ODM Direct vendors are now the fourth largest server player based on market share. That category represents the contract equipment manufacturers that make most of the servers in China for the branded server players. In other words, these contractors---Foxconn, Pegatron, Quanta and others---can now sell their gear directly to Facebook and Google, which build their own servers to their specs.
For now these private label servers are likely to be somewhat contained. Cloud providers will account for the bulk of server sales in the future, but enterprises are likely to stick with the brands they know---at least for a bit. What remains to be seen is whether enterprises---assuming they'll want to run their own infrastructure over the cloud---also adopt white box gear. After all, the Open Compute Project started by Facebook is garnering plenty of attention. Simply put, there may be a better way to do servers.
Add it up and you could see serveraggedon at some point. The cloud ultimately means fewer servers to sell. Virtualization means even fewer boxes sold. The cloud service providers are going white box with contract equipment manufacturers. Sure, integrated systems from the likes of Cisco are doing well, but that's a higher end market that isn't likely to scale.
What will server vendors do? The only credible answer I've seen comes from Hewlett-Packard. HP's position on the white box threat is to partner and play ball. On HP's Feb. 24 first quarter earnings conference call, CEO Meg Whitman said.
We have benefited by having a hyper scale offering through our joint venture with Foxconn in the server business, which led to the thesis we should have a white-box strategy for our networking business, because there are a lot of people for whom that is the solution that they prefer. And better for us to offer it and surround with other HP product and services than walk away from that market segment entirely.
Other server vendors may have to deploy a similar strategy. For instance, Dell has been a key player in the Open Compute Project. The white box server category is getting too big to ignore. At some point, enterprises are going to lean white box too and the legacy providers are going to have to adopt and extend.