Why is this man smiling?
In my last column I wrote that Dell buying EMC is a great idea (for Dell) and left it to this column to more fully explain why that is so. It takes two columns because there is so much going on here in terms of both business models and technologies. As the title suggests it comes down to Michael Dell against the world and in this case I predict Dell will win, Cisco, HP and IBM will lose, Apple will be relatively unaffected and I don’t really know what it will mean for Microsoft but I think the advantage still lies with Dell.
One thing that is key is every one of these companies except Dell is publicly traded and answerable to Wall Street while Dell is for now answerable only to the gods of Texas bidness who must at this point be giddy with greed. So all of these companies except Dell have essentially the same playbook — cutting costs, laying-off workers and outsourcing like crazy all to pay for the dividends and stock buybacks Wall Street defines these days as prudent corporate behavior. In contrast to this defensive game Dell can use its free cash flow to transform the company and dominate the market — what 20 years ago we would have thought of as the right way to build a company. How quaint.
In order to become dominant Dell has to build or buy companies in these areas — network, storage, compute, virtualization, security, and integration consulting. Notice that last item because it means Dell will also challenge integrators like CSC, SAIC, HP-EDS, IBM, etc. Why buy integration from anyone other than the equipment provider? If Dell has compute, storage, network, and virtualization why look at HP or IBM for any of those parts?
Buying EMC is just the beginning of this battle for Dell.
Many readers disagree with me about this as you can see in the comments from my last column. But here it is important to differentiate between business today and business in the future. My critics are too often living in the future, which is to say seeing Sand Hill Road startup trends as what matters when all they really are at this point are trends, not sales.
“VMware is an afterthought in most cloud discussions,” said one reader. “They owned the first wave but have been almost non-existent in the second container wave. This is classic innovator’s dilemma stuff. Their cash cow is large boring old companies running their own data centers. They’ve had zero incentives to innovate towards the faster-booting/application-centric/devops-friendly model etc. that the Herokus/AWSs/Googles/Dockers etc. of the world have been running towards the past 4-5 years. VMWare has been waking up the past year or two but it’s almost certainly too late. I have a friend, one of the early engineers at VMWare, that quit in disgust 5-6 years ago as he saw the writing on the wall and management wouldn’t budge. Cost isn’t the problem. Their tech just doesn’t matter much anymore.”
I’m not saying this reader is completely wrong, but I’m not sure it really matters.
Let me explain, VMWare has about 85 percent of the corporate hypervisor market. Microsoft’s HyperV has been making some inroads. There’s a little Citrix (hypervisor) out there. And Citrix XEN is the big player in the cloud world right now. Yes, there’s a lot of interest in Docker but from a corporate point of view it is not quite ready from prime time. Stop talking to VCs and startup engineers and start talking to IT managers and you’ll discover they all use a lot of third party software that doesn’t support Docker. And the big vendors aren’t helping Docker, either. Oracle, for example, has bought a lot of products (eg WebLogic) and is putting very little R&D into them, so Oracle’s adoption of Docker has been painfully slow. So even if my reader is correct, before businesses can move to Docker they’ll need comparable features in Docker that are in VMWare and support by the third party software firms like Oracle — support that so far doesn’t exist.
The frustration of that VMWare engineer who quit is common in the industry. I’m not even going to blame Wall Street for this one. Engineers — especially early software engineers in startups — love to get disgusted and quit. It’s what they do to make way for the next wave of engineers.
And in contrast to his attitude of disgust I have to give EMC credit for when they bought VMWare they allowed it to continue to develop and invest in the product. If you look at VMWare today, five years ago and 10 years ago, it has shown pretty impressive progress. Some of their features are still unique in the market. EMC didn’t gut VMWare as IBM or CA would have done.
One of the big challenges in Cloud is to keep corporate data and processing separated and to be able to replicate the complex network and storage for applications. A typical big company could have hundreds of VLAN’s on their network. If you are a cloud provider with hundreds of big company customers, that’s tens of thousands of VLANs that you absolutely, positively must keep isolated. While Docker is really exciting, this scenario also also requires software defined networking and software defined storage. VMWare has very good technology in this area. They understand things the others are just beginning to figure out. This is why Dell is buying EMC.
But buying EMC is just the first step for Dell if it is going to change corporate IT through full infrastructure integration.
Apple is now a consumer IT shop so it probably won’t be affected by any of this. Dell is going to be the exclusive Small and Medium Business, (SMB) and Enterprise IT shop. This brings us back to compute, storage, network, cloud, security and operations/integration which will be Dell’s response to IBM’s CAMSS (cloud, analytics, mobile, social, and security) with the major difference between the two being that Dell’s focus is real and IBM’s is not.
So here’s what Dell is going to do (or has already done) in each of these areas:
— Compute: Dell’s current PC business realigned to virtualize the end-user PC for easier OS management
— Storage: That’s EMC
— Network: Dell, VMware NXS, SonicWall
— Cloud: Elastic computing, moving seamlessly to and from the Dell VMware cloud
— Security: Sonicwall again, but even more importantly remember RSA is part of EMC. This will be huge.
— Operations/integration: Perot Systems was bought by Dell in 2009. They will do the integration and management.
Here’s what I think will eventually happen to a variety of big vendors as a result of this new Dell strategy: first HP and IBM will go down in flames.
