Dell, Backing the Right Horse in the Wrong Race

With Dell’s announced acquisition of 3par I’ve been pondering the question of what it is they’re thinking.  I’ve been scouring the blogs looking for an answer and there is none that resonates well with me.  Most of what I find states they picked a good horse and that the business behind buying a horse to race makes sense, but nobody asks are they in the right race.  The separate races I’m talking about are private and public clouds.

Dell bid on 3Par which is a small high end storage company with a product line positioned to compete with EMC and Hitachi for some use cases.  This complements Dell’s own storage offering which was built upon the Equalogix iSCSI storage acquisition and geared toward the SMB space.  Dell also has had a traditionally strong partnership with EMC and resold a great deal of EMC storage where Equalogix was not a good fit.  The Equalogix acquisition did not appear to damage the Dell EMC partnership significantly but by adding 3par to the mix this may change.  On the other hand EMC is heavily backing Cisco UCS, so this may very well be a defensive play.

So what is Dell’s play expanding their internal storage capabilities and risking damage to a profitable partnership with EMC?  Most of the analysis I find states that Dell is looking to grow data center revenue to regain profit they are losing to HP in the desktop/laptop space.  In order to do this they are putting together more of the key hardware components of private cloud architectures.  The thinking being that they will try and put together an offering to compete with vBlock, Matrix, SMT, CloudBurst, etc. 

At first glance this all makes sense, Dell doesn’t want to be left without a horse in the private cloud race so they make some moves and acquisitions and get their offering in place, late, but maybe not too late.  On the flip side they can utilize the small market share 3par has as an avenue for Dell server sales, and reversely use Dell server sales to boost 3par’s struggling sales.  With any luck Dell will have the same success with 3par that they did with Equalogix.  That’s what I see at first glance, upon further thought there are more concerns:

• Can Dell’s sales force handle the addition, especially while they’re battling a new server vendor (Cisco) with a lot of marketing dollars to spend and a strong partner/manufacturer ecosystem?  Will the Dell account reps and engineers be able to incorporate 3par into they’re offering without cannibalizing Equalogix business or muddying the waters enough for a competitor to move in?
• Will a customer requiring top Tier storage that they traditionally turned to Hitachi or EMC for be willing to accept a Dell solution?  If they do will they be willing to put those top tier applications on Dell servers?  Dell is not traditionally looked at as high-end servers, and they really only recently (last six months) started adding any innovation into their server product line.
• Will the customers buying Dell servers now have any interest in an upper tier storage array?

The most important question in my mind: Is Dell putting their horse in the right race?

Dell is looking to attack the enterprise and federal data center where private cloud will be a big play.  This is the home of solid high performance, feature rich, innovative platforms.  It’s also a place where trust means everything, i.e. ‘Nobody gets fired for buying vendor x.’  Dell is not vendor X, they’ve typically competed solely on price.  Moving heavily into this market they will be in constant battle with HP, IBM, EMC, NetApp, Cisco and others.

I think Dell is missing an opportunity to execute on their traditional strengths and attack public cloud markets with a unique offering.  Public cloud is all about massive scale and the intelligence, redundancy, etc. is built into the software layers.  This means that a company who can effectively deliver bulk, reliable, low cost servers, storage and networking will have a very strong offering.  The HP’s, Cisco’s, IBM’s etc. will have a much harder time selling into this space due to cost.  Their products have traditionally been more about performance and usability features which may not have a strong a message in the public cloud.

Summary:

Dell solidly executed on the merger and acquisition of Equalogix and has had great success there providing a low-end, low-cost storage system paired perfectly with their server offering.  The 3par acquisition and recent Dell innovations in their server offering show a preview of a new model for Dell.  Whether this is a successful model or not is yet to be seen.  From my point of view successful or not Dell would be better suited to pairing their traditional business to public cloud solutions and creating a new market for themselves with less competition.