Dell’s Cloud Disinvestment: “Phew” that was a close one

Antonio Piraino

Most initial reactions to Dell’s announcement that it is pulling out of the Public Cloud Services space, seems to be of un-surprise.  After all, when you go in half-baked, expecting the pie to bake itself, it rarely pans out. 

An unfortunate victim in a cloud landscape that looked to have so much runway that all could share in it. 

However, it showcases the reality of an industry that is not shrinking in the slightest so much as consolidating around the winners. 

Although a bookstore, search engine, and hosting providers before it, jumped early enough into the public cloud wave, Dell was never really committed to it.  The computing behemoth never quite fit the bill, stalling in positioning terms, under its own weight as a household name in the compute and technology solutions space, rather than an abstract public cloud provider.

The question now is – what is next for both Dell and the cloud computing sector?  In the latter case, there are increasing rumblings around the barriers to entry being so high, that we’ve seen the last of the great entrants to this cloud sector.  

It’s possible to make that argument at the infrastructure layer, but far too premature to make the same gesture at the SaaS, apps, and mobile sector layer where innovation is always seconds away from market adoption. 

In the meantime, the company has not given up on its established embeddedness at the infrastructure layer – an area that still has plenty of room for market share acquisition given the perception of its competitors right now. HP CEO, Meg Whitman, is nonchalant about Michael Dell’s taunting of HP’s losses to Dell in the x86 Server Space.  How can she afford to shrug off the losses?  Staying away from unprofitable deals.  And therein lies the lesson for Dell too. 

Dell is currently taking on debt by slashing server prices.  All this while investors jostle around the buy-back of the company – a return from the public sector to being a private entity: a position that offers the luxury of being able to admit mistakes and reduce bad investments without public scrutiny or overt punishment. This is Dell’s opportunity to dedicate itself to the cloud competitors as a Service Provider to them, instead of competing with them. 

In quickly announcing partnerships with the likes of Citrix VDI solution, the company wants to own the next gen IT service delivery space by promoting the revenue generating activities that are required in the creation of the latest cloud platforms, rather than in abstracting the costs and operations of this infrastructure from its customers.  Its latest earnings show that the market is responding by giving it growth in the IT services area. 

It’s something that HP also figured out when it bought EDS.  In fact, Dell Services (combined with the old Perot systems acquisition) generates 75% of its revenue from infrastructure and related support services, 18% from applications and consulting services, and 7% from business process services. Where does this leave OpenStack? The announcement to detract from its cloud play is further reaching than first meets the eye in that the company is also no longer pursuing its building of a public cloud based on OpenStack (although it will support the stack for private cloud builds).  

In fact, the company’s desire to sell clouds through partners was exemplified by initial cloud platform partners Joyent, ScaleMatrix, and ZeroLag – none of whom are OpenStack users. The response from OpenStack has been largely dismissive of the announcement as having a negligible effect since Dell will continue to contribute to the OpenStack community – a material player in the longevity of this cloud OS project.

In summation, this move will actually free Dell up to be more flexible in trying to promote competitors to Facebook, Google, and Amazon, none of whom use commodity hardware for their cloud platforms.  In addition, it means Dell won’t have to go head to head with VMware, Microsoft, and Google, that themselves are brewing toward a cloud collision that will soon be seeing new and improved tools, price reductions, and customer churn.  Dell might well look back a year from now and wipe the sweat from its brow at having missed that close shave.

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