Cisco, Juniper, Brocade, and Citrix will all be affected. Cisco should respond by buying NetApp. Remember you read it here first.
But VMware has already won the Enterprise so even if Cisco buys NetApp they will still run VMware and still need RSA.
Microsoft plans in its new server OS releases to break apart server software applications into two parts — HyperV, (virtualization engine) and the OS/application, (like Active Directory). So if you want all of the features of Active Directory you will need to delete VMware and go with Microsoft HyperV to get all of the functionality of Active Directory. Or you could stay with VMware, but then your Active Directory software will not have all of the bells and whistles.
This strategy was originally developed in the early 1990s when Microsoft came up with Office to go after Harvard Graphics, WordPerfect, Lotus 123 and dBase. The difference this time is that this breakup of the Operating System is not going to fly. The battle will be in the courts globally and Microsoft will lose. Office was better, HyperV is not. Every enterprise in the world will have to drop billions in VMware development and experience for HyperV so they all will go to court to stop Microsoft.
One reader pointed out that Microsoft helped Dell go private with a $2 billion loan. In the context of a $100+ billion enterprise I don’t think this is enough to immunize Redmond from the future.
Infrastructure Providers: CSC, Booz Allen, HP, IBM, Harris, CACI, Deloitte, et al.— these guys are all sliding down the hill anyway. As IaaS grows the Dell deal just speeds up the process.
WAN providers, AT&T, Verizon, CenturyLink, Comcast, Time-Warner: This is as big for them as IT hardware companies. Virtualization needs two things speed and Layer-2. Currently Enterprise clients use MPLS-VPN from the telephone companies. Dell is going to tell the clients to move to Carrier Ethernet.
Cisco has pointed out to the telephone companies that Carrier Ethernet from 2.5MbE to 10GbE operational costs are 75 percent less than MPLS. With Comcast and the cable industry moving into the Enterprise space we will see the Carrier Ethernet explosion take place. 10GbE to Dell VMware Cloud equal to 10GbE between your data centers. Edge at 100MbE to 1GbE. All virtualized. The telephone companies are going to be stuck in the MPLS-VPN marginal cost structure and stay with more expensive, slower Layer-3 topologies.
Oh, and there’s one more thing — mobile. Dell has had a sorry history in handhelds and phones but with the EMC deal (combined with all these other details) there’s one more element that nobody has yet mentioned — AirWatch, which comes with EMC. In case you don’t know AirWatch, they are one of the top two players in the mobile sector for wrapping. Every financial firm in the world uses mobility management software on their phones to control the app environment as well as meet regulatory requirements. Dell now has a seat at that table, too.
I’m not saying it’s game over but corporate IT is about to radically change and Dell will be the big winner.
I’ve seen for almost 25 years how the sausage is made within all the big PC manufacturers (including Dell) and I couldn’t agree more with you. There is also a lot more brewing which almost makes me wish Dell were a public company so I could load up on their stock. Almost.
So what publicly traded companies will benefit from Dell doing this?
Or should we all just short IBM and HP? : – )
History shows that as we move through to new inovation then the old companies consolidation.
Mainframe Computing – only IBM left.
Minicomputers – Digital, DG etc seems to all part of HP.
So as the Cloud takes off all the old hardware vendors are going to consolidate. It’s just a matter of who takes over who. -)
So its interesting you see Dell/EMC winning and IBM and HP losing. I have no idea I just know that we will defnitely see consolidation in the next 5 years or so.
makes me wonder if Perot Systems will be enough on the integration side or as the once big outsourcerers shrink, Dell might buy CSC as it has no hardware or software of its own.
Very good analysis, Bob. A couple of thoughts…
“…Dell’s response to IBM’s CAMSS (cloud, analytics, mobile, social, and security) with the major difference between the two being that Dell’s focus is real and IBM’s is not.”
True, but at the risk of comparing apples and oranges. CAMSS seems to be tilted towards applications, SaaS, and PaaS, not much of IaaS. Dell’s line up appears to be tilted towards one level lower than that – i.e. operations infrastructure, and maybe IaaS.
“Operations/integration: Perot Systems was bought by Dell in 2009. They will do the integration and management.”
Perot certainly gives them a foot in the door in integration, and in good old AMS. Dell may also be on a good start with infrastructure integration. But they have a lot of work cut out for them, if EAI is also what they want to ultimately dominate. Besides, Perot’s expertise was pretty specialized to a few domains, at least until they were acquired by Dell.
I wonder if Dell has its eye on the soon to be split HP Enterprise, aka EDS + Software. IBM is too big, but HPE might be workable if Dell buys it and sells off the software area.
HP Enterprise also has their enterprise hardware, storage and cloud services. So what you’re really betting on if you bet on Dell+EMC is that Dell will execute better than HP because of two inherent advantages: VMware and being privately held. That seems like the most likely outcome, but I’m not sure it’s the slam-dunk Bob thinks it is.
As a 25+ year veteran of SMB IT, I could not agree more with this analysis by Cringely. For years, Dell has been the last “big guy” to truly attempt to understand and service the SMB space. This just gives us a much larger a la carte menu.
Another key move by Dell is the recent deal with CDW, allowing CDW to resell for them again. For years, CDW has been one of the SB staples for commodities as well as consulting, but has been stuck schlepping HP’s technically superior products whose higher costs cannot be honestly justified by small business IT folks. This CDW deal could play a large part in the Dell strategy being posited here.
