The Dell-EMC Merger and the Googlization of IT

Yes, Joe Tucci is a great salesman and Michael Dell is the ultimate entrepreneur, but it is Google that is really behind the $67 billion merger. Tucci: “The waves of change we now see in our industry are unprecedented and, to navigate this change, we must create a new company for a new era.” In other words, we must survive in the digital natives era, ushered in by Google, and magnified by the likes of Amazon and Facebook.

To understand what Tucci calls “the new world order,” let’s take a quick tour of the old one, to better understand how the digital natives forced Dell and EMC into the largest tech acquisition in history. Dell and EMC were the two most successful U.S. stocks in the 1990s, appreciating more than any other stock over that booming decade.  They rode on a new tidal wave of digital data, unleashed by the advent of the PC and the networking of PCs in 1980s.

As a result, between 1990 and 2000, the structure of the IT industry has changed for the first—and so far, the last—time, expanding to include large vendors focused on one layer of the IT stack: Intel in semi-conductors, EMC in storage, Cisco in networking, Microsoft in operating systems, Oracle in databases. IBM—the dominant player in the previous era of vertically-integrated, “one-stop-shopping” IT vendors—saved itself from the fate of DEC, Wang, and Prime (all, like EMC, based in Massachusetts) by focusing on services.

The restructured IT industry, and specifically, the focused, “best-in-class” vendors, answered a pressing business need. Digitization and the rapid growth of data unleashed new business requirements and opportunities that called for new ways to sell and buy IT.

There were new business needs for storing much larger volumes of data, mining the data for new market insights, and providing better service to customers by making increasingly “mission-critical” computer systems available 24/7. New IT buyers, such as executives in leading-edge IT departments, business executives impatient with their IT departments, or IT  executives that were asked to take over the out-of-control IT systems acquired by the business units, eschewed the vertically-integrated IT vendors in favor of the new focused competitors, embracing enthusiastically the new “mix and match” IT mentality.

The 2000s were a decade of more-of-the-same with the industry and IT buyers recuperating for a long time from Y2K and the implosion of the dot-com bubble, and going through two recessions. IBM (minus its PC business) and HP (plus Compaq, a successful, focused, PC vendor, like Dell) were the only large “one-stop-shopping” vendors to survive (Sun Microsystems did not). Dell tried, not too successfully, to expand its business beyond PCs to become a one-stop-shopping enterprise IT vendor.

But IT was not the same. Yet another wave of digital data was unleahsed by the advent of the World Wide Web (a.k.a. “the Internet). Unlike the previous wave, this one gave rise to “digital natives,” a new breed of companies with new business models based on Web domination (i.e., mastering online advertising) and data mining (i.e., indexing, recommendations, linking, etc.).  It also gave rise to a new breed of IT buyers.

In the early 200os, Google’s business presented unprecedented IT requirements for performance, availability and scalability (IT jargon for “we have lots of data to store, process, and shuttle around”). They could buy computer storage, servers and networks from existing IT vendors but the cost was prohibitive. More important, Google’s engineers, as someone who was there at the time told me, always thought they could do a better job than anyone else. So they went ahead and built their own IT infrastructure, stringing together “commodity” (off-the shelf) hardware components, and developing innovative software to manage it.

In a recently published paper, Google’s engineers described their approach to “overcoming the cost, operational complexity, and limited scale endemic to datacenter networks a decade ago.” This was the latest in a long string of influential papers that Google has published (starting, I think, in 2006), sharing with the world its experience and expertise in building an IT infrastructure for the 21st century. Moreover, it also released some of the code it has developed as open software, available for free for anyone dealing with similar IT requirements.

Other digital natives were the first to benefit from Google’s academic-like “publish or perish” mentality. They developed Google’s ideas further or came up with their own solutions, taking a page from Google’s business model—it’s a business where IT matters a lot, IT is a core competency. A prominent example is Hadoop, originally developed at Google as a solution to a storage bottleneck standing in the way of analyzing or manipulating large amounts of data, developed further by Yahoo engineers and released by them as open source software, eventually to become a foundational technology for big data analytics.

Facebook, absorbing some top Google engineering talent, went on further to invent an IT infrastructure handling not only petabytes of data every day but also providing an online service to more than 1 billion people worldwide. And it went further than Google in influencing how IT is done everywhere, by establishing the Open Compute Project, with companies such as Goldman Sachs, Bank of America, and Fidelity as members.

Amazon not only built an IT infrastructure for the 21st century, but went even further than Google and Facebook by making it available to the world for a fee, establishing the concept of IT-on-demand or cloud computing on a solid footing. In the process, it has convinced many digital natives, such as Netflix, to run their entire demanding IT infrastructure on Amazon Web Services.  Now, Amazon is ready to take over the enterprise IT market, making clear at AWS:reinvent 2015 that it is going after the legacy IT business.

This is the supply side of the equation that forced Dell and EMC into this merger. But the demand side is no less important. Just like in the early 1990s, when cheaper hardware and software allowed business executives to do their own computing, by-passing the central IT department, we see today the rise of business executives building their fame and fortunes by buying computer services directly from cloud computing providers.

But the Googlization or Amazonization of IT is not limited to business executives.  It is impossible to overstate the impact Google and other digital natives had on IT executives. The new breed of IT executives is ready to “mix and match,” to buy “best-of-breed,” to experiment with off-the-shelf hardware and open source software.

All of this explains why Dell and EMC are merging but also hints at the enormous challenges they will have in convincing IT buyers to buy into their “back-to-the-future” strategy, that a business model that stopped working in the 1990s is the answer to winning in “a new world order.” All the Google-derived talk about “software-defined-everything” and “converged infrastructure” may not be enough for IT buyers looking to take charge of what is increasingly becoming, if not a core competency, a competitive differentiator and a new source of revenues for many companies. All businesses are now digital businesses and their IT requirements are starting to resemble those Google encountered a decade ago.

IBM, HP, Oracle, and Cisco also need to articulate why “one-stop-shopping” is the way forward for IT buyers. Their task is not made easier by the industry’s influential opinion makers, such as Gartner. In its recent Symposium, Gartner told the more than 8,000 CIOs and senior IT executives in attendance to choose as partners “digital accelerators” such as Amazon and Google, not “digital inhibitors” such as Dell and EMC.

Gartner, however, put VMware, the crown jewel in the EMC “federation,” somewhat ahead of the legacy vendors. Will the company that made cloud computing a reality (there will be no cloud computing without server virtualization) save the biggest technology-industry takeover ever?

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