The market for traditional servers is being enveloped by the cloud

There’s good reason that Dell(s dell), HP(s hpq) and the other major brand server vendors are rushing to build clouds of their own. It’s increasingly obvious that big cloud infrastructure providers — which used to be the biggest customers of these server makers — are contracting out more of their server manufacturing to less familiar names. This is also probably a big part of the reason why these vendors are considering drastic action: Dell may take itself private and HP recently reopened the prospect that it will sell off business units.
The latest to go is Rackspace(s rax) which today announced plans to contract out its server design to Wistron and Quanta. These are companies which, oh by the way, often build servers for the aforementioned branded server makers anyway. This really is a case of cutting out the middleman.
dell_serversSupermicro(s smci), which builds energy-sipping servers, is another favorite manufacturer among big infrastructure providers like SoftLayer and Joyent, which puts out RFPs for its servers. “It’s the components and ratios that matter. We currently use three different chassis and three different boards: one chassis is Dell and two are Supermicro,” said Jason Hoffman CTO of San Francisco-based Joyent.
Softlayer, another big cloud platform provider uses Intel-based Supermicro servers. “They’re our design but standard products from Supermicro — there are lots of advantages to this approach including cost,” said Softlayer chief strategy officer George Karidis.
The webscale server trend was accelerated by the Open Compute Foundation’s push to provide a blueprint for such servers that many manufacturers can follow. (Rackspace’s news came out of the Open Compute Summit on Wednesday.)
This does not mean the market for more differentiated servers completely evaporates because, as GigaOM’s Stacey Higginbotham has explained, the server market has segmented into a handful of categories including one for enterprise servers. But it is clear that many, many more workloads are flowing to big cloud providers.
David Linthicum, CTO of Blue Mountain Labs and a GigaOM Pro analyst agreed. “There will always be a market for name-brand servers, Dell and HP included,” he said via email. “However, their market is changing. Keep in mind that they saw this coming, and are all building public cloud offerings. Some of the motivation here could be that they are becoming competitors with on-demand services … You have to give them credit for seeing the writing on the wall, and figuring out how to sell their technology in a changing market.  For the most part both Dell and HP are doing the right things.
The question then is whether they did the right things fast enough to keep their overall brands — and their server hardware — relevant.