So what happens to this grand scheme when Michael Dell dies, sooner or later?
Note to the editor: It’s VMware, not VMWare. OK, carry on.
One other item that Dell now has… the sales channel. I just heard this week that all Dell products will be made available on CDW.
All these nice comments for Bob and I have to ruin it. Well not really, I just disagree. So far, Dell has done a mediocre job of integrating purchased products into their company. Anyone remember Quest software? Try calling Dell and ordering it. SonicWall, Compellent, etc. Lost their brand and marketing fell. Yes, this happens with all large companies. Key is how integration/marketing/culture will work. Large deals have a terrible history. What is Dell’s end game in this? Eventually the investors will want to get paid and that smells like an IPO which will put them back on a playing field with IBM and HP. I like the VMWare play, not so much all that debt being taken on for the EMC storage business which is being attacked by companies like Nimble. AirWatch was a decent product but has really fallen apart since the EMC acquisition. The other problem for Dell is engineers that bail when they learn they are working for larger company (happened with other acquisitions). The fun this is arm chair quarterbacking we all get to do – I think Bob is wrong on this one, but that said he puts together an interesting argument. Time will tell.
I have to agree with Dave here. I’ve been a Dell customer for over 20 years, and they really do PCs and servers well. But every time they buy a new product line, nobody ever comes to me and tells me what that new product line will do for me. Well, except once. When they bought Compellent, they hired my old EMC sales rep, and he pitched me HARD on their storage. I almost bought a Compellent array, but ultimately bought a VNX from EMC because EMC’s RecoverPoint replication product was superior to anything Compellent could offer. And that brings me to my next point. EMC has generally done a really excellent job integrating acquisitions into its product line. Quite the opposite of Dell. It could be that the most valuable thing Dell gets out of buying EMC is its management team and their understanding of how to properly integrate different product lines into a cohesive product lineup. Of course, Joe Tucci won’t come with EMC. He’s been trying to retire for years. So unless Dell offers Tucci a helluva sweetener to stay on and run the integration of the companies, Dell might still screw it up.
Remember…. all of those acquisition happened while Dell was Public. Yes it takes time to integrate, but it is worse if you have to report to the street every 90 days. The street wants results, they care about the investors. Since Dell has gone private they have 1 person to please, Michael. He has a vision and he is executing on it, Street be damned. You will see a lot of integration of platforms that were purchased pre-privatization coming in the next few months.
Dell & EMC …. It is going to be interesting. The greatest part for me was watching all the so called “experts” give mixed results. Mainly because they have NO CLUE what Dell is doing from a dollar perspective because they can not see behind the curtains anymore. Makes you wonder if these Wall Street experts are just good at reading quarterly reports and making assumptions. Sad thing is a lot of people invest based on what they say, whether it is based on fact or fiction.
Note to Dave: All the engineers who will bail from Dell–have already bailed from EMC. And probably had their startups purchased, twice. EMC is a huge company, compared to any storage arena startup, and it’s either startup/niche player or spinning rust vendor.
It’s tempting to say Dell’s ploy is a longshot, but IBM and HP are sucking so badly at this, Dell has a better than even shot.
Apple, as pointed out, is primarily the consumer IT company, with some inroads in industries where BYOD or ease of use rules, but they aren’t really in the big corporate market.
I guess I’ll just pop some popcorn and wait and see. Dell ain’t out yet. Funny how not being publicly traded makes them a bit more agile.
There is a meta trend going on here I want to point out. Being a publicly traded company stinks like rotten fish.
Dell can make a big bet, buy a complementary company and have 3-5 years to let his strategy play out.
IBM, HP have quarterly market pressure. To make a big bet is simply not allowed by the share holders. Even to invest back into the company for the next generation product gets punished in the market. They can’t do more than small updates to the existing product lines. Why is everyone surprised when a smaller, nimble competitor disrupts them.
Of course there are exceptions that prove the rule. Amazon gets Wall Street love no matter what Bezos does. Freescale semiconductor was privatized, and did not do well. The issue is probably with the private equity investors, more than the company.
I was thinking the same thing.
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If Ginny or Sam had tried to do this, they’d have gotten killed at the next quarterly shareholder meeting. And HP has had a string of CEOs who have slashed and burned rather than invested in development.
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This sort of thing might just save EMC, particularly since Dell doesn’t have to release the books so nobody will know if they’re taking a major hit for this.
One fly in Bob’s “ointment”; Dell is currently atrocious, horrible at tech support/customer service for it’s current customers!
Harry said: “Dell is currently atrocious, horrible at tech support/customer service”
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I hate to be cynical, but terrible customer support is fine — as long as it doesn’t make it down to the level of “completely useless.”
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When you consider usability factors — such as the ludicrous 5+ minute POST times on modern servers — it is obvious that the people making the purchasing decisions are usually not the same people who have to make the damn things work.
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There should be riots in the streets over server POST times.
Re: POST times. Yes! I cannot believe how slow these things are. The servers fly once they’re running the o/s, but oh my, how slow they are to boot. I asked a Cisco support tech that when he was on-site fixing one of the boxes and he said, “oh but people don’t boot these that often.” Well, at the time I was a machine lab tech, and working in an R&D facility, so reboots were very common. Makes one wonder that a machine a million times faster than an Apple II boots up in what seems like a million times slower.
Don’t boot that often. He must have never run anything Microsoft.
