OEM Dinosaurs

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Scores of OEMs, ranging from rather small to quite large, have lived quite comfortably supplying components, sub-systems, and complete white boxes to vendors with well-known names -- vendors that then sold finished systems with software to the final customer. When cloud computing came along, bringing with it a voracious cloud-provider appetite for new systems, things changed dramatically. Suddenly, large customers were writing detailed specs for their own servers and going directly to previously anonymous OEM suppliers for their hardware fix. Think of it as a market meteor.

Now, it would be a mistake of brontosaurean proportions to think that the large, established vendors would take this sort of change lying down. Major vendors have moved aggressively to launch cloud-hardware offerings as well as cloud services of their own. Still, many traditional OEMs find themselves in an interesting dilemma: refer interested customers to their vendor partners and risk turning away valuable business, or accept what amounts to retail sales orders and take on the integration and support responsibilities those sales bring.

This is the sort of question and decision pair that has an impact on much more than the quarterly sales numbers. To an extraordinary extent, this strikes at a company's understanding of what it is. In recent weeks, I've spoken with several companies faced with the decision, and I've seen answers that fell across a broad spectrum.

On one hand, there are companies forced to offer their products to a general market because of market immaturity -- companies now eagerly awaiting the day when they can revert to selling their technology through nothing but traditional OEM channels once again. On the other hand are companies that have decided to accept the broader sales that can come with a broader market, even though they know that their business model becomes intrinsically more complex because of the shift. The thing that binds both types of companies is that their management has made a decision about their preferred type of customer and market strategy: They have decided not to sit passively and allow a market to happen to them.

It's the companies taking the passive approach that we're likely to find fossilized in the annals of failed OEM organizations. As a CIO with a seat at the executive table, you should bring an understanding of what this kind of decision will do to your systems, and how current systems can be modified or expanded to cope with the new challenges. Have you seriously thought about what it would take to change your sales model? Have you rehearsed a response if asked for an opinion by the CEO? If not, perhaps it's you and your career who will be joining the triceratops in the list of those who didn't respond when the climate changed.