Has Dell got what it takes for cloud success?

By Martin Courtney
06 Sep 2011 View Comments
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Dell plans to launch a public cloud computing service later this year as it seeks to expand its software and services revenue to combat shrinking profit margins from its PC business.

However, while the company strives to emulate rivals HP, IBM and Oracle in becoming a one-stop shop for business buyers looking for either on-premise or cloud-based application and infrastructure systems, analysts question whether Dell has the datacentre capacity for the job, especially in Europe, and the extent to which it will rely on partnerships to mask the gaps in its portfolio.

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As well as hosting public, private and hybrid infrastructure-as-a-service (IaaS) based on VMware’s vCloud Datacenter Services running on its own server, storage and security technology, Dell will provide consulting advice aimed at convincing new and existing customers that outsourcing large portions of their IT estate to a third party cloud provider offers better value and flexibility than maintaining and managing the same systems in-house.

Dell already offers a range of outsourcing options following its $3.9bn purchase of IT services firm Perot Systems in 2009, but this is its first foray into what the market now labels public, on-demand, cloud computing services. The IaaS and software-as-a-service (SaaS) platforms will be available to US customers this year, but Europe will have to wait until 2012, by which time Dell should have ramped up its enterprise datacentre hosting capabilities in the region.

“Dell is much stronger in the US in general than here in the UK or Europe, where it has one datacentre and that is it,” said Mette Ahorly, research director for European Services at IDC. “But Dell does have lots of experience in providing this type of [virtualised] infrastructure for telcos and service providers, and its offering will provide more security than Google or AWS.”

The company has also said it will make Salesforce.com’s customer relationship management (CRM) application available as a new SaaS model called Dell Cloud Business Applications – the application has been certified to run on Dell’s cloud-enabled virtual architecture hosted by other providers since 2009, and Dell will now host the SaaS product itself. The expanded partnership will connect Salesforce Sales Cloud to a range of back-office applications including Intuit’s QuickBooks and Microsoft’s Dynamics GP accounting software. Dell intends to extend its SaaS portfolio to offer Microsoft Azure and open-source public cloud services in 2012, the company said, as well as migrate vertical applications to SaaS.

The cloud services market is becoming increasingly crowded, pointed out Gartner research director Adrian O’Connell, who believes that Dell might have a genuine advantage over myriad rivals owing to its large small business (SMB) customer base, precisely the sector that tends to see most benefit in on-demand software and infrastructure services.

“There are lots of different companies all converging on the same [cloud services] marketplace: the traditional outsourcers and hosting companies, as well as telcos and communications service providers, then Google, Amazon etc, and then hardware providers like Dell, HP and IBM, who are starting to ask themselves whether they continue just selling servers to end users or deliver infrastructure to them as a cloud service,” he said.

“But the reality is that nobody is a one-stop shop and that most companies need to partner others in some areas, whether telcos, software companies or datacentre providers – one reason why Dell is pushing an open, integration message [for cloud services, which makes integration easier].”

There is no doubt that Dell is anxious to expand its revenue from the services market; revenue from services accounted for just 12 per cent ($1.9bn) of total sales in the company’s last fiscal year, compared with 28 per cent ($35bn) at HP. But it seems unlikely that a company founded on selling PCs would be as keen as its rival to exit that business, especially as sales of desktop PCs alone accounted for 23 per cent ($3.6bn) of Dell’s sales in 2010, with mobile products including laptops representing 31 per cent ($4.9bn).

“There were a lot of factors at play but this may have more to do with the investor side of things [and increasing profits],” said O’Connell. “For Dell there are similar issues around maximising the efficiency of a PC business that will always be low margins while moving towards selling more enterprise solutions and services. It has been doing a fairly good job with the acquisitions [including networking company Force10, security specialist SecureWorks and storage vendor Compellent] it has made over the past few years.”


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