@Mark – As a technology sales professional, and a former IT Director, I can testify that Procurement absolutely takes your very carefully crafted, technically sound solution and sends the bill of materials and the statement of work to a minimum of 3 different bidders.
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The bidders get spun up and excited, they put together their owns BOMs (of competing hardware because they couldn’t get manufacturer deal reg/preferred pricing for the solution you spent so much time creating), and they nickle and dime on the SOW using the cheapest labor to accomplish the job (so the talented and credentialed engineers who took the time to do due diligence and spent hours, if not weeks, whiteboarding the solution with you won’t be the ones actually doing the work – a point you required during your negotiations with your original vendor), and your entire project crashes in flames.
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Why, you may ask? Because Procurement’s MBOs are often based on minimum discounts off list or reducing costs by X amount, and YOUR mission critical project that means the success – or failure – of your company may well stand in the way of a bonus.
All may be true, I wouldn’t know, don’t even know what boms, sows, or mbos are. I’m not sure how a bidding war will change the POST and boot times. When it comes to ordinary Windows PCs, boot times used to be slow, but ever since I installed Windows 8.0 Pro on an SSD, boot-ups and restarts are under a minute, on my 6 year old 1.86 GHz Intel Atom. Isn’t there a BIOS option to skip the POST part?
5 Minutes?
I remember back around 95 when my client’s IBM J30 servers would take 45 MINUTES to POST! By the way their tech support 4 hours on site (and repair) support was so good that I didn’t want to work with any other vendors servers.
This is all very interesting. It is amazing how the IT world can change in a week.
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The big money in cloud is SaaS. The problem is IBM does not have any software big or not big (SMB) company would need. Oracle has a good portfolio of software but has had a seriously flawed business plan. Amazon could end up being the SaaS leader in the industry.
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I’m not aware of any cloud provider doing VDI. Now that could be a very interesting cloud service. With VMware Dell could step into this market and provide firms a very interesting alternative to buying more desktop PC’s.
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Jeff Bezos teflon against Wll street is wearing thin. There are activist calls for him to split the businesses…That of course in the short term be very good for Wall Street and in the long term very bad for Amazon. Amazon is wisely using a good money making mature business to fund the creation of its next big business. Wall Street idea of investment and planning is ‘how much of your money are you going to put into the next quarter’s dividend and how many shares of stock are you going to buy back. In a few years Amazon could have a couple very successful businesses, and they’ll get there despite Wall Street.
There’s a reason nobody is doing cloud VDI: Microsoft won’t allow it, except under very specific, very expensive conditions. Head over to http://www.brianmadden.com and read his multi-year rants on this topic (he had one just this week).
Basically, the Microsoft Windows license prevents cloud providers from offering a shared-hardware VDI infrastructure for desktops. You either have to have dedicated hardware per customer, or you have to run Windows Server & RDS to fake a desktop environment. Costs either way make this non-starter.
There are hints that this is about to change, but so far, it’s not the tech that’s preventing this, it’s the contract language.
All of this assumes that Dell knows how to integrate Mergers and Acquisitions and that Dell Services is prepared to handle operations and integration. That is a stretch of belief for now.
It certainly is a stretch for two disparate companies to come together, but Dell being private has bought themselves a few years. They don’t have Wall Street to worry about.
How long until Silverlake wants there money + profits out of Dell?
2 years? 3 years?
I don’t think that Michael Dell wants to give all of the profits to Silverlake, because if that were the case he’d have no real reason to take the company private. He wants Dell to succeed, but on his terms. Since the books aren’t public, there’s no way of knowing exactly how that relationship fares.
I think this is a battle between “old-tech” and “new-tech.” Gartner has sort of re-defined this into something that sounds more sexy, “Mode 1” and “Mode 2” apps. I would have rolled my eyes, but Mode 2 applications are in fact, very different. When someone says “cloud”, it means wildly different things. What most define as “in the cloud” today, is nothing more than a virtual machine that runs on someone else’s hardware. From Dell’s perspective – As long as it’s their hardware, who cares?
Mode 2 is something very different. It’s not just “I have x number of virtual machines running on AWS.” Mode 2 software relies on something called “Micro-services.” Something VMware knows almost nothing about. More importantly, even if VMware DID know something about it, their cost structure simply couldn’t support it.
Here’s the thing, though — and, why I think Robert is correct: Mode 1 apps aren’t going anywhere any time soon. Companies may choose to run these mode-1 apps “in the cloud”, on dedicated VMs, but that doesn’t make them “cloud apps.” Oracle e-Biz, SAP ERP, etc — all mode 1 apps that will take a very long time to deprecate and make them truly “cloud-ready.”
I say all this to come full circle — Especially in the case of ERP, companies are very conservative, even if their products are among the most innovative anywhere. No CIO (and certainly not the CEO) will sign off on putting customer data on a public cloud. They’ll build their own private clouds, but again — it’s still “Mode 1 Apps”, just running inside of a VM. This is where the combination of Dell/EMC/VMware/RSA, etc — will all matter over the next 10+ years.
Robert didn’t make as big of a deal of this as I thought he should. Dell being a private company is earth-shattering. I already assume banks are lining up and begging Michael to borrow money from THEM. As I understand it, Dell already has $12 BILLION in Debt, and this deal will easily add another $40 BILLION to that. Maybe I read it wrong, but the interest payment on that debt literally wipes out all net profit from EMC as it stands today. Just the INTEREST.
