Dell-EMC merger driven by cloud threat
Dell-EMC union is a defensive move against hedge funds and activist investors who smell blood in a sea of change, argues Academia's Matthew Hughes
At $67bn, Dell's buyout of EMC is the biggest corporate merger in IT history. That might sound impressive, but this titanic deal is in reality a mere microcosm of something far bigger. There is a huge wave of change across the tech industry - HP. Cisco. Dell. EMC. IBM. Oracle. All of these companies are members of an "old guard" which are scrambling to mount any effective offence in the face of the biggest shift technology has seen in decades - the move to cloud computing.
Of all the companies leading the charge into the cloud, none is stronger than Amazon Web Services (AWS). AWS is growing at 70-80 per cent a year and has $7.3bn in revenues. If it were a standalone public company, it would probably be worth more Dell and EMC combined. The servers, storage and networking in AWS, Microsoft's Azure, Google or Facebook's datacentres don't use kit from HP, Dell or Cisco - and that's bad news for these legacy vendors. Previously enterprise IT companies dismissed AWS, then after a few years they grudgingly accepted it has a place for start-ups or test-and-dev environments for new applications. As Amazon wrapped up its fourth annual AWS re:Invent Conference last week, the message was clear: AWS is no longer just a platform for developers; rather it is a fully fledged enterprise IT vendor capable of serving the needs of the Fortune 500.
GE is one of the largest companies in the world and it is now aggressively moving its IT environments to the cloud with AWS. It is moving a whopping 9,000 applications, 300 ERP systems and consolidating 34 datacentres down to just four in a shift to Amazon's services over the next three years. According to their CIO Jim Fowler this is about build verses buy. "The things we're going to choose to buy is where we don't differentiate... I'm not going to sell another aircraft engine because I run a global datacentre operation really well...That's AWS's differentiator in the environment." For GE, a move to the cloud has gone from probable to inevitable.
GE were followed on stage by Capital One - a financial services company - exactly the kind of company that wasn't supposed to be adopting public cloud any time soon - showcasing customer facing apps running on Amazon's infrastructure. Capital One is shrinking its datacentre footprint down to just three by the end of 2018, compared with eight in 2014. Rob Alexander, Capital One's CIO's remarks were telling, saying AWS "enables us to operate even more securely in the public cloud than our own datacentres." Add to the line-up Hertz, Philips and Johnson & Johnson and BMW, and you begin to see just how far Amazon has gone into the enterprise space.
There is a growing chorus of industry experts, led by Adrian Cockroft the former CTO of Netflix, who argue that public clouds will become the only places where organisations, even banks, will achieve the highest level of security certifications around customer data. Tools like AWS Lamda enable continuous audit to be done as part of application architecture; audit is no longer a week in the diary where an external organisation checks everything is in order, it is an enforced application function that controls and monitors the identity and access management of every change that is made to a system of record. From this viewpoint, suddenly all that data sitting in "private" datacentres is looks rather insecure...
Dell and EMC is a defensive move against hedge funds and activist investors who smell blood in a sea of change. Dell will take on mountains debt to finance the deal and considerable product/staff consolidation looks inevitable. In 2003 Michael Dell looked at buying EMC, then worth $16bn, but decided against it because he didn't want to "bet the company", now he is being forced to do just that. EMC the giant of on-premise enterprise storage, and VMware, the creator of virtualisation and champion of server and datacenter consolidation - two of the most successful companies in IT infrastructure over the past decade - may now well have their best days behind them. In contrast, AWS is ascending and dictating the corporate strategy of every major enterprise IT vendor.
What does this mean to channel players and managed service providers? In the last few months Rackspace, one of the top managed cloud providers, which was in years past built on VMware, EMC et al have announced it is throwing in the towel and will help manage customers who want to move to AWS or Azure. Trillions of dollars are spent on IT every year - just how much of this market public cloud giants can capture remains to be seen - but expect them to capture most of it. While Microsoft, Google and IBM have great assets to challenge AWS, it is clear that Amazon is driving the agenda for enterprise computing. Today, Amazon is the most important enterprise IT company in the world.
Matthew Hughes is an account manager at Academia