Context: Dell’s acquisition of EMC has cast a long shadow. Since announcement last October of this major milestone in the company’s decade long quest to build an end-to-end solution business, Dell ‘news’ has been consumed by speculation over what a newly merged Dell/EMC business might look like in terms of product, operation and cultural integration, how the company will manage debt associated with its $67 billion purchase, and which entities in corporate portfolio might be good candidates for sale or spin off. While understandable – from the financial analyst’s perspective if nothing else – this conjecture has obscured other news about Dell product innovation, solution strategy and partnering activity, which potentially will have greater impact on the company’s ability to thrive in a marketplace characterized by hardware commoditization, increasing cloud consolidation and the growing dominance of software-based IT delivery models.
At its summer Power to do More (PTDM) event in Toronto, Dell worked to address some of this imbalance. This annual event, which has expanded from local roots over the past two years to feature messaging delivered by corporate executives, is intended as a customer event that can showcase new capabilities and technologies. This year’s installment focused on IoT, cloud and “the future-ready enterprise,” a catch phrase referring in a general sense to customer ability to quickly scale infrastructure in support of data-driven applications, and to Dell’s elusive, but intended customer target for data centre products.
Two keYs: the ‘buy, build, partner’ conundrum
Build the IoT product: partner to develop the funnel: A year back, Dell created an “IoT Roadmap” aimed at establishing the company as a player in the IoT space. Since then, Dell moved fairly quickly to launch its IoT Edge Gateway, a product that sits at the edge of the network to enable local processing of sensor data, or that aggregates data and sends it along for analysis in the cloud. As Kirk Schell, VP of product marketing for Dell Client Solutions, explained, the Gateway has created the recognition for Dell in IoT – in media and analyst reviews anyways – that the company was looking for, based largely on three unique qualities. While many other gateways exist in the marketplace, Schell argued that the Dell solution is differentiated by the Dell brand: the company’s global footprint in terms of sales and service provides the brand equity that an established, global IT company commands. The product’s ability to withstand the harsh environmental conditions that are found in IoT deployments (heat, moisture and shock), which Dell has perfected in its portfolio of rugged PC and other devices, is a second differentiator. And a third Dell advantage lies in the good price point that the company is able to offer based on economies of scale: Dell is in a happy place, Schell noted, since “we already have the engineering [for ruggedized products], and even some commonality in supply chain… We should be able to achieve some scale and drive some cost in this area based on how much memory, storage, glass and CPU that we buy – the more these things in the supply chain overlap, the better it is for us and for our customers.”
Despite this potential, IoT languishes at the end of the list of priorities for 2016 in Dell’s traditional customer base – in Canada at least. In his keynote presentation at the Power To Do More event, Dell Canada president Kevin Peesker noted that a PTDM survey conducted amongst event attendees from last year generated the following top priorities for 2016: cloud, security, IT management, Infrastructure refresh, virtualization, mobile, analytics and BD, collaboration and finally…. IoT. So how is Dell looking to bridge the gap between good product and broad adoption?
Building momentum in IoT presents challenges on a level that is different from that in other emerging markets. While educating its own customers, the provider must reach out to new kinds of businesses and to new individuals within client organizations. As Schell noted, in IoT sales and marketing, Dell would need to establish new relationships: “In many cases, traditional IT doesn’t own the IoT project, so we have had to become much more nimble inside the accounts to understand who the decision makers are.” A second imperative is to develop business cases that resonate with more customers; while building automation, an area in which Dell has generated some IoT successes, offers a clear ROI through energy cost savings, IoT value may be less obvious in other scenarios. But Dell’s primary strategy is partnering – to assemble the required, multiple components in IoT solutions, but also, in Schell’s view, to develop the market: “By working with the right people, you can scale your influence more efficiently than by doing broad market demand generation. You wouldn’t want to do this with IoT because there would be a really low return on your investment, but if you had the right software partners and you were working with the right folks who were thinking about the whole solution right from the sensors back to the decision making, then the funnel gets a little bigger for you. We’re doing more of that than broad market appeal.”
Since launch of the Gateway, Dell as formed several partnerships with companies working in building automation and in Smart Cities, and with ISVs working in specialized areas – Eigen Innovations, for example, in process optimization in industrial settings. The Dell IoT Solutions Partner Program now boasts 48 partners, including SAP, Software AG, GE, ThingWorx and VMware. Going forward, Schell expects that manufacturing – as a sector that can take good advantage of environmental capabilities – will in fact serve as the next Dell target, while “more price bands… more form factors, and different levels of robustness” offer entre to new customers. And ultimately, he added, with acquisition of EMC, and “all the data that is being generated” by connected endpoints, IoT “becomes a very consistent story for Dell.”