Dell is missing some vital pieces, still. I only mentioned Mode-2 apps above, but mode-2 apps also require mode-2 storage. Companies like Pure, Nimble and SanDisk (FusionIO) are still for the most part in their infancy. Pure just went public and is valued at $3B. That’s a lot for a company that’s got what, $500M in revenue? EMC has some SSD capabilities, not real Flash/Mode-2 storage. All EMC has ever done is to put an “appliance” in front of their 20 year old FibreChannel storage. Yes, EMC went from 2 to 4, then to 8, then to 16 GB FibreChannel, but it’s really about all they’ve done. They bought innovative companies for deduplication, they bought RSA… But it’s like the gold-digging girlfriend — “What have you done for me lately?)
Something else to keep in mind: This deal isn’t likely to close until probably CY16Q3. A lot can happen in a year. Up to and including a better offer from some other company (doubtful).
It’ll be interesting to see how this goes. If for no other reason, Michael has always hated mergers. He’s on record as saying over and over again, he just wants one part of some company that’s for sale. But those companies know what part of their business is the golden-goose. Let’s just say Michael’s attitude toward M/A has “evolved.” This may be the biggest tech merger ever, but Dell and EMC worked together for a decade and employees from both companies are very well aware of each other’s offerings. Like I said, it’ll be interesting.
OK, so Michael Dell now has all the pieces of the jigsaw puzzle to complete the picture like you say: compute, storage, network, security, virtualisation & integration- and paying top dollar for those missing bits.
Problem is the (very expensive) complete picture is something from 2005, pre-cloud days – things have change radically & irreversibly since then.
These are two legacy turkeys frantically holding onto each other in the hopes that Thanksgiving/Christmas does not come soon ……….. irrelevant.
Sounds like you’re arguing the public cloud will be the end game for most if not all businesses, but I do tend to agree with other comments that many larger businesses will want to reinvent the cloud within their organization and that is Dell’s opportunity.
Mainframes and supercomputers will never die. Everything else is going into the cloud. Hardware manufacturers are dead men walking, they just haven’t noticed it yet. When SAP (and SOX auditors) makes it possible to run corporate financial applications for a multi-billion dollar company from a SaaS cloud, their fate will be sealed. There will be a lot of business for (dis)integrators for years, managing this transition for thousands of tech-lagging companies, some of which are still thinking about “going digital” someday.
What do you think the Cloud runs on? Smartphones? It is just a bunch of datacenters running web/database software on OS’s like Red Hat Linux, Microsoft Windows Server, all on lots of computer servers (even some IBM mainframes running lots of Linux VM’s) – i.e. “hardware” (with lots of network interconnections). Hardware is still the foundation for any kind of software services.
Dell hasn’t really taken advantage of Perot Systems yet – they didn’t have the breadth of their predecessor, EDS, and after the Dell acquisition, middle management kind of floated around, as if unsure what they were supposed to do. The Quest Software purchase added a small but fairly active consultancy group. However, in amongst the bloat of EMC, there is yet another consultancy, a fairly big and active one, selling not only EMC hardware and software, but their integration expertise.
I look for Dell to dump some of the software assets, like backup, and probably RSA. I just don’t see an overwhelming need for them any more. We have other means to accomplish the same thing they provide. EMC has become a collector of various software companies, much like CA, only as you said, they haven’t pruned them very well.
Look for Dell to expand their micro desktop offerings as part of a bundle with VMware VDI.
I would also look for Dell to buy another major consultancy group, maybe foreign…maybe…Sogeti?
This is one of the most interesting and intriguing Cringely columns I’ve ever read. I like the idea of Dell as the disruptor, but I do wonder if Dell will spin off VMware to grab some quick cash and thus break apart Bob’s wonderful scenario.
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One possible alternative universe implied by GortonSM is that other cloud vendors (Amazon AWS, Microsoft Azure, Google, Rackspace, IBM, HP) have enough going for them already to drive most internal IT to a public cloud. If that is the case then the decline of the physical IT infrastructure industry will occur rapidly and even an EMC-beefed-up Dell won’t be immune from it.
Agreed – we live in interesting times – a fork in the computing delivery model: legacy/physical/private “cloud” and “Public” Cloud.
In the long term, it doesn’t really matter what Dell spins-off to pay for their over-priced purchase (RSA, VMW, storage) as the legacy/physical model has a steadily declining market share.
Some predict the sale (if it goes ahead – I have some doubts) will hurt legacies such as IBM and HP – again a (valid) pre-2006 opinion – but these players at least have a foothold in the Cloud-provider Data Centre stakes and Dell does not.
Pre-2006 it was the ability to manufacture and integrate the whole stack could dominate (both HP and IBM tried) – today it is he who has the most geographically widespread Global DC footprint has the advantage.
CenturyLink might have been a smarter purchase Michael – sorry, you seemed to have strategized for a previous game.
Old dinosaurs fighting over the scraps of a soon to be gone meal. IaaS is a dead man walking, no one wants to manage infrastructure or pay for people to do it. 10 years or less from now it will be all about PaaS and or SaaS. None of these guys have a clear plan or vision on how to play in the cloud space – see Cisco InterCloud disaster as an example. Dell has a record of destroying really good products see Dell Cloud Manager formally known as Enstratus. Was a killer product and RightScales only true comp. Dell has turned it into a steaming POS. VMWare and EMC had their opportunity to be truly disruptive when they bought Nicira for a billion dollars.
