F*cked by the Cloud
On the 12th of October, Dell Inc. announced that it acquired network storage giant EMC Corp. for approximately $67 billion, making it the largest tech merger of all time (and the second-largest overall). That same morning, before the merger was actually made official, I came across an interesting article on this topic called: “Dell. EMC. HP. Cisco. These tech giants are the walking dead” (the first episode of the 6th season of AMC’s television show The Walking Dead premiered the same day).
In this article, it is argued that the aforementioned tech giants are, in fact, dead. And here’s why. For decades, these large companies ruled the market of enterprise computing. When one needed to store lots of data, EMC was your main option. It offered the machines and complementing software to the company, in return for a considerable amount of money. However, as EMC was the only distributor of the software, when the amount of storage needed to be expanded, more money was paid to EMC. The same goes for the other companies. In need the need of servers? Dell, HP and IBM were the ones to go to. Networking gear? Bought form Cisco. The provider of database software? Supplied by Oracle.
In the current environment, however, this is all changing. New players have arisen in the market. Players like Amazon, Google and Facebook, who have changed the existing establishment. The biggest change: the Cloud. These internet businesses became so large, that eventually they realized they could not sustain with hardware and software of the established vendors. The sheer quantity made it too expensive and
they were unable to scale on the assets. Therefore, they simply designed their own hardware and software. This made it less expensive and faster. But most importantly, they did not keep the technology to themselves. They have published it to the world, as open source designs, while at the same time offering their own infrastructure to third parties.
This has caused new vendors to emerge, selling the hardware and software solutions the internet giants came up with. Additionally, more and more companies store their data in the cloud – on the infrastructure of the same tech giants.
Then, why don’t the Dells and IBMs of this world do the same and offer cloud storage? They have in fact, but they can’t stretch it too far. Otherwise, they will cannibalize their existing business. Due to this innovator’s dilemma, these companies are – as the author of the previously mentioned article states – “fucked by the cloud”. By using Amazon’s cloud to store data and run software, you simply don’t need the hardware and software from Dell and HP anymore.
So, what should be the right strategy for these companies in trouble? Dell and EMC have chosen to merge, but analysts do not expect this merger to radically reshape the technology market. It might strengthen their position against direct competitors like HP and IBM, but due to the increasing pressure of cloud-storage, it just seems like a bigger fish in an ever shrinking pond.
Bas van Baar (358545sb)