[One week after this post was written, HP has announced their competing bid for 3PAR. Not entirely surprising, either. Not clear who's going to end up the victor as of now]
Nothing like a little M&A action to spice up a Monday, no?
Today's news is rather straightforward -- Dell intends to purchase 3PAR. Not entirely a surprise if you're a close industry-watcher like I am.
Some interesting commentary is starting to result (including this piece by Dave Vellante), so I thought I'd offer up some personal observations as well.
The IT Industry Is Changing ... Fast
Our IT industry is rapidly maturing and consolidating. Behind the obligatory "cloud buzz" are strong themes around converged and virtualized infrastructure, next-generation operational models for IT, and relatively new consumption models based on service providers.
Interesting times, indeed.
Stand-alone technology companies face an uncertain future as a result. To stay relevant, you either have to acquire more of the required stack, or form meaningful strategic alliances with others that complement your strengths.For example, EMC has been pursuing both approaches for quite a while: we've built a considerable stack of our own, as well as invested heavily in a unique strategic alliance: the VCE Coalition.
IBM has been investing in a similar stack-building approach for quite some time. More recently, HP (under Hurd) had also been building out their stack-oriented offerings as well. And let's not forget Oracle/Sun, shall we?
Now, if you're Dell, what do you do?
Everyone Needs A Target Competitor
Most IT vendors need to have a bogeyman to chase -- an arch-competitor that focuses effort and passion in a very specific direction.
For Dell, that uber-competitor would likely be HP. Dell and HP continue to compete fiercely for desktops. Dell and HP continue to battle for server share. And, one could argue that HP has done well for itself in both contests.
Indeed, one could look at some of the recent Dell acquisitions (e.g. Perot) and make a case that part of the deal rationale was to better compete against HP.
The Dynamics Of Downmarket Storage
Both HP and Dell move a lot of gear "downmarket" -- targeting smaller IT shops that tend to value simplicity and convenience vs. strong technical, solution or services differentiation. Different-sized IT shops tend to value different things.And in these smaller IT organizations, you'll often notice that servers and storage tend to come from the same manufacturer. They're positioned, sold and supported together as a complete package from a single vendor. Sure, there's the occasional IT group that splits out server and storage as independent decisions, but the predominant buying mode here is "bundle".
HP moves a boatload lot of EVAs this way. Rarely does anyone make a standalone decision to buy HP storage and use it with, say, IBM servers.
Ditto the relationship between IBM servers and IBM storage -- it's extremely unusual to find IBM storage plugged into anything other than an IBM server. And it looks like Sun storage is heading in much the same direction.Was EquaLogic Enough For Dell To Compete?
Yes and no. I think that -- over the years -- Dell has started to do OK with the EQL product. It looks like they're starting to see some success in modest SAN opportunities where server and storage are sold together.
That being said, the EQL platform doesn't currently stand up well against larger storage arrays such as HP's EVA and IBM's DS8000 and more recently the XIV box. Arguably, they needed something in the Dell-owned portfolio with a bit more heft.
No surprise, 3PAR has been in play for a while. You can make a pretty short list of the likely suitors. For example, it wouldn't surprise me to discover that HP was one of the bidders for 3PAR, forcing Dell's hand.
What About EMC?
We're fine, thanks ...
EMC has an incredibly broad storage offering which we've made available to Dell in various forms over the last several years. Some of it was OEM, some of it was reseller, some of it was sold jointly.
From EMC's and Dell's perspective, this has worked out quite well for the most part -- they've had access to arguably the broadest and most advanced storage portfolio in the industry, coupled with EMC's expertise to help them in their accounts. And from EMC's perspective, we've had great access to Dell's customers.All good.
That being said, one can't argue with Dell's desire to invest in owning the IP and associated margins with selected product segments. For example, Dell saw that iSCSI was becoming popular, so they invested in EQL. At the same time, Dell continues to sell a considerable amount of ostensibly competing EMC-based iSCSI product.
At the end of the day, Dell is very responsive to customer requirements.
Moving up from entry-level to mid-tier storage arrays is logical, so 3PAR becomes interesting. This product will potentially be competing with our bigger FC-based mid-sized CLARiiONs -- but more likely will be going head-to-head with EVA, DS8000, XIV and the like.
Dell -- unlike HP, IBM and Oracle -- can now offer customers an interesting and unique storage choice: here's the storage product that Dell owns, and here are the products from our partner, EMC. That's pretty much what happened after the EQL acquisition, and there's no reason to expect it to be different going forward.And – make no mistake -- there are a lot of joint Dell/EMC customers out there -- something like 24,000 or so, as I understand. If these folks are happy with what they've already got, they're quite likely to stay with something that's working.
Filling out the picture, there's still a lot of the EMC storage portfolio that moves through Dell for which there is no real internal Dell alternative: the Celerra unified platform, DataDomain and Avamar for backup, even enterprise-class object storage solutions like Centera and Atmos. And, yes, even Symmetrix VMAX.
And that's before you get into the rest of the extended EMC portfolio: management, security, services, etc.
Lots Of Hard Work Ahead For Dell
It's one thing to buy lots of interesting bits of technology. It's another thing entirely to assemble them into a cohesive and rationalized portfolio. Trust me on this one -- it's not as easy as it looks.
And, when you frame the issue around Dell's strategic challenge in building an integrated, next-generation fully virtualized and cloud-enabled stack and associated ecosystem, there's a long and uncertain road ahead.
The Bottom Line
Dell is doing what it needs to do to compete going forward. The real story (for me, anyway) is more about the consolidation of the IT industry, and how Dell appears to be investing to square off against a reinvigorated HP.
I'm sure we could all handicap Dell's latest M&A move -- did they pick the right technology, can they make it work for them, can it compete, etc. -- but I'm sure we'll see a lot more decent-sized IT industry M&A going forward. From a customer perspective, Dell and EMC continue to work together pretty much as before -- no real new dynamic at a macro level.
One thing is for certain -- it's going to continue to get more and more interesting ...