Why Dell Could Have Won in Public Cloud IaaS


dell public cloudWith the announcement earlier this week of its new IaaS partner ecosystem, it appears that Dell has gotten out of the business of directly providing public cloud IaaS services itself.  While Dell still may eventually return with its own OpenStack based offering, it appears it’s out of the public cloud IaaS game for now.

With the acquisitions of Enstratius and Boomi, Dell appears to be focusing on management and integration of multi-cloud environments.  While this will likely end up being an attractive place to play in the market, at the end of the day Dell had several strategic assets that could have allowed them to be well positioned in the public cloud IaaS space.  In fact with the potential exception of Microsoft, Dell was perhaps best positioned to provide public cloud IaaS among legacy enterprise IT vendors.  Why?

  • Direct customer relationships  -  unlike other traditional enterprise IT vendors like IBM and HP, Dell has direct, relationships with nearly all its customers across consumer, SMB and enterprise segments.  Amazon started by providing IaaS to SMB customers, and has been moving upmarket into the enterprise as it comes up the learning curve from both a technology and business perspective.  Dell similarly could have leveraged  initial offerings in the SMB market to evolve into enterprise-ready services as the offerings and market matured.  Also, early on the Dell brand and trusted relationship potentially could have convinced customers who were concerned about the risks to try the public cloud.
  • Upgrade cycle visibility – Dell has a unique advantage over Amazon AWS and other IaaS vendors in that it has visibility into the server upgrade cycle across tens of thousands of customers.   This visibility could have been used to proactively migrate customers into public cloud IaaS via targeted sales and marketing vehicles.  Dell could have offered incentives to customers going through a refresh cycle to migrate to VMs on their  public cloud IaaS, and also offered unique services and support around it. 
  • Data center expertise – from working with customers Dell has developed deep IP and expertise around designing, deploying and managing webscale data centers.  While granted much of the IP that Amazon has developed is actually around business models and management algorithms for IaaS services, Dell certainly had the technical chops to develop the data centers required to deliver public cloud IaaS.   Dell also had data center operational experience through the Perot Systems acquisition. 

Hindsight is of course 20/20, and it may turn out that public cloud IaaS will only end up being an attractive business for Amazon and maybe Google.  Committing to public cloud IaaS would of course required Dell to aggressively cannibalize the server hardware business, which is probably the biggest reason why it never happened.  It also would have required Dell to develop new skills and platforms that Amazon did with AWS, which is much easier said than done.  Despite these factors it’s still interesting to think about how the public cloud IaaS game would look today if Dell had played some of these cards differently.

 

Interested in reading more about competitive dynamics in the enterprise cloud market?  Check out our recent post on why it’s too early to count Microsoft out of the enterprise race , and our earlier post on why Amazon’s AWS enterprise strategy is deceptively simple.

Comments

  1. Dharman says:

    Scott, I agree with your analysis on Dell. But it is yet not too late for Dell to get its act together. Unfortunately, the management’s attention including Mr. Dell’s attention is on something else these days.

  2. John Dell says:

    Great article – though as somebody who has had quite a bit of insight into what went wrong, there were fundamental flaws in the strategy you outline.

    The main issue here is that cloud computing is still a relatively immature market. Cloud computing is not a packageable solution but rather still requires developers who can re-architect existing software to handle horizontal scaling, build elasticity into their systems, integrate various cloud services, etc. The idea that one can sell hardware racks and a handful of virtual machines in the same manner was naive – we still have here very different markets.

    Secondly, the reliance on third party licences such as vCloud to get to market as quickly as possible meant even lower margins in a market where margins are already low. It was only a matter of time before these third parties would try to squeeze more out of Dell, or keep all the bright shiny features for their own public offerings (which is what vMware did).

    • No doubt that the cloud market is still immature, and that the target customers and sales motions for cloud / VMs vs physical servers are different. This was especially true in the early days of IaaS 2-3 years ago. My overall point is that Dell had a large installed base of direct customers for compute capacity (via physical server), and that those customers may have been more likely to pilot or migrate some of their infrastructure to IaaS with a trusted brand like Dell than other cloud service providers.

      Also agree with you on the VMware licensing dynamics, which is why it was a bit surprising that a stronger commitment wasn’t made to go the open source route earlier on, either via OpenStack or CloudStack. As mentioned in the post though, hindsight is 20/20.

  3. In my opinion, the public cloud project was a huge failure for Dell. Perhaps not because of flaws in strategy, but because of poor implementation of it . After starting working on this two years ago (with a big announcement) and investing millions of dollars, Dell couldn’t put himself together to bring something reliable up and running.
    Indeed, one cannot sell cloud solutions (or software) in the same way as servers, but this is a new range of business models that Dell will have to “learn” in order to make the desired transformation to an end to end IT solution provider.

  4. Though I agree that Dell had a reasonable shot at winning in public (IaaS) cloud, there are two main reasons why I believe Dell made the right decision to pull out.

    1) IaaS is a declining margin business!
    For any big ships like Dell, EMC, HP, jumping in with both feet wet and expecting to be a cost leader like in the PC, Server business is simply a dream. Sure they would have had the opportunity to grab a piece of the market share given their customer base. But as stated in a comment above, IaaS is a big but maturing market. As customers are exploring cloud with test , dev and pilot, they will gravitate towards a low cost & easier to use services than aiming to increase their IT spend with Dell or HP for better buying leverage in future. I strongly expect lot more agile and young start ups to come into this space, like digitalocean, for example who can offer at ridiculously low prices. Not to mention the recent significant price cuts by AWS to validate this further…

    2) Follow the money. When IaaS is not all that attractive to play in, clearly cloud services, managed services, PaaS & SaaS are where the money is going to go. As evidenced by Enstratius acquisition, Dell is right in aiming to go after the cloud services business. It opens up lots of avenues and get it right early on as cloud market matures.

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