If you remember the olden days…
When General Motors bought EDS they turned over all technology to EDS. If I recall correctly, GM paid $3 or $3.5B for EDS and EDS saved them that much within the first year in consolidation savings. What was strategic was that EDS took over the tech organization. There was never a doubt about where the organization was going. When Dell bought Perot Systems, the PC guys were in charge. Some was because the Dell execs refused to relinquish any power and the Perot Systems executives were to weak to take it (being happy to cash out of their stock). Dell didn’t understand “services.” To them, “services” was the tech that ran out to someone’s desk to fix a PC or their glorified “maintenance” organization. Dell had no clue about banking systems, hospital HIS, Insurance claims, the real meat of IT services. Within two years the Perot Systems organization had been gutted, and few remain today.
It’s unlikely that what remains of the Perot Systems organization could execute as Bob mentions. And it’s also an example of how acquisition and integration at Dell works. I guess it’s possible that something decent comes out of this, but I doubt it.
I say decent, because as a previous poster mentions, it’s only for the scraps anyway. The new cloud players are obliterating the old guard players anyway.
And then GM sold EDS to HP who also bought PWC. Now they are spinning them off.
The money is in doing M&A deals. Doesn’t matter who is buying or selling as long as the bankers can act as middle men and take their cut.
What David said, Dell gutted Perot mid and upper management and moved their own widget managers into a services role that they don’t understand. They don’t want to sell services unless it runs on Dell hardware and the rod up Michael’s butt has a rod up it’s butt for anything that runs on non-Dell hardware. He’s so adamant about moving customers off IBM mainframes that he’s willing to lose millions in order to say it runs on Dell. The replatforming practice they bought is woefully inadequate and only highlights success stories before they were acquired since they don’t have many since.
Now, Dell is selling Perot to NTT so that goes to show how much Bob really knows about the strategy. Not only that, nearly everyone in Perot was told there was no bonus money in the bucket for them, more than likely used to pays today’s interest on all the money Dell borrowed to purchase EMC. Given how poorly they integrated the companies they are now selling or spinning off, it will only be a matter of time before Dell/EMC suffers from the same cost cutting/impossible targets as well as the losses they will suffer from the merger and we’ll see that there is no prophecy here, just someone who warned us about listening to VC’s regurgitating the wishful thinking of some other VCs.
Let’s face it, as other commentators have already pointed out, EMC VMware is old news. Dell/EMC is going to spend the next 5 years trying to figure out how to integrate while everyone else is moving forward with cloud and IOT offerings that Dell won’t have the capital to invest because they’re too busy ruining EMC.
Dell/EMC will sputter along just like Dell/Perot did because Dell only knows how to run Dell and if you’re not Dell you won’t be necessary moving forward.
It sounds nice to blame Wall Street, but I’m not sure from a tech standpoint. I’ve worked mostly in Java and I’m not even familiar with many things mentioned. They are almost like “the cloud”, terms that don’t have much meaning. At least with the cloud it’s so abstract you can make it into something logical. The words you used have meaning but not what they were originally intended to be. What is the point of VM now?
This is not about tech, but about the business structure where you sell tech to big companies and you have lots of employees with job security and pensions and such. In order for that to happen you need contracts that last a long time and consistently pay alot of money. This is just about money, but not so much for the programmers. It has more to do with sales.
You can dismiss open source programs (another term used to mean different things), because they don’t have as much revenue, but they accomplish as much or more. It’s like Android has 80 percent of the smart phone market but in terms of revenue it’s smaller than Apple and in terms of profits it doesn’t show up at all. You could call that phony, but a few billion people are using it. Lots of programmers make a living on this too.
So your argument seems to take the side of tech versus Wall Street, but it’s really in support of the old business model. You’re saying IBM should not have changed and Dell can go back to that old model. It will be interesting if they can do that. If they do it would within a few years lead right to the same problems. They would be pushing systems for business reasons and if that doesn’t make enough trying to cut costs by hiring foreign people and such.
So this is how Taco Bell won the restaurant wars.
Nah just more proof Cringely is out of touch and needs to hang it up. All these old timers are trying to hang on and stay relevant – mostly baby boom disaster generation (please don’t respond with nonsense about civil rights, Vietnam, etc that your parents actually passed those bills while you were high) Please hang it up and pack it up.
Don’t worry your generation will have its humbling experience(s) too. Success is earned. Long term success is the result of experience and learning from the success and failures of the past. People like Mr.Cringely bring a tremendous amount of history and experience to their columns It doesn’t matter to me if you believe this or not. I know you will some day discover that if you ignore the mistakes of the past, you will be doomed to repeat them.
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If big firms go from being publicly traded companies to privately owned, that will have a huge impact on you and your retirement savings. You are saving for retirement, right? Or is that another of those silly baby boomer things you don’t worry about?
It’s Dell, with a “D”. 🙂
Dell will be selling salt shakers.
I’ve come across Dell servers and F/C connected storage in the past. I’ve worked in many big Tier-1 data centres and Dell already has a strong SME presence. Having also worked at EMC and HP, I can clearly see that Dell would be gunning to capture more of the enterprise market. VMware is well entrenched there. Building private cloud helps you sell a lot more iron than selling public / hosted cloud solutions.
