More Mergers After Dell-EMC? Maybe Not Best Option for Competitors
Buyouts like Dell’s $67 billion blockbuster purchase of EMC may not be the best, or the most likely, way for competitors to keep pace with the new IT behemoth. Rajiv Garg, an assistant professor at The University of Texas at Austin’s information, risk, and operations management department, discussed the deal and its potential fallout with Xconomy.
Garg holds advanced degrees in information systems and management, computer science and electrical engineering, and has worked as a technology consultant and a project manager for Austin firm National Instruments (NASDAQ: NATI). This conversation was edited for clarity and content.
Xconomy: What’s the outcome of this deal?
Rajiv Garg: With this merger, I think Dell will have a converged infrastructure, where they can offer everything as a one-stop solution for all their customers. It’s good for customers who can get that converged infrastructure with security, data, information management, hardware, hardware management, network management — everything from Dell-EMC. Dell will be the leader this converged platform. There’s nobody out there who can offer everything for an IT infrastructure in an organization. Their competition, HP, Cisco, IBM, they won’t be able to compete easily with the Dell-EMC partnership.
X: Can competitors like HP and IBM somehow stay in front of Dell-EMC?
RG: Right now, HP is probably the strongest competitor for Dell. Moving forward with this Dell-EMC merger, they would be falling behind. Every solution that Dell-EMC offers will have a much higher bigger brand value than what HP has to offer. IBM is still in the picture because of its analytics solution. The issue is the converged infrastructure that comes in. IBM does not offer converged infrastructure. They have some server, storage market, but it is relatively smaller. They mainly focus on the data storage or data analytics side of the market right now. They may be better than EMC in some ways, but they can’t offer everything to a customer.
X: Could this lead to other mergers among competitors?
RG: Mergers could provide a better one-stop solution. Competitors could also think about having a niche or specialty in their domain or their core business. These businesses don’t necessarily need to merge with other vendors, but they could partner with others to provide integrated solutions. It’s kind of like the EMC Federation. They worked with different companies and vendors’ products. HP, IBM, Cisco could come together to say they have a well-integrated, converged infrastructure for customers. Engineers in all these firms could create interfaces, so anybody who is buying IBM can work with Cisco or HP seamlessly.
X: Would there be any reason to not do it?
RG: HP, Cisco, IBM and similar firms have overlapping businesses. Would they be willing to partner and cannibalize some of their existing, overlapping businesses? That’s a strategic decision. To compete with EMC-Dell, I need to let go of one product because that’s not my number one business and others can do better. It creates a solution with complementary products. Focusing on core business or specialties always has lower costs. Every person, every engineer knows the inside-out of what their company is working on.
X: What does converged infrastructure mean?
RG: The converged infrastructure is basically the network, the storage, the computing, all together.
X: That would include cloud platforms, right?
RG: Yes, private cloud, public cloud, hybrid cloud. They will have all those solutions because EMC offers them. They will have these clouds with security because, which is important. In 2015, since January, we have had almost 600 data breaches. Security is the number one preference moving forward. Companies have data to build insights, but they don’t want to use the data and wipe it after every use. They keep archiving, keep storing all the information. They need the security to avoid any breaches, which causes a big hit on their bottom line. Storage, plus the security, it’s truly amazing.
X: How does the deal impact the Dell brand?
RG: The combination is really powerful. Dell is amazing at providing the hardware and the software solution, but no one would say Dell is the leader in enterprise software solutions. If you ask a layman, “What’s the competition for Dell,” people will say probably HP and Lenovo. They are only thinking in the hardware, not the enterprise solutions or enterprise software as well. With EMC, the perception will change, which will add to the brand value of Dell. People admire Apple because they say, “Hey they’re great. They have great hardware and software.” The same perception be there for Dell for the enterprise market.
X: Is there any downside to the deal, like being too big?
RG: They will be a large firm that can provide everything. Ebay, for example, spun off PayPal. They want to focus on their core business area. It has happened with a lot of other firms, too. It’s much easier and cheaper to focus on the core business than multiple things. That’s where, with this merger, people could argue that this is going in a different direction. Your costs will be going up. One thing that could happen is they go for layoffs to cut costs. If they do that, maybe they’re not able to provide the same high quality solution that they were doing before.
X: So why does it make sense for Dell to do this megamerger?
RG: It’s a risk. Michael Dell is a really smart guy; he understands all these issues and challenges. Being privatized maybe will reduce those issues that you could face.
X: You’ve mentioned it being a convergence infrastructure a few times. Why is it so much better to have everything from a single company?
RG: Let’s just say customers have to buy a new car. If they go to Dell-EMC, they get a Lexus—it’s a complete Lexus, with the engine, software or dashboard accessories, and everything. Say, instead, they go to one provider for all the hardware and buy the dashboard from another (company). Would the customer do that? If I go to (Dell-EMC), maybe it’s not No. 1, maybe it’s No. 1.1. I’ll get a whole packaged solution. I have to contact only one company, Lexus, for the service or support. I don’t have to go two different companies to get support on the whole car.
X: Is there any impact on Austin from the company keeping operations in Round Rock? (Xconomy’s Angela Shah wrote about the potential impact on the local startup scene earlier this week.)
RG: It will certainly increase the entrepreneurship activity in Austin. We just finished a paper that shows if you have large firms who are innovating in a region, then the entrepreneurship activity increases. People who are at these large firms have great ideas because of the diversified nature of the business and the technologies they come across. With this much bigger firm, Dell-EMC, it should bring more diversified talent to Austin and encourage them to venture out, come up with some new ideas and start their own companies. This should boost the entrepreneurship activity in Austin.