off training and support; and 50 to 85 percent off the HP-UX 11i operating system with a Solaris trade-in.

Dell is in the market for Sun customers as well, having offered services and financing programs to abandon Sun hardware on April 14, just before the Oracle-Sun acquisition was announced.

When contacted by Network World, Sun declined to comment on rival vendors' overtures to their customers.

Since the Oracle deal was announced, Handy says IBM has converted about 100 Sun server customers and 100 Sun storage customers, although some single customers are counted in both of those groups. Handy predicted that IBM will be able to lure away many of Sun's biggest customers and said "our third-quarter pipeline is gigantic." HP's Gottsegen says his company has converted more than 100 Sun customers in the past six months and that sales teams are seeing a "lot of activity" since the Oracle/Sun acquisition was announced.

Scherer of San Diego, who spearheaded a large VMware virtualization project starting a few years ago, says his department puts nearly every new workload on virtual machines with HP x86 servers. Scherer still runs about 100 Sun Sparc servers, but that number will decline as servers reach end-of-life.

Scherer notes that Intel-based x86 servers can offer great performance at a lower price than Sun's Sparc line, particularly with the addition of the Nehalem chip architecture.

"We've seen Sun slowly dying off on the Sparc side," Scherer says. "And with virtualization booming like it has, and x86 commodity hardware dropping [in price] every day, there's really no reason or need for us to launch new Sparc machines. In the past, Sparc was the leader, Sparc was the fastest and Sparc was the best. Right now, it's not the case."

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This story, "IBM, HP use big discounts to woo Sun customers" was originally published by Network World.

Copyright © 2009 IDG Communications, Inc.

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