Dell is on to a good thing with EMC, but will it even matter in the end?
With the advent of cloud, will the enterprise IT market stay large enough to sustain the mega-vendors?
It's been a big year for the IT industry, but perhaps the biggest story is the planned acquisition of EMC by the much-smaller (and private) Dell.
As IDC said in its analysis of the acquisition agreement, few mega-mergers or acquisitions have a ripple effect across the entire ICT market spectrum. But in the case of the Dell-EMC deal, there will be "indelible" marks left on the industry, which could set in motion an industry-wide consolidation movement.
The effects of the merger will not be felt on customers until well into 2016, or perhaps even 2017. Such is the scale of the operation that it will take a long time for the two businesses to align. In the meantime, however, it's worth taking stock of what Dell has in mind with this major acquisition, and whether it will, as CEO Michael Dell claims, create the enterprise solutions "powerhouse" that his backers hope to see.
Since Dell has gone private, there's been precious little information made available about how its shift in focus from the PC market to the enterprise IT market has gone. However, analysts are reasonably bullish on the vendor's chances. That said, it would be foolish to assume that the company doesn't face its challenges, even without the impatient eyes of Wall Street trained on its operations.
The problem for the company, as with all large enterprise IT vendors, is that its growth has petered out, apart from in a handful of developing markets. Given that the developed markets account for most of these vendors' revenues, this is something of an issue. To be sure, Dell, EMC and, say, HP, aren't losing many customers, but they're not adding them at the rate they'd like to be.
So comes the consolidation. If Dell owns EMC, it will have onboarded millions of new customers straight off the bat, and the combined entity will indeed be a powerhouse. It will also help Dell in the area of storage, which it has been struggling in for a while now. Unfortunately, with more power comes more responsibility, and the new combined entity may very well struggle with its size as it continues to make gains in the market. Certainly it will be difficult to be agile enough to meet the competition of emerging-technology vendors such as Pure Storage.
Nevertheless, there seems to be an assumption here that, as the market isn't getting any bigger, it's best to own as much of the market as you can.
This is a sound strategy, assuming the enterprise IT market isn't getting any smaller. However, there's a big question mark around that notion, and it takes the form of Amazon Web Services (AWS). Traditionally attractive to start-ups looking to pay for their infrastructures on an Opex basis, AWS is now appealing to larger firms as well. In the Middle East, the company hardly has a presence, but it is building data centres like crazy across the world, and you can bet that this region figures in its future plans. It's already happening in Europe and the United States - companies that had always assumed they were too big, and too integrated, to adopt a cloud-based model have started seeing sense in AWS.
To be clear, there will always be companies for which cloud computing isn't the answer, companies that will need on-premise equipment. The question is whether there will always be enough companies like that to sustain a mega-vendor like Dell-EMC.