CIOs view Dell's $67 billion acquisition of EMC -- a merger of two incumbent vendors whose hegemonies have been challenged by tectonic shifts in enterprise computing -- with guarded optimism. They see potential in Dell and VMware offering private and hybrid cloud systems as alternatives to the public cloud services sold by Amazon Web Services, Microsoft and Google.
"There's been significant pressure on enterprise infrastructure with mobile and cloud," says Davie Finnegan, CIO of sporting good outfitter Orvis, which uses Dell computers and EMC storage gear. "In the short- to mid-term, [Dell and EMC] have the opportunity for local on-premises businesses because not everybody is in the cloud ... but everyone is going there in the longer term."
Tale of two struggling vendors
Dell and EMC are a marriage of two legacy vendors under siege by increasing corporate adoption of rented compute resources and consumer devices, as well as employees' preferences to use tablets and smartphones rather than PCs to communicate and collaborate. Dell has revamped its core business to reflect the changes, selling servers, storage and networking equipment, and software to construct and manage private and hybrid clouds. Meanwhile, activist investors have repeatedly called for a breakup of EMC, whose storage equipment has lost some of its shine among businesses moving to the cloud. Dell CEO Michael Dell, in an interview with CNBC Monday,summed up the digital disruption that drove the companies to merge:
"IT for a long time has been about how to make old processes more efficient, but with all of the progress in digital technology, there is a kind of digital transformation that is occurring.” He says companies are looking to leverage the explosion in devices and applications, particularly concerning big data and the Internet of Things, to bolster their results. This, Dell says, puts pressure on legacy environments to enter this "new age."
CIOs have watched Dell and EMC’s changes from afar, conducting business with the companies while increasing their consumption of cloud services. But the massive merger portends change, even if its nature can't yet be quantified. Finnegan says he's optimistic about the merger means for Orvis, which he says is increasingly adopting a hybrid cloud computing model. Its point-of-sale system remains on premises, but it is in the process of moving its ERP and marketing systems to cloud services. He says he’s looking forward to what Dell and EMC build for a "guy like me that manages on-premises and cloud ... what are the tools and technology that they bring to the table that allows us to manage both really seamlessly?"
It's a fair question, and Dell and EMC will have to work out the answer -- what to combine, what to keep separate -- after the deal closes in 2016. One option involves Dell wedding servers, storage and networking gear with VMware's virtualization software. CIOs could then use Dell software that connects on-premises technology with cloud services to connect their clouds to software-as-a-service applications. Such a solution would, theoretically, provide a credible alternative to Amazon Web Services and other cloud infrastructure providers. Synergies already exist between the two vendors, with Dell being among the top resellers of VMware software for the past several years.
Finnegan says he'd like a solution that helps him manage the flow of data between disparate cloud services. "If they make a really strong product set in that space it would be interesting for us to take advantage of," he says.
MRE Consulting CIO Ken Piddington, who used products from both companies when he was CIO of Global Partners, also sees great potential for Dell to strengthen its portfolio in this manner. “It is a bet by Dell that the hybrid cloud is going to be a significant part of the IT organization for the foreseeable future.” He added that the deal joins two technology organizations together that really
“need the strengths of the other to compete in the rapidly changing IT marketplace.”
The prevailing sentiment? Cautious enthusiasm
Uncertainty remains, however, as Dell and EMC have been largely mum on the next steps regarding integration of their respective portfolios. That has CIOs such as Gerry McCartney, of Purdue University, exercising caution over enthusiasm. "It feels like this is the first of several steps and we need to know what those steps will be," says McCartney, who spends $7 million a year on Dell computers and $1.5 million annually on EMC storage and analytics software. "These are both important vendors to us so we're paying quite a lot of attention." He noted that it's rare for two companies to emerge from a merger unmarred by changes.
The lack of significant overlap between the combined companies’ portfolios means CIOs won’t have to worry much about the combined companies jettisoning product lines, says Charles King, an analyst with Pund-IT. The companies’ portfolios are actually complementary and, King says, the Dell hardware-VMware software combo, as well as assets from EMC acquisitions such as RSA and Pivotal, will deepen Dell’s efforts in the security and developer communities. And although melding corporate cultures, go-to-market strategies, product groups and sales organizations is a bear for any larger merger, the companies have a long history of partnership and share many partners that can help mitigate challenges.
Ultimately, CIOs are cautiously optimistic about the merger, says Forrester Research analyst Glenn O'Donnell. Customers fear uncertainty above all else and EMC customers in particular are happy that EMC isn't being broken up. "Dell is a soft landing place for EMC," he says. "It’s a well-run company with good products."
Told of this perspective, Purdue’s McCartney offered, "Cautiously optimistic is about the safest place to be.”