The ultimate guide to Dell's EMC acquisition
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Dell made the biggest bet the IT industry has ever seen this week with the acquisition of EMC and VMware, and while...
it's a risky move, it is one that gives the legacy IT vendor a massive presence in the mobile market.
Dell bought EMC for $67 billion in the largest tech acquisition ever, and VMware is part of this deal as EMC owns it.
VMware will remain its own publicly-held company, independent from Dell and EMC, and EMC will be integrated into Dell. The CEOs of all three companies said during a conference call with media and analysts that at least upper management will remain the same at EMC and VMware. This may sound as if there is no effect on VMware, but CEO Pat Gelsinger acknowledged concern for change.
When the question arose of whether the acquisition will alter VMware's partnerships, Gelsinger admitted that many of VMware's largest partnership deals are with Dell's biggest competitors, including HP and Lenovo. But in today's IT industry it is common practice for companies to compete with one another while sharing a partnership, he said.
"We are committed to that [competition] even while we deepen the partnership with each other," Gelsinger said during the call.
It remains to be seen if these plans will change, and if the partnerships VMware holds will indeed remain the same over time.
"It could make it interesting if they do more integration," said Patrick Moorhead, president and principal analyst of Austin, Texas-based research firm, Moor Insights and Strategy.
Leon KappelmanProfessor, University of North Texas
For example, if VMware's enterprise mobility management (EMM) tools in AirWatch become integrated with Dell, it could be less integrated with the rest of the industry, he said.
"VMware wants to get along with everybody," Moorhead said. "The potential is there for deeper integration, which could be a powerful commodity, but that could play into the sovereignty of VMware and AirWatch."
Making its name on personal computers, Dell has tried to adapt to the trends and emerging technology that have taken shape in the evolving IT climate, such as cloud, virtualization and as-a-service offerings.
Dell expands its reach with VMware, AirWatch
While the focus of the deal is EMC's storage business, to say VMware is a notable aspect is an understatement. The company is one of the biggest names in desktop virtualization and owns AirWatch, one of the top vendors in the EMM space.
A recurring theme of the call was Dell founder and CEO Michael Dell referring to the "customer reach" the company will have after the deal closes in mid-2016, creating "an enterprise solutions powerhouse."
"We are also excited about AirWatch," Dell said on the call. "We have great partners within the system integrator community…This [deal] gives us a greater opportunity…given the strength of the combined portfolios here."
By adding the offerings that come with EMC, VMware and its counterparts, Dell can open itself up more to the enterprise market and leverage the rest of its business while doing so, said Leon Kappelman, a professor in the Information Technology and Decision Sciences at the University of North Texas in Denton, Texas.
"I think the deal is good for Dell," he said. "Virtualization is still a solid business. Dell has lots of customers, so it's about buying everything from one person and making itself a one-stop shop."
Scale is an important factor of this deal. As margins go down across the industry due to subscription-based sales models, the size of a vendor's customer base becomes much more important to bring in the same or more value.
"Scale matters," Moorhead said. "And it matters more in a declining margins market. In EMM, Microsoft is pretty much giving away their product for free."
The downside of Dell's one-stop shop vision
Despite the customer-friendly selling point of Dell being a "one-stop-shop," there are concerns as to whether there will be vendor lock-in issues and whether there is a lack of focus on expertise.
"I think it’s Dell being greedy," said Dominic Namnath, CIO at Tri-Counties Regional Center, a nonprofit organization based in Santa Barbara, Calif. "I'd be a little hesitant to approach Dell. Am I getting the best product? Or is it the best of product margins for Dell?"
When IBM sold off its PC business, it removed a core entity of the company and narrowed its offerings, which allowed for more focus on other important products, Namnath said. Dell is doing the opposite and taking on a larger portfolio. It isn't certain the deal will work out to Dell's benefit, Namnath said, because the company will not have focus on a small number of offerings.
Many smaller businesses equate their success to an emphasis on one or two products. With Dell's new vast product portfolio, IT pros wonder if the company will lose focus.
"One-stop shop is pretty good, but specialization also matters too," Moorhead said.
VMware's gain may be Citrix's loss
Some see this deal as a big risk for Dell, but there are major upsides for EMC and VMware. The deal is an opportunity for VMware to increase its clientele, Gelsinger said on the call. Dell's large sales teams will push VMware products on customers, and they may have to explain to competing VMware Dell partners, Microsoft and Citrix, as well as many existing customers, that it will not favor one product over the other.
"Dell would really shoot itself in the foot by abandoning the products that it has an investment in," said Jack Narcotta, industry analyst at Hampton, N.H.-based Technology Business Research, Inc. "They are going to continue to let the customer dictate what the preferences are and what the requirements are."
VMware's closest competitor, Citrix, was reportedly in talks with Dell last month about a possible merger deal. Dell's move to buy EMC and VMware may raise the eyebrows of executives at Citrix, who could be concerned about Dell opting to push VMware products over Citrix.
"I don't see it causing a termination of some of these partnerships," Narcotta said. "But there is going to be tough questions that will be asked to Michael Dell's team, and they will have to be more transparent than they have been in the past."
Having an array of partnerships and products is important to meet customer needs, Narcotta said, but Dell will have to assure Citrix and its Citrix customers that its ownership of VMware will not affect them.
"That's another challenge," Narcotta said. "They have to spend time to clear the air with customers and have that meeting as the deal closes, to reassure [them that] Dell won't ask them to rip and replace."
Meanwhile, Dell also offers its own virtual desktop software, vWorkspace, acquired through the Quest Software, Inc. acquisition. But Dell has historically sold it along with products from VDI partners VMware and Citrix.
"We are not choosing VMware exclusively," Dell said on the call.
By making this deal with EMC, Dell accelerated the curve of adding new technology that EMC and its counterparts bring to the table, including VMware, said Stephen Monteros, vice president of business development and strategic initiatives at SIGMAnet, an Ontario, Calif.-based IT consultant.
"[Dell] basically just acquired the number-one product in the world in this space of desktop virtualization," Monteros said. "You either invest in R&D or you buy, and they bought the biggest."
Ramin Edmond is a news writer with TechTarget's End User Computing media group. Contact him at Redmond@techtarget.com.