A special note of concern for my friends in the Boston area. I’ve spent a lot of time up there, and while all my personal friends seem safe a surprising number know others who were at least in the area of the blasts. I’m thinking of you all, praying for your safety, and hoping that we can react to this event without losing the wonderful openness of Boston, and of America.
It’s generally bad financial practice to compete to buy into a declining industry. We know that PC sales have been down, and the most recent data suggests they’re down sharply in the current quarter. Nobody doubts that the reason is the smartphone and tablet, which are tapping off Internet use from PCs. For those who use computers or appliances primarily to be online, that means there’s no need for PCs at all. The Dish/Sprint deal, as I suggested earlier, is likely aimed at creating a mobile broadband ecosystem to couple with satellite broadcast, and this sort of thing could only facilitate a shift from PC to mobile.
And yet we have people wanting to buy Dell. Why? I think there are 3 possible reasons. First, maybe they believe that the fear of flight from the PC is overdone. Second, they might believe that Dell could establish itself in the tablet/smartphone space. Third, they might believe that Dell’s server assets alone are worth the investment in an age of cloud transition. Let’s look at the implications and probabilities of all three.
I doubt that many Dell suitors believe the PC is coming back, and I think that most likely believe that even the residual PC market (large though it might be) will be under relentless profit pressure. To pick up Dell for PC opportunity files in the face of trends in PC usage and sale, and also price and profit trends. Furthermore, the biggest barrier to those who’d like to discard PCs in favor of appliances—even Chromebooks—is lack of always-on broadband. We’re clearly heading for just that, and very quickly. The only thing that separates a PC from a tablet is a hard drive for offline use and a keyboard. We can add keyboards easily to tablets, and “offline use” is heading toward the same level of anachronism as text terminals and modems.
So might the Dell advocates be seeing a great smartphone/tablet opportunity? Dell can’t possibly drive a new mobile OS; it’s doubtful that Microsoft is going to be very successful at that and questionable whether Blackberry can stay alive even as a former market leader. New player equals new casualty. So they’d have to build Android devices, given that Apple is hardly likely to license iOS to them, and Android tablets and smartphones are at least as commoditized as PCs.
But here we do have a possible angle. Suppose Dell were to go after the featurephone space using a model like Mozilla’s Firefox OS? The network operators would love that because they’re already spending too much subsidizing smartphones and they don’t get to showcase their own differentiation through those devices. Same with tablets. Might Dell be looking at providing those operators with products that are much more browser/cloud platforms than even the current devices?
That would bring us to the third possibility, which is that it’s Dell’s cloud potential that matters to potential buyers. In my view, no server vendor is really in a position to drive the cloud to create a unique advantage if they push down low at the hardware level. Similarly, it’s going to be difficult to drive a unique cloud position through cloud-stack software like OpenStack because everyone is jumping on the same bandwagon. You have to get above the fray, move not to the cloud platform but to the cloud’s valuable services. You have to move up to SaaS, to SOA-like implementations of service features.
Dell has some history up here in the cloud-value zone. They have been a primary driver of cloud DevOps, for example, and DevOps is the key to creating operationalized cloud services of any sort—cloud computing or cloud-hosted service features. Their M&A all seems to be focused on extending the cloud, adding stuff above the basic software stack. Might they be looking at creating a cloud not for the simple (and unprofitable) mission of IaaS but rather at creating a cloud for profitable high-level service hosting? Even one to support carrier activity like NFV?
If Dell were to do that, they could then link their cloud differentiation downward. A Dell framework for featurephone service support, complete with developer tools, a cloud architecture that you could buy as a service from Dell or buy as a cloud-in-a-box for your own installation, would be a powerful element in a featurephone strategy. You could address corporate mobility needs with such a platform too. In other words, you’d have something that would leverage the presumption that the cloud was going to get bigger by going higher, by offering directly valuable features and services. Nobody is really doing that now, and Dell could be the first.
At least now, they could. The problem with this sort of opportunity is that it’s far from invisible. Cisco and Oracle have very similar assets, and HP has identical assets. While it’s not likely that Cisco and Oracle have specific interest in featurephones or tablets (Cisco had a tablet and killed it), HP surely does—and the HP brand in the tablet space is stronger than Dell’s. Still, it’s hard for me to see a play on buying Dell that doesn’t follow a variation on this cooperative cloud theme. There just doesn’t seem to be anything else on the table that could produce enough value.