Weekly Review Volume 7, Issue 30 July 27, 2011
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Weekly Review Volume 7, Issue 30 July 27, 2011 In this issue: Dell’s Force10 Acquisition—Another Step in Data Center Evolution By Charles King, Pund-IT, Inc. (p. 2) Pund-IT, Inc. Contact: Hayward, CA Office: 510-383-6767 U.S.A. 94541 Mobile: 510-909-0750 [email protected] www.pund-it.com Dell’s Force10 Acquisition—Another Step in Data Center Evolution By Charles King, Pund-IT, Inc. Evolution among IT vendors tends to follow three individual yet congruent paths; 1) through ‘organic’ products and services developed internally, 2) by the acquisition of ‘inorganic’ external companies, products and/or intellectual property, and 3) via partner- ships with third party vendors. Clearly, there are few if any hard, fast rules to this process and, like life in the real world, the results of IT vendor evolution are anything but equal. That said, every once and awhile an event comes along that seems to touch on and resonate with all three of these paths, such as Dell’s acquisition of Force10. Explaining requires a little background. Dell—A Significant Shift Consider that for many years Dell was anything but a poster child for inorganic evolution. The company’s first acquisition—ConvergeNet—occurred in September 1999, some fifteen years after its founding and did not inspire a flurry of similar activities. The company’s next major acquisition, Alienware, happened nearly seven years later in May 2006. Michael Dell’s return to the company in January 2007, however, triggered a number of cru- cial changes. First and foremost, was Dell’s significant shift toward and growing focus on business computing and data center solutions. But the company also initiated or rekindled critical partnerships, including its long-running relationship with EMC. Finally, there was a notable, some would say radical, change in attitude toward corporate acquisitions. The November 2007 purchase of ASAP Software Express, a services company, was the first of an ongoing series of deals that fundamentally changed Dell’s direction and capabilities. Following ASAP were acquisitions, including EqualLogic (storage) and MessageOne (services) in 2008, Allin Corp (services) and Perot Systems (services) in 2009, KACE (services), Ocarina (storage), Exanet (storage), Scalent (software), Boomi (services) and Se- cureWorks (security) in 2010 and Compellent (storage) in February 2011. Force10—No Force Fit Where does Force10 fit best among these notable earlier purchases? Probably together with EqualLogic and Compellent, which were both mentioned in the acquisition announcement. Those deals highlighted new technologies which were also complementary to existing Dell solutions, represented significant extensions to the company’s strategies and did not can- cel or preclude the company’s partner relationships. EqualLogic’s iSCSI solutions, for exam- ple, were initially significant departures from both Dell’s native PowerVault solutions and those it resold from longtime partner EMC. Similarly, there is little overlap between Force10’s 10GbE and 40 GbE Ethernet solutions, Dell’s homegrown PowerConnect offerings and/or networking products from partners such as Cisco, Juniper and Brocade. At the same time, Force10’s twin focuses—on high perfor- mance Ethernet technologies and highly automated and simplified management features— 2 should provide Dell considerable firepower in ongoing and upcoming strategic markets. What are these areas? Midmarket enterprises and cloud computing. The former is an area where Dell is paying considerable attention and one where the com- pany’s traditional mix of x86-based technologies and aggressive pricing are especially res- onant. But though they appreciate cost-effective industry standard technologies, midmar- ket organizations also require help keeping up with ever-expanding computing assets across desktops to the datacenter and ever-increasing IT complexity. For those companies, Force10’s high degree of scalability and performance, leavened by its ease of management features could be the ticket to fewer IT headaches. Similarly, there are numerous points of synergy between Force10 and Dell’s efforts in cloud and hyper-scale computing. Dell was an early entrant in the cloud market and nine of the world’s top ten cloud and Web 2.0 companies are Dell clients. Force10 has enjoyed similar success here, engaging with seven of the global top ten cloud/Web 2.0 vendors. In fact, the pair has often enjoyed these successes together during their six year partnership. Given the popularity of 10 GbE Ethernet among cloud service providers and the growing interest in emerging 40 GbE technologies, we expect the conjoined Dell/Force10 offerings to at- tract considerable interest and customers. Potential Concerns While this all sounds good on paper there are a couple of areas that concern us. The first has to do with competitive issues related to Dell’s networking partners. At one level, this falls loosely into what many in the IT industry call ‘co-opetition’ where vendors that com- pete in many instances also work closely together in circumstances that make sense or where customers demand. The past year has seen a marked degradation of that process in some partnerships—Oracle’s wrangling with HP offers one unfortunate example that ap- pears to be damaging both companies. But there has also been a great deal of movement in the networking space resulting in po- tential and actual friction. No surprise there—for years, networking was a technology that systems vendors preferred to leave to specialists like Cisco. But increasingly holistic ap- proaches to the data center and a focus on ever more integrated end-to-end IT solutions have resulted in the erosion or breaking down of traditional vendor walls. Bottom line: Dell has every right to pursue whatever new opportunities it chooses and that fit its strategy but the value of those efforts should be weighed against whatever cost they exact on longstanding, profitable partnerships. Additionally, the value of the Force10 deal may be unclear or misunderstood among some financial analysts. Though Dell has certainly been active and proactive in buying companies since 2007, the company hasn’t pursued blockbuster deals like some of its competitors. The $3.9 billion Dell paid for Perot Systems, for example, was less than a third of the $13.9 billion EDS cost HP. As a result, some consider the company’s acquisition strategy to be timid and less effectual than some of its competitors. We would argue the reverse—that the care Dell puts into scouting out potential targets has resulted in deals delivering better overall value than have some high profile acquisitions. The Perot purchase placed Dell into a leadership position in healthcare IT services, a mar- ket virtually every Tier 1 vendor is trying to crack. 3 A similar case can be made for the EqualLogic deal, since Dell continues to hold a strong position in the growing iSCSI storage market as a result. We believe that over time Force10 could help Dell in similar ways, as well as contribute to the broad data center capabilities the company continues to develop for its customers. but wonder how well the financial community will parse the deal’s impact. Final Thoughts As we noted at the beginning, Dell’s acquisition of Force10 touches on all three congruent paths of IT vendor evolution. Though it obviously hinges on the purchase of ‘inorganic’ technologies, Force10 complements Dell’s organically developed solutions and strategies, and highlights the benefits of the company’s partner relationships. Both Dell and Force10 will be stronger as a result of the deal, and the new relationship should also benefit the pair’s mutual and exclusive customers. Perhaps most important is how this acquisition demonstrates Dell’s intention to deliver so- lutions that meet the immediate needs of its business clients while looking ahead to tech- nologies that will address their future requirements. An ongoing fact of IT life is that ven- dors aren’t the only ones evolving. Individuals and organizations change too, and are best served by vendors that recognize and address this continuing progression by offering the tools and services required to yield the greatest return from their IT investments. The acquisition of Force10 offers just the latest example of how Dell is providing custom- ers that kind of value. © 2011 Pund-IT, Inc. All rights reserved. About Pund-IT, Inc. Pund-IT emphasizes understanding technology and product evolution and interpreting the effects these changes will have on business customers and the greater IT marketplace. Though Pund-IT provides con- sulting and other services to technology vendors, the opinions expressed in this commentary are those of the author alone. 4 .