Here’s How Dell Technologies Will Contend With Amazon in Cloud
Dell Technologies, now officially a company with an estimated $74 billion in annual revenue, wants to be a presence in cloud but will not take on market leader Amazon (AMZN) directly in the public cloud game. Instead it hopes to play above, around, and in between Amazon Web Services and other IT deployment models.
As Michael Dell, chief executive of the new, converged company, told Fortune on Wednesday, business customers need options.
“It’s about private cloud and cross-cloud. We’re seeing it’s not a question of everything going one way or the other. Customers have multiple instances of cloud deployments in public cloud, Software as a Service, which in many cases is larger than public cloud, and hybrid.” Software as a Service (SaaS) is the model, pioneered by Salesforce (CRM), that delivers full applications to companies over the Internet instead of running them on internal servers.
In short, Dell Technologies, like IBM (IBM), Microsoft (MSFT), and other older tech companies, is banking that most corporate customers will want a hybrid IT model—meaning they’ll keep running applications and storing some data in their own data centers or perhaps a “private cloud” dedicated to their own usage, and run others in a public cloud like AWS, Microsoft Azure, or Google (GOOG) Cloud Platform that amass tons of servers, storage, and networking for use by many customers.
That “hybrid” sales pitch helps them counter the might of AWS, which is sucking up a ton of corporate data and applications but, to date, doesn’t have much in the way of presence inside corporate data centers. Meanwhile EMC (EMC) storage arrays and Dell servers are all over corporate data centers. As those customers seek to expand their computing power, the hope is they’ll turn to their current vendor for help.
That’s where Dell Technologies’ constituent companies Virtustream, VMware, and Pivotal will play a role.
Dell Technologies, like Oracle (ORCL) and some other older companies, segment the cloud market into business-focused cloud for important corporate applications like accounting and inventory systems and broad web-scale clouds like AWS. Amazon’s cloud made its name running new-age applications across thousands or hundreds of thousands of servers.
While AWS would (and does) argue that this enterprise vs. non-enterprise cloud dichotomy has faded and claims mission-critical applications run well on its servers, but many companies still feel more comfortable keeping key accounting or inventory systems in-house.
In a recent interview with Fortune, Virtustream chief executive Rodney Rogers said when he co-founded that company in 2009, he realized that AWS had already made its market and was pretty much impregnable.
“We focused massively on the hard business applications. We were sort of masochists. We figured IBM and HP (HPQ) were doing some things there but we thought they were disruptible while we didn’t think AWS was.”
In this context, “hard” business applications are such things as manufacturing and financial management software from companies like SAP and Oracle, and the databases that underly those applications as well as transactional systems that—should they fail—cost companies big money.
EMC bought Virtustream for that expertise last year for $1.2 billion. Virtustream continues as a sort-of-independent entity within Dell Technologies.
The problem here is that, for most observers, what Virtustream does seems a lot like what VMware, another Dell company, proposed to do with its own cloud offerings. At the company’s VMworld conference last week, VMware tweaked its cloud message again, pitching a new set of services, called Cloud Foundation, that the company says will help businesses run their applications across internal data centers or those run by VMware (VMW), VMware partners, or public clouds.
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And that sounds an awful lot like VMware’s existing vCloud Air, which helps data centers running VMware’s vSphere virtualization internally to move them to an outside cloud also running vSphere.
And then there is Pivotal Cloud Foundry, which Mr. Dell mentioned on the company’s conference call on Wednesday as a key piece of technology to let customers build and run modern applications that run across AWS, Microsoft Azure, Google Cloud Platform, and Virtustream. Get it? Good for you.
Pivotal, like Virtustream and VMware, was a member of the so-called EMC federation of companies. Now that federation lives on under Dell Technologies, but without the need to placate shareholders.
“The federation continues,” said Jeremy Burton, a former EMC exec and now chief marketing officer of Dell Technologies. “Look, there was Wall Street frustration with the federation. Investment in things like Pivotal takes time to come to fruition and they wanted us to give up and give money back to shareholders. There can be a lot of pressure not to invest at times of a big transition.”
Theoretically, a privately held Dell will not face such pressures although some might argue that the $47 billion in debt the company assumed to get this thing done comes with its own set of stresses, but that’s a story for another day.
Dell Technologies can “let the big live and thrive next to the small. You want smaller things to be able to innovate quickly but also give them access to the distribution of bigger companies,” he added.
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There is one other piece to Dell’s cloud strategy. Aside from the sometimes-overlapping cloud options mentioned above, the company will also continue to be an “arms dealer” to other cloud providers.
Dell offers low-cost “white box” servers, the commodity boxes, like those made by Wistron and Quanta, that tend to be the servers of choice for the big cloud providers that typically snarf up servers like Burger King buys beef.
Note: This story was updated to clarify the segmentation of the cloud computing market.