Dell-EMC: A Marriage of Hardware, Data and Software?

At one time in business there was an adage:

No one ever got fired when they bought from IBM

which represented IBMs lead in the computer market at the time (1950s-1970s). Only they had the market and the investment to create new computer systems, and which the world flocked too. Time has past, though, and the PC broke IBM's virtual monopoly, and, within IT, innovation has thrived, where companies have concentrated on their own areas and then integrating systems across the industry. 

So, in the past, it was always a safe bet to buy a  computer system from IBM, and the IT industry is filled with examples of this. When networking first started to boom it was Cisco Systems that everyone went for, and when the PC took hold it was Compaq Computers.

Companies often, thus, want a safe bet, and go with someone that they trust. They often too want to work with just a few vendors for their systems, and want them to create systems which interconnect. One of the reasons that many bought IBM systems in the 1970s were that that they knew that the systems which all connect together. 

The days of a computer system just being about a processor, some memory and some periphals has past, and we now have extreemely complex systems which link identity, data, applications, network, and many other things, and which often drive the operation of businesses. And so we get the rise of the system integrator. A modern enterprise system is now a hybrid patchwork of vendors, such as HP, IBM, Microsoft, Oracle, VMware, Cisco, and Dell, and often it is the large customers who are the driver for the industry.

The IT companies, though, who have thrived have become much larger, and there are signs that the ultra-large companies will dominate once more. These companies are often the system integrators, and  who hold a great deal of power in creating enterprise system. The profit margins in sell consumer PCs have vanished for most (apart from Apple, of course), and many companies concentrate on large customers, such as in the finance industry and the public sector.

Heaven or Hell?

So, on October 12, 2015, Dell Inc. announced that it would acquire EMC in a  $67 billion deal, and which is the largest-ever acquisition in the technology industry. With this acquisition we are now moving into a phase where Dell will increasingly create the complete back-end of our enterprise infrastructures.

So from a company who started selling PCs by mail order, Dell have successfully moved from front-line to the back-end. This addresses the large demand for computing power and, especially, data, and there are few signs that this boom in computing will end anytime soon.

While on the surface it looks like a merger of two hardware-focused companies who have already been working together for a while, it is perhaps the virtualisation and data analytics parts of EMC which has strong attractions to Dell. In a world where hardware is becoming a commodity, it is the drive towards a software-defined systems, with a focus on data analysis, which will be key drivers within the industry.

It's all about verticals and horizontals

Few companies in IT can produce every part of the overall systems, so companies have tended of concentrate on just a few parts of the overall ecosystem, and where companies such as IBM, HP, and Dell will work with partners such as Cisco Systems, VMware, and F5, to bring them together to produce an integrated system.

Figure 1 shows one example of how some of the vendors work within their own areas to create integrated systems. Increasing, though, there is a focus on software defined elements such as on Cloud-based services provided through Amazon Web Services and Windows Azure, and application providers such as provided by Microsoft, Oracle, SAP and IBM. Companies have thus created collaborative relationships where they will look to integrate other vendors product into their systems.

Figure 1: F5 viewpoint on integration [1]

EMC

While most people would know of Dell, the EMC Corporation is very much a corporate friend, and who have become a leader in data storage/analysis and virtualisation. They went public in 1986, and have a current turnover of $24 billion with around 70,000 employees. Overall they are a leader in data storage, competing against companies such as NetApp, IBM, HP and Hitachi Data Systems.

One of their golden eggs  is their partial ownership (80%) of VMware, and which accounts for around 35% of EMC's turnover. WMware provides systems which virtualise hardware, and this is generally the way the industry is going. Another key strength is around the growing security analytics space such as with RSA. While Dell has developed a strong focus on security with their acquisition of SecureWorks, there are sounds that they may sell off their prized asset, in order to raise more cash for investment.

EMC was founded, in 1979, by Richard Egan (the E in EMC) and Roger Marino (the M in EMC), and their first product was 64-kB memory boards for the Prime Computer. They have since grown to provide high-end storage platforms with a focus on providing data storage services for Cloud-based systems. 

To Merge or Not To Merge?

From the company he created, and then bought back in 2013, Michael Dell has managed to re-envigorate the company, but there are many risks for them, especially from the move to the Cloud providers. Demand for servers, data storage and networking has remained fairly static, while virtualization of hardware and Cloud-based services have been growing fast. The growth in mobile devices too has reduced the need for desktops. Many companies in this space are now fairly cash rich, such as Google and Amazon, and have been investing extensively in R&D.

The past has shown that it is often not easy to integrate companies in IT with overlaps. HP have had a difficult time in integrating Compaq, and only just managed recently to turn around a profit, but who are now splitting the company into two. HP's main focus has been on enterprise systems, as this is where most of the profit is generated, so HPE will concentrate on to selling enterprise systems to large client, while HP Inc. will focus on  personal computer and printing.

Conclusions

Before the era of networking and the PC, IBM held a virtual monopoly on the computing market, and one must worry that the mergers of major companies, especially ones which build complete hardware and software systems, might not be healthy for the market.

One worry with these take-overs is that computer systems may be moving into an era where enterprise systems are created by just a few companies, and these systems are created using just a few vendors, each working in their own areas. This type of business model often stifles innovation, and creates working relationships which squeeze out small companies.

There are strong growth areas just now, such as in Cloud-based systems, virtualisation, data analytics and computer security, and companies are gearing up to work with their large customers in order to provide complete solutions, rather than be part of a list of providers.

For large companies, the through of dealing with just a few vendors is something that makes life much simpler for them. Whether it will reduce innovation is another matter, and the large vendors must do everything they can to work with smaller companies, otherwise we could be heading for an IT world controlled by just a few companies, and it will become a binary world: Azure or AWS? Microsoft or IBM? 

While Dell likes the look of the corporate data storage integration between EMC and Dell, it is perhaps the virtualization part, data analytics, and computer security elements which look most interesting, either to integrate into their core business and develop, or to integrate across business units and sell off. Overall Dell remains a highly fluid company, who move quickly and spot opportunities.

Personally ... I like dealing with people ... and it is those people who drive their companies.

References

[1] How to Use SDN, Tristan Liverpool, August 2015, Symposium on SDN, Edinburgh Napier University. [Here]