Why Apple axed Xserve, and how it can reenter the server market
Another App Store
Which leads to what Apple likely may be doing with Mac OS X Server (beyond simply paring it with the Mac Pro and Mac mini): taking a lesson from iOS and creating a Server App Store. By setting up a secure market for server applications, Apple could bring its successful experiment in creating a market for mobile software to the server realm.
Rather than being a break-even operation designed to sell millions of mobile devices, Apple could create a moderate software profit center designed to sell more Mac Pros and minis, and partner with third parties to sell Intel hardware running Mac OS X Server. Such a store would be straightforward to integrate into Apple's Server Admin tool, which is already designed to manage software updates and configure installed server software modules across multiple servers (shown below).
Lots of open source server software already exists, but faces difficult problems related to installation, maintenance and updating for security. By converting this software into easy to manage modules that are easy to buy and install, Apple could revolutionize server software, making it easy and affordable enough for individuals to mange their small office or home business server. It would also be easy to scale software modules for different licensing tiers, offering a low cost entry point and more powerful options targeted at companies that can afford to pay for them.
Rather than bundling all of the company's server related projects into a general purpose Mac OS X Server package, Apple could sell its Wiki Server, Podcast Producer and Xgrid as installable modules that mostly configure themselves. It could sell Final Cut Server as a module. It could sell WebObjects as a module. It could partner with open source projects like Asterisk (which turns a server into a PBX to run an office's phone services) to deliver easy to install and use services on top of Mac OS X Server.
It could allow anyone to build custom packages that offer some server-related function for Mac OS X Server users, ranging from messaging services to video encoders to digital asset management packages to web and database servers. Each could integrate with Apple's existing server management tools, allowing a single unified interface for remote administration of multiple machines. Oracle and IBM are already taking Mac OS X Server seriously enough to deliver products for it, so imagine their level of interest if they could actually address a market with ready-to-buy users.
Delegating server hardware
Apple could then license its platform to companies that are good at building servers, including Dell and HP or Oracle, without facing an erosion of its own server hardware sales, because Apple effectively doesn't sell server hardware. The server arena is one area where Apple could broadly license Mac OS X without running into Microsoft's monopoly, because Windows Server is typically sold separately from PC server hardware.
When companies see a $3000 server sold with either a $20,000 Windows Server license bundle, a $500 Mac OS X Server license bundle, or a free DIY Linux option, they'll have competitive options to choose from. Apple would also be able to enter a large new market without having to design and build hardware. Unlike mobile mobile devices and desktop PCs, servers don't have as much need for the deep hardware/software integration that Macs and iOS devices exemplify.
Which is of course, why Apple didn't do well in selling the Xserve. Returning to the market with a software solution would allow Apple to succeed at little incremental cost, recycling much of the investments it has already made in developing the iOS and Mac App Stores. This step isn't entirely unprecedented; when Apple discontinued its Xserve RAID, it delegated its RAID hardware sales to Promise, which filled the void with its similar VTrak E-Class. Apple then continued to sell Xsan as the software to power it.
Similarly pursuing the server market with a software-centric strategy, Apple would earn $500 in software revenues on a third party hardware sale, compared to the minimal profits it currently makes in selling the Mac mini, or in offering the Mac Pro with essentially a free copy of Mac OS X Server installed.