How Dell should go big now that it has gone private

With news the this morning that Dell’s board has agreed to a buyout that will make the company private again, the speculation about how the company will capitalize on its newfound freedom can officially begin. Divesting its flailing consumer PC business seems like a wise decision — if not a foregone conclusion — but I think Dell also needs to make some investments in order to really position itself as a leader in the enterprise IT space.
Some of these suggestions are bold, but it’s hard to see how Dell can continue to compete against IBM (s ibm), HP (s hpq) and Cisco (s csco) on one end and cloud services on the other without taking some risks. I actually think Dell is well positioned to be a big part of the future of IT if it just embraces a future that’s all about software and next-generation applications. Hardware, well, it’s largely just a necessary evil on which increasingly intelligent and virtualized software needs to run.

1. One word (occasionally hyphenated): Webscale.

Here’s an interesting fact: According to IDC, while the rest of the big four server vendors lost both market share and revenue in the third quarter of 2012, Dell gained in both. Why? Because it’s selling webscale servers like crazy — thousands at a time to web companies such as eBay (s ebay), cloud providers such as Microsoft and even high-performance computing shops. In fact, Dell has shipped more than 1 million of these no-frills, scale-out boxes since it began selling them in 2007.
It seems only logical that Dell should keep riding this horse on the hardware side (including by continuing its close relationship with the Open Compute Project), but there’s a real opportunity in software, too. Although companies like Facebook and Google have the engineers to build their own tools for managing large server environments — both in terms of operations and power consumption — many smaller and more-mainstream companies don’t. If it’s already selling the servers, Dell might as well be selling the software that ensures they’re easy to manage and troubleshoot, too.

2. Make a big bet on big data.

If Dell wants to get a piece of a big data market that’s going to be worth tens of billions in the next few years, it will have to do more than just sell servers. Dell needs a database or platform like Hadoop that it can deliver as a service on top of its commodity hardware — much like what Oracle (s orcl), EMC (s emc), IBM and others are trying, only with a lower price tag and a focus on scaling out versus scaling up.
I actually suggested Dell make a big data investment (and cloud and systems-management investments) two years ago, and although a lot of potentially good fits have been bought in the meantime, there’s still a variety of options available. The Hadoop distribution vendors are probably out of its price range (so closer partnerships with Cloudera, Hortonworks and/or MapR should be in order), but there are whole markets full of analytic, NoSQL and NewSQL databases just waiting to be snatched up.

3. Buy up some real cloud knowledge.

Sorry to burst any bubbles, but it’s hard to see how Dell’s proposed Microsoft, VMware and OpenStack-based public cloud offerings will amount to much unless they’re part of a division with an ingrained cloud mentality. The company is competing in this space against not only Amazon Web Services (s amzn), but also the companies (and Rackspace (s rax)) who have developed and are selling the very platforms Dell is looking to resell. And the debacle that is HP’s cloud business should highlight the perils of trying to build something from scratch when operating cloud platforms isn’t in your corporate DNA.

Still, I think OpenStack is probably Dell’s best bet (if only because it has already made its bed with the open source platform). Like Rackspace with Anso Labs (and unlike the DIY approach by HP), Dell could acquire some OpenStack talent to help it build quality cloud infrastructure offerings — both public and private — and services. And even outside of OpenStack, there are still a few startups that have real institutional knowledge of