The deal will make Dell one of the world's largest IT vendors, just behind IBM and Microsoft, but it will have very little in the way of public cloud services. Oracle, IBM and HP are all building out their own public cloud services, with varying degrees of success, but that’s not been a focus for Dell, and EMC will do little to help in that regard. How much that matters is an open question.
“This deal makes Dell a far stronger player in the traditional sense of IT tech vendors. The problem is, the future belongs to non-traditional players,” says Glenn O’Donnell, a research director at Forrester.
Most large companies are pursuing a combination of private and public cloud infrastructure, and Dell needs to be a go-to provider for those customers. But that doesn’t mean it needs it’s own public cloud, and trying to beat Amazon at its own game would be a costly mistake, O’Donnell said.
Instead, Dell can provide the infrastructure and software to build a private cloud and then offer middleware to connect to public cloud services. VMware is a big provider of that software, and Dell retains majority ownership.
That jibes with what Michael Dell said on Thursday’s conference call when he was challenged about the cloud aspect of the deal.
What happens to the Cisco-EMC-VMware partnership
EMC partnered with Cisco and VMware several years ago to form a new company called VCE, which sells virtualized infrastructure products combining compute, network and storage.
Dell and EMC insist that partnership will continue. “Our VCE business, when connected to Dell’s products and services, will grow faster and have a much larger impact on the industry than either one of us could individually,” EMC's Joe Tucci said in a blog post.
But the EMC acquisition opens the door to Dell trying to sell more of its own hardware as part of that effort, and at least one analyst is pessimistic.
“The VCE effort is dead in my opinion,” said Forrester’s Glen O’Donnell. Cisco has already scaled back its investment in VCE, and when Dell owns EMC it will try to build more converged solutions around its own hardware.
One reason VCE hasn't been more successful, O'Donnell said, is because it’s “not a real company” but a partnership of vendors, making customers wary. “Dell now has an opportunity to create a truly unified equivalent, and to do it better,” he said.
IDC’s Crawford del Prete thinks Michael Dell will be more pragmatic. Dell can’t match what Cisco brings to VCE in terms of networking equipment, he said, and he doesn’t see any big changes in the partnership for now.
“I would expect Dell to try to capture more value from those deals but Michael is a savvy guy, he knows that to have the best-in-class networking he needs to work with Cisco."
What does this deal mean for Cisco and HP
Even if the VCE partnership continues, Cisco is looking at a very different competitive landscape, and the EMC deal will be driving important internal discussions about its long-term strategy.
“I don’t see anything imminent, but they need to think hard about who they partner with and potential mergers moving forward,” del Prete said.
Converged systems like those offered by VCE are what customers want, and Cisco needs to think about how it will continue to supply them long term.
“Converged is the order of the day, which means Cisco has to think about how they build those systems and who they partner with moving forwards, because EMC is not the same company it was last night,” he said.
And for HP...
Will there be layoffs
Some layoffs are inevitable, and Michael Dell said as much on the call, but there might not be as large as you’d think in a deal of this size.
“There are certainly some cost synergies, we’re not going to tell you there aren’t, but there are other companies in the industry that are much better at reducing headcount, so go jump on their calls,” said a somewhat testy Michael Dell when pressed about layoffs on Monday’s call.
He was probably thinking of HP, which has laid off some 55,000 workers and has said another 30,000 will follow. A big difference with Dell is that they’re not a public company, so they’re not under as much pressure to cut costs.
In addition, there’s not too much overlap in the companies' products, and they need each others' sales teams to make the deal work. Part of the motivation for EMC is for Dell to help it reach more midmarket companies, while Dell needs EMC’s expertise in large enterprise accounts.
“This deal succeeds or not based on Dell’s ability to leverage and capture value from that EMC salesforce. They’re best of breed in the industry,” said del Prete.
So when he hears talk about ‘cost synergies,” he doesn’t see that affecting the sales force, but rather back office functions like human resources.