I can only wish that Dell ship more systems certified for Linux. The days of AIX / HP-UX / Solaris are rapidly coming to an end. Even IBM is selling some Z-series iron with Linux pre-installed.
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dammit, bob! where is it??
Interesting article but… Cringely should know that acquisitions rarely succeed. Not succeeding does not mean fail. Not succeeding means desired synergy (sorry for using that word) never comes. It has all to do do with culture, internal conflicts, no tribal knowledge of new business, too slow integration, etc. – not Wall Street. The entire premise of this article depends on that success. I do not see it.
I have been in the industry for many years. I have started calling certain technologies “enterprise crack”. Remember VBA, Silverlight, Web 2.0, etc. Yes those technologies still exist but the mad flurry put put those on your resume does not last long. A few, like Java, become standard tech. “Cloud” is a very broad term that encompasses many forms of enterprise crack. My head is still spinning with all the flavors talked about in the article and comments. Unlike the development platforms I mentioned above, “Cloud” tech is about control – who controls the data, the apps, and the infrastructure. This will not be decided by best tech (quality and meets needs) winning. It will be decided my marketing and Wall Street.
… until “Cloud” becomes passé and we have a new enterprise crack to wax blog about.
While all of these comments are fascinating views of what may or may not happen in the industry, they appear to be all pretty much from folks on the “inside” of the vendor class. Bob C’s POV clearly takes that into account which generated all this heat.
But one POV missing from this from what I can see is that of the CIO/CTO class that will actually purchase cloud services I or P or A or ?asS…whether it’s an S&P 5000 (yes, 5000) or its correlative in government: Fed, State, large city agencies. While SMB may be the target, many of the IT “empires” will want a private cloud…not some public form. These CIO/CTOs will tell their managements that they need private clouds from the perspective of greater internal security of data assets (which we all know is an increasing problem…a reason to KEEP RSA onboard as part of the whole package). But it will really be about CIO/CTO job class preservation. Security (paranoia?) will ostensibly outscore economics.
I played many years in that class. Retired now, so it’s fun to watch. And I obviously could be wrong. But my fellow CIOs are in their own risk-averse, yet ambitious way the ones who will sign the check so to speak. Dell’s approach, properly packaged as a single point, private cloud will appeal to many. In some respects it’s the old (and I mean 60s-70s) IBM mainframe approach. CIOs will be able sleep at time and have only one vendor to blame if there’s problems.
I think Mr.Cringely covered some of this very nicely in his book and past columns. The computer industry has been making a transition to being a commodity market for many years. Michael Dell understood this before anyone else and from the beginning Dell was designed to operate well with low margins and low costs. Dell cut out the distribution channel and high commissioned sales. One can complain about the poor customer service, but they also want the low prices.
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IBM does not know how to operate in a commodity market and chooses not to. IBM’s strategy is to neglect the business, squeeze every penny out of it, then abandon it; or sell it. IBM really wants high profit margin business. That high margin is needed for the “channel” and for all the sales commissions.
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What should be scary for those who have money invested in IBM is that most of their existing business that is moving to being a commodity, and the fact IBM isn’t learning to operate as a commodity supplier. One of IBM’s future businesses, Cloud is a commodity business. IBM’s strategic businesses may not grow fast enough or big enough to offset the decline of their existing businesses.
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By choosing to adapt to a different business model, IBM could be limiting its future. Meanwhile firms like Dell are embracing new ideas, and, well, continue to grow.
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I believe IBM’s quarterly earnings statement is today. If they continue their trend revenue (sales) will continue its decline. Net income (net profit) will be about the same. They’ll tout all the new business they’re getting from CAMSS. Is the growth of CAMSS enough to save IBM from a very long and painful decline?
On the ground here in Round Rock, you pick up pretty quickly that a *lot* of the newer Dell employees are H1B, L1, and other forms of modern indentured tech servitude facilitated by the US Government. I doubt that will work well for them long term, and the workforce demographics is probably the major problem with your theory.
(Aren’t you also an evangelist against this type of labor practice by the tech companies?)
We already see the cracks forming. My wife works in a doctors’ office near the campus where the new Dell employees come seeking ADA paperwork so they don’t have to sit on the exceedingly cheap office furniture the company provides in the open “work pit” (their term, not mine) offices into which the company herds the newer workers. They’re learning the American way real fast on the campus.
Maybe companies that buy on premise hardware aren’t dead yet, but they’re certainly boring. Buying EMC is about as smart as buying a Compaq was for HP. Besides big enterprise – and here I really only mean financials and companies tied down by legacy tech – the cloud is where companies are going. What SMB is going to buy 500k in on premise hardware and then tech services to mange it? None.
The problem with this deal is that Dell is looking at the market today and buying for the market today, not the market is 5 years. In 5 years, EMC and VMware will be devalued to the point that it will drag Dell down again.
Also, the software isolation levels VMware provides, while not provided directly by Docker, are provided in software by cloud companies like Amazon AWS and Google Cloud (the VLANs, etc).
I take issue with the idea that, “quitting in disgust,” is great b/c it makes room for another engineer. I’d rather call it a talent retention problem unless it’s just an isolated incident. Otherwise it’s a smart engineer leaving to work on the next big thing and being replaced with unmotivated drone developers who are of little value to moving a product forward.
