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By | Trevor Pott 16th October 2015 08:37

Dell buying EMC: Is this the end times, or the road to salvation?

In any case, the enemy is now Amazon

Sysadmin Blog: Dell bought EMC. The internet promptly lost its mind. Make no mistake, the Dell-EMC merger is a pretty big deal. Everyone has news, thoughts and analysis on the subject.

While I feel The Register's coverage has been pretty neutral so far, the internet at large has posted rather a lot of doom and gloom.

The most common phrase I hear is "two garbage trucks colliding". Comments about dinosaurs have been spread as well. I think the doom and gloomers have got it all wrong.

One thing that seems to have been missed by umpteen pundits is the importance of Dell still being a private company after the merger – this changes everything. Mega-mergers go south for a number of reasons, but underneath most of those failures is that everyone must dance to the tune of the sociopathic quarterly thinkers on Wall Street.

Dell does not have to do this. Dell is a privately held company and has the leisure of thinking and acting on long-term plans.

Now, there is a caveat: Dell (the man) does not get to run around and have Dell (the company) do whatever he wants. He is beholden to the other shareholders of the company, now more than ever. Those shareholders have taken a monumental financial risk in backing this merger and they're going to demand satisfaction.

Being private changes the game. There are a limited number of shareholders, and they all know each other. Bear in mind as well the context under which Dell went private. It was being hounded by Southeastern Asset Management (SAM) and Carl Icahn to use assets and pay off the existing shareholders.

Yes, in taking the company private there will still be politics and cold-hearted business, but you don't take a company like Dell private by jumping into a nest of vipers. You take the company private by finding investors you can work with, who have similar goals and expectations and who operate on similar timescales.

On top of all of the above, none of us should underestimate what Dell is brewing behind the curtains. If even a tenth of the projects I've heard about are true then Dell is poised to be a tech titan in the long term, not merely a bulk tin-shifter with some second-rate software tools.

Dell was in a good place even before looking at what the EMC merger brings to the table. Combined, I think Dell and EMC might just be the most viable contender on the field.

This is not about storage

Too many people can't separate EMC II (the storage company) from EMC (the holding company). EMC is a company that owns several other companies, some of which own other companies.

The crucial bits are:

EMC II (the part that makes storage hardware and software to store data); EMC II (the part that makes software that helps you find your data and not lose it in the first place); RSA (information security); VMware (Datacenter Infrastructure Software (DIS) that makes your data centre infrastructure go); Pivotal (software that makes your DIS actually usable); Virtustream (software that talks to the DIS usability software from multiple vendors and makes it all play nice); and Airwatch (software that makes your computers which are not in the data centre go).

EMC II (the part that makes storage hardware and software to store data) has hardware, software and services which do the same things as some of the stuff Dell has. It also does the same things as some of the stuff VMware has.

It will take some sorting out, but this is a really minor issue. You keep the best of the things which address all the markets you want to sell to and you jettison or retire the rest.

You fire or re-purpose the excess sales, marketing and administrative staff and juggle the engineers around so that you have enough nerdy types to solve the technical problems on all the other projects Dell's got brewing.

Tick, tick, tick and the job's a good'un

Don't underestimate the value of Pivotal or Virtustream. I realise that today's data centre nerds want nothing to do with either company, but that actually doesn't matter. Today's data centre nerds are already dead, they just haven't stopped going to work yet.

The future is going to be very different from what's in play today, and most of the vast numbers of infrastructure caretakers won't be needed anymore. Pivotal and Virtustream are key parts of that vision.

If you don't understand Openstack and why it's important, you aren't going to think the Dell/EMC merger makes any sense, nor why the efforts around it are informing the design of the next generation of computing.

You'll probably also be replaced by a script at some point.

Openstack may succeed or it may fail, but the key is that it is trying to bring together infrastructure from any and all vendors in a transparent fashion and provide automation, orchestration and self-service. Basically it lets you build a "cloud" of your own but isn't vendor-locked. It acknowledges the reality that today's data centres are heterogeneous environments.

Openstack abstracts away all the infrastructure nonsense (including the politics and the vendors) and lets you get on with the job of using it. Self-service is key and everything is based on policies and service tiers. This is a very important idea.

Don't underestimate the value of EMC II's experience solving hardware and software integration issues. EMC knows more about enterprise storage than any other company on the planet, and enterprise storage is – next to information security – the hardest thing there is to design and build in IT.

Thanks to EMC II (and its swarms of competitors) storage is relatively easy to use, but it's a complete mindfuck to design at any scale.

The storage bits don't matter so much. What matters is the experience of integrating complicated and outright miserable software with eleventy squillion odd quirks onto commodity hardware that falls over in a gentle breeze. Designing not only the hardware and software, but the development, support and business processes to put out equipment that the whole world quite literally bets people's lives on is what I'm talking about.

The future lies in building Infrastructure Endgame Machines (IEMs), and EMC II brings critical knowledge and experience to the table.

Revenue beyond shifting tin

RSA is critical, and was irresponsibly underused and horrifically mismanaged under EMC's stewardship. Over the next decade the hardware players (including Dell) are going to see their existing margins collapse. The price wars will be brutal.

The increased competition will lead vendors towards designing, building and selling IEMs in an effort to stay ahead of their competitors. Now that Dell owns all the pieces, IEMs will ultimately be a single source of revenue for the new Dell, but this is not enough for a megacorporation to live on.