Partner to develop; build the appliance to service hybrid demand: Known primarily as a vendor of the pieces needed to build private cloud infrastructure (servers, storage, and networking), Dell has tested many cloud waters looking to find the right approach to this critical market. It was once a purveyor of public cloud resources, became a broker through the establishment of the Cloud Marketplace in 2014, created (via acquisition of InSite and subsequent expansion) the healthcare focused Dell Cloud Clinical Archive (which now holds 10 billion images), and buyer of SaaS integration tool BOOMI.
Dell has also been doing its cloud homework: according to Jim Ganthier, VP and GM, Engineered Solutions, HPC and Cloud, Dell’s Global Technology Index has found that 9 out of 10 survey respondents agree that hybrid cloud is a fundamental component of their success, but that only 30 percent have been able to realize this goal. To address this demand, Dell has launched yet another strategy based on the notion that no one cloud size fits all – “The world is going to go to hybrid,” Ganthier explained. “This means you won’t have public or private, but will have multiple clouds” and the question becomes “how to have the right cloud for the right case at the right cost.” Ganthier extended his argument that hybrid is the best approach even to the ‘born in the cloud’ segment, who may find cloud repatriation especially difficult – and costly – as they shift from startup mode to enterprise production.
In an interesting presentation on the benefits of hybrid cloud, Conor Duffy, global strategist, Dell Enterprise Solutions & Alliances, returned to the “Hotel California” effect – the relative ease with which a customer can check into public cloud, and the inability to get out due to issues with portability of data and apps. In addition to the exit strategy challenge this “monolithic lock in” can bring, Duffy also noted questions of cost: public cloud can be either more expensive, or it can be much more cost effective, depending on the application. For the most part, he argued, traditional apps are more costly in the cloud, but born in the cloud apps are cheaper, a generalization that is complicated by the fact that “you are not Uber, you are not Google” – meaning that most enterprises will have to embrace born in the cloud, while also maintaining legacy systems. However, most customers are hesitant to take the cloud leap because of the cost and complexity – which are endemic to hybrid approaches in particular as these place new demand on the business in terms of networking and security, integration of cloud and cloud or cloud and traditional IT, and data governance.
What is to be done? The Dell’s response is the Hybrid Cloud System, an appliance that takes the cost out of private cloud deployment by pre-loading and configuring the software required to run local computing and that enables bursting to public resources – Azure, for example. According to Dell, pre-installation – of the Microsoft cloud and now also the VMware vSphere and Red Hat OpenStack RA platforms – means that an enterprise can access hyperconverged cloud resources within a three hour window. Integrated systems (appliances) feature faster deployment, faster app delivery, reduction of downtime, productivity improvement and a reduction in spending, he added. And since with the appliance Dell manages the consolidation, validation and automation, a lot of the maintenance work is removed: as the service provider Dell does the change management and patch updates to improve reliability and saves on local people costs. Originally built with Microsoft (to align hardware specs with software requirements), the single SKU appliance includes Dell’s PowerEdge C6320 server, PowerEdge R730 and PowerVault MD1400 or MD, a hybrid approach to storage that includes flash and spinning disks, converged network and backup capability (Azure site recovery service and replication every 20 seconds), and a software defined stack that delivers “breakthrough CAPEX and OPEX.” Built on partnerships with key virtualization vendors (Microsoft, VMware, Red Hat), the appliance means that customers “are able to use hybrid where it makes sense,” Duffy explained.
The bottom line:
In its quest to serve enterprise markets with more than PCs and other personal hardware, Dell has engaged in an ambitious ‘buy’ agenda to assemble and integrate an end-to-end solution portfolio. The decade-long buying spree has come to an abrupt halt with acquisition of EMC, which was approved by EMC shareholders this week, and hence set to move beyond planning to integration. In its new initiatives described above, Dell has opted for the partner path, an approach makes particular sense with IoT, which by nature is defined as an ecosystem solution that today cannot be delivered by any one vendor. In IoT, partnering is viewed as a means of adding vital solution components, but also of expanding market reach. In the case of the cloud appliance, Dell has chosen to partner with a broad set of cloud vendors, covering the market through a platform agnostic approach that Ganthier argued is best able to provide customers with “choice” and Dell with entre to all customers. In each case, however, partners are contributing the higher margin software component, and Dell the hardware. Dell has always been a hardware company, and remains faithful to that mission in its IoT and cloud strategies. Is this part of Dell’s new financial reality – the company sold its Perot IT services business in March, and confirmed its sale of the two year old software division (including Quest Software and SonicWall firewalls) to Francisco Partners and Elliot Management last month – or holding pattern until the onboard of EMC assets and expertise reopen Dell’s access to margin-rich solution seg