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Dell Invests In Cloud Data Centers – Proposes Simplified Virtualization

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Dell Virtual Era Highlights

  • Launches itself as a Cloud services supplier
  • Will support customers however far the along the Cloud journey they travel
  • Uses acquired companies and ‘best of breed’ partners to build bundled solutions and reference architectures
  • Remains idiosyncratic with a focus on efficiency and customer intimacy
  • Should demonstrate workload transferability to protect customers from future lock-in

On April 7th 2011 Dell confirmed its strategy to support its customers’ moves to virtualization and Cloud Computing by making a number of announcements. In doing so it demonstrates an idiosyncratic approach – matching customer requirements with practical things to buy. In fact its bundled solutions approach reminds us somewhat of its strategy of selling to the ‘late majority’ of years gone by.

Throughout these latest offerings Dell’s focus is on the cost benefits of virtualization from consolidation, automation and single points of service. We think most corporate users would be doing virtualisation today even if Cloud Computing hadn’t become the biggest IT theme ever and Dell aims to support them however far along the journey they want to travel.

Dell’s biggest financial risk is the cost of building the new data centers (12 this year – 10 more later), which pre-empt a shift in customer spending from Cap to Op Ex – however its solutions and reference architectures will generate almost as much revenue if bought as on-premise assets.

We suspect its enthusiasm for Cloud services is strongly influenced by the success its Data Center Services group has in supplying 20 of the top 25 Hyperscale data centers, which include some of the world’s largest Public Clouds. Dell’s decision to offload manufacturing plants in the recession and build data centers now illustrates a shift in focus. At the beginning it saw manufacturing as the only way to get good product quality – obviously it’s decided to concentrate less on the supply chain and more on customer intimacy now.

Solution Components Are Sourced From Acquisitions And Selected Partners

Of the various products and solutions introduced, vStart is perhaps the most interesting – as a pre-integrated cabinet build on rack servers, storage from its EqualLogic acquisition and PowerConnect network switches from its OEM partnership with Juniper, along with integrated software offering up a preset number (initially 100 or 200) of VMware-based virtual machines. The components for its bundled solution approaches come partially from its acquisitions, supplemented by ‘best in breed’ products from Juniper, Citrix, VMware, Microsoft, CommVault and Symantec. It will no doubt add to its resources through future acquisitions, and mix specific workloads into the infrastructure offerings – we can easily speculate about a number of new vStart flavours encompassing specific workloads and applications.

A Long Term View Of Dell’s Development

Dell started out as a direct PC company with a close focus on customers. I remember meeting Michael Dell at a corporate customer event in London in the late 1980s, our company qualifying on the strength of buying just 2 machines. Like Acer in more recent years, Dell went through a phase of growing its business far more rapidly than the market – much to the envy of its competitors.

During the 1990s it introduced PC Servers: it was different in only selling Intel-based x86 machines, when all other server vendors had Unix and/or mainframes as well and in its direct sales approach, when 2-tier indirect was the standard (for Europe at least). Dell was an early adopter of the Internet for sales. It also explained its approach as selling to the ‘late majority’, referencing Geoffrey Moore’s ideas in his book Crossing The Chasm. While the other vendors pioneered new products and solutions Dell would hold back until the market was primed and users knew what they wanted. It sometimes talked about draining other vendors’ profit pools. It was also different from others in keeping to its own ERP system, when everyone was adopting SAP and in retaining its own manufacturing, when others were moving to contract manufacturing.

Dell expanded its product coverage to include printers, smart handheld machines and storage (much of which it developed with EMC), but tended to avoid hiring Professional Services staff – even hiring companies such as Unisys and Getronix to do fourth party maintenance.

Of course it became a very major IT supplier as a result of its focused strategy. For few months now Dell has been pushing its services hard, competing across the board with the other systems vendors.

Over the years Dell has overcome the criticism that it was too Intel-focused by eventually adopting AMD chips, of being to English-language-focused by succeeding in Germany, of being too Microsoft-focused by embracing Linux and of being too hardware-focused by buying IT outsourcer Perot.

The recent recession and recovery has led to some big changes – Dell has offloaded virtually all of its manufacturing and logistics operations and started acquiring companies to help it build integrated, bundled solutions. In opening Global Solution Centers and launching its own Cloud services it has come a long way from its me-too Intel hardware roots. In these latest announcements its long-term values are demonstrated by the practical approach, concentration on efficiency and the targeting of specific customer needs. There remains absolutely no philosophy in Dell’s approach.

Some Conclusions – Dell Should Demonstrate Transferability To Protect Customers From Lock-In

Data jurisdiction is a big barrier to the adoption of Cloud services – so Dell’s multiple data center strategy should help if it allows users respect the various data protection, privacy and governance rules especially prevalent in Europe.

In many ways Dell is no different from other system vendors, all of whom are embracing the Cloud, virtualization and bundled solutions. We see this as part of a shift away from horizontal – towards vertical – integration. While there are obvious advantages in simplification, users should be wary of vendor lock-in down the line. By building its solutions transparently on standard components and leading ISV products Dell does as good a job as any in protecting its customers. We hope that the similarity of these new solutions will enable it to help customers move their workloads from on to off premise, from traditional to Cloud, from private to public Cloud and, if necessary, from Dell to other Clouds.

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