Dell just insured their place with HP and IBM as dying breeds needed only by those too tied to the past to move to the cloud. Let’s see in a few years.
It’s an exciting time for these two organizations, and after harsh side of a merge this size happens it looks to bring big benefit to the market. Time will tell, but it will be interesting to watch the many spins this merger will take, and how the other players in the market down play this. I truly believe the edge will go with Dell as well. It will be interesting for sure.
I have a lot of respect for the things you’ve done and what companies such as EMC, VMware, even Dell has done, but Bob, you’re just totally lost with these two articles on Dell and the future of computing. You’re living in the past by ignoring the fact that public clouds have already become the de facto hosting choice for new implementations and trend is not turning around. By owning VMware Dell is no better position in regards to cloud computing at scale than it was before. The big clouds just don’t run VMware, traditional hosting where VMware is strong is not growing anymore and the jury is still out on what private clouds should run and is that a growing market. But its unlikely VMware is fit for those environments either technically or price-wise if any reasonable scale is required.
Seriously, how can you write an article about the future of IT and the new Dell and not mention AWS once (except for a quote from a comment)?
I’m in charge of a cloud-only infrastructure which runs some 500-1500 server instances depending on the day. VMware has 0% relevancy in what we do. I don’t know the brand of hardware a cloud provider uses either and I don’t really care as long as it works.
Cheers
Mikko
On the ground here in Round Rock, it is well known that many of the new Dell employees are H1B or L1 visa holders, the modern form of indentured servitude facilitated by US Government immigration policy. Sorry, Bob, but I think the workforce demographics will be the downfall of your theory; the workers aren’t there for the long haul.
If you’re building a tech startup, you’re not going to be building it on VMware, that’s true. But the vast, vast, vast majority of businesses in this world are NOT tech startups. My medium-sized employer (VMware customer for ~8 years) recently got gobbled up by a very large multinational company that doubled in size around the same time by buying up its largest competitor. They’re a big VMware customer–and getting bigger. They recently standardized on VMware and are getting rid of Hyper-V. So maybe VMware has 0% relevance in what you do, but you’re a tiny slice of the pie right now. Yes, over time, more workloads will migrate to AWS/Google-type cloud infrastructure, but VMware is still the dominant player in a very lucrative market.
You’re ignoring the elephants in the room. With Amazon AWS, Salesforce, SAP, OKTA, etc, SMB and increasing larger enterprise can forgo system integrations completely.
15 billion plus (price above market close plus lawyers plus banks plus due diligence expenses on both sides– yes, Dell will pay both sides if the deal closes) is a stiff headwind to recover from synergies and resource rebalancing or whatever the current euphemism is for layoffs. Some will be recovered from taxes, charging off “goodwill”, i.e., overpaying for the goods. Acquiring EMC gives Dell the opportunity to provide competitive solutions to customers’ problems– if they can execute. Growth by acquisition, particularly large acquisition, is the graveyard of many companies. As for touting service bureaus, er, “public cloud”, there is a lot of competition hoping for more than a small acquisition hiccup. Dell doesn’t seem to have a compelling in house IT (“private cloud”) capability with EMC, but they can probably count on their competition to continue to bumble along for a while. Even private Dell does not have the time for organic growth before the sharks providing financing will want out, so joining the late to the party acquisition crowd makes sense. It can work as long as Dell himself maintains an iron grip on control like other single minded CEOs that seem able to enchant sources of financing… but if he leaves for whatever reason, very likely the result will be a financial bloodbath for company Dell as focus disappears.
Well, that was quick: http://fortune.com/2015/10/21/hp-public-cloud/
Robert, got any Lotto numbers?
What’s DSSD? Seems Dell is excited about it.
https://www.theregister.co.uk/2015/10/27/dell_on_dssd_emc_game_changer/
Bob’s theory seems to be based on the premise that VMware is irreplaceable and can’t be commoditised. I’m still expecting to see VMware spun back out as a public company. Is the leading server virtualisation software company worth more or less if it goes from being server-agnostic to being owned one of the server companies? You can only believe that VMware’s revenue, margins and capital value would be unaffected by being owned by Dell if you believe that the other server vendors are dumb enough to happily participate in funneling revenue to Dell to make Dell harder for them to compete with. Not likely. They’d drop VMware wherever possible and in many situations they do determine which virtualisation products will be used. I reckon this deal was always about finding a way to increase VMware’s value by getting it out from EMC’s ownership. They were trying all sorts of ways of making it happen before settling on this deal structure. Dell is an expedient and opportunistic buyer of a storage company in a deal that’s really about freeing VMware. EMC was the meat in the sandwich,reluctantly selling itself off with activist investor’s guns to it’s head – ironically the victim of it’s own foresight in buying VMware and ending up as the owner of an asset worth 5 times it’s own value.
I think too many people believe IT just does what the salespeople tell us to. The reality is that we change very slowly. At my shop, we buy HP x86 servers. Period. We buy Power from IBM for Unix. Period. We buy Cisco for the fabric. Period. We buy whatever the hell Nortel is called now for Network switches. Period. We buy IBM for storage. Period. We buy EMC stuff for backup infrastrcture. Period.
It’s been this way for 15 years. Doesn’t really matter who owns what, we don’t like change.
Thanks for the good writeup. It actually used to be a enjoyment account it.
Look advanced to more delivered agreeable from you!
By the way, how can we communicate?