Renting time on their own in-house IEMs to others as a public cloud service will be another source of revenue, but that's a crowded market right now and tough to break into. If you want to succeed you're going to have to undercut the cloud players on price and good luck doing that until your IEMs are rock solid and shipping in quantity.

Worse than that, the political situation around public clouds is tenuous right now, and despite all the optimistic projections from Americans, I don't buy that this will go away soon. Put simply: there are really good economic and national security reasons for every country in the world to nurture a cloud sector internally.

Dell is a global company and it can't simply rely only on Americans using what will inevitably be second tier public cloud offerings as their second main revenue stream.

Against this background consider that information security sucks and we are headed for the software defined moronocalypse. What we have been doing thus far isn't good enough and we need to start going about this in a completely different way.

The problem with security is that most of those working in IT today – either at the sharp end or the business end – treat it as an afterthought. People who actually live and breathe information security are their own category, separate and distinct from other nerds.

Dell/EMC will have to make some security purchases in the future to flesh out its security offerings, but it does need to get a security department going and have a business structure into which to fold those security outfits that actually understand how information security nerds think.

This is the value in RSA.

Information security is going to be one of the most important revenue streams of the next 50 years of computing, if not the most important. Though RSA is overlooked by almost everyone in this acquisition, it is the seed of the future for a large part of Dell's revenues. Properly cared for it may be to Dell what VMware was to EMC.

This will hurt existing startups badly

There are a lot of startups that were never going to IPO. They were counting on being acquired. Two of the biggest acquirers in the industry just blew their cash load and won't be doing much purchasing for quite some time. What little Dell does acquire will be almost exclusively information security companies for the foreseeable future.

There are a whole lot of storage startup execs that are getting outrageously drunk right now. Or so my Skype would lead me to believe. Denial was short lived and mostly played out before the acquisition's formal announcement. Anger and bargaining seemed to last a day. The depression, however ... that looks like it's going to hang around for a good long time.

Help the startups Cisco and HP; you're their only hope.

This is great for new startups

A whole bunch of talented people who are experienced in the business-oriented aspects of running a company will be available very shortly. Yes, I'm talking about the inevitable layoffs. Dell and EMC are dancing around this in analyst calls, but readers of The Register have seen this movie before.

The cuts are coming, and they're going to be both savage and sweeping.

That isn't as bad a thing as you think. For all that there will be good people hit hard by this, the majority of them will get decent jobs without too much effort. All those startups are going to go bust as two of their biggest hopes for acquisition stop taking their calls.

These startups will shed experienced executives and engineers who will then go forth and make new startups learning lessons from their previous attempts. Among those lessons will be that you start the game with proper marketing, sales and back office staff if you want to have a hope in hell of surviving out there. Oh, and you treat them as valued parts of your business, not as burdensome necessities imposed by the investors.

Believe it or not, most startup execs learn this lesson after the first disaster. And they do then go on to try again. This is what makes Silicon Valley great. And what makes it terrifying.

VMware is a licence to print money

VMware needs a less political environment to shine. Under Dell, I expect this will happen. I fully expect a "hands off" approach that has far less interference than VMware experienced under EMC. If I'm right about this then there are good reasons for VMware CEO Pat Gelsinger to see a massive upside to this deal: the shackles are about to be removed from VMware and they'll be allowed to compete freely with everyone. Even Dell.

The beauty of being privately held is that you can do this sort of thing. Dell (the company) is maintaining only a 28 per cent stake in VMware. Dell (the man) intends to buy up enough of the remaining shares to call the shots.

Good.

Dell (the man) proved he has the [euphemism for genitals] to think long term when he took Dell (the company) private. I fully expect he sees the value of holding VMware at arms length and just letting it print money.

Like Yahoo's stake in Alibaba, it doesn't really matter if VMware competes with Dell, or even if VMware wins. What matters is that VMware makes oodles and oodles of cash and Dell (the company) gets enough of that to really invest in next generation technologies that will keep them alive through the coming industry consolidation.

Dell's enemy isn't overlap between the storage offerings of Dell, EMC and VMware. Dell's enemy is Amazon. If Dell is to survive it needs to out-innovate, out-price and out-think Amazon. Dell can only do that if it hires the best minds, does shedloads of R&D and has a stable source of income that won't go away if it fails to execute on some element of its other efforts.

We need Dell to be amongst the last remaining titans

At the end of it all we need this. All of us. With the market enduring major margin loss and the upcoming brutal consolidation wars the end result is going to be small number of enormous, vertically integrated tech titans.

These companies will be shipping IEMs which are essentially a "data centre in a can" that will collapse an entire data centre's infrastructure down into less than one rack of equipment. They'll sell it as one SKU and being fresh from a brutal price war that saw several previously "untouchable" companies die off, they'll be loathe to charge anything other than premium prices.

Dell is private. It isn't beholden to Wall Street. This makes it unpredictable. It also means that it can actually engage in R&D and bring real innovation to what will be a very sore, very conservative market.

Wall Street isn't going to reward risk-taking by whatever tech titans remain. It is going to reward lock-in, subscription revenue, high margins and market share.

The Dell EMC merger is going to be a hard pill to swallow, but Dell will emerge from this much stronger than before and significantly better able to meet the challenges of the future. What's more, it is now our only real hope for any sort of check or balance against a dark decade of punitively high tech prices and inescapable lock-in.

Steady on, Dell ... and good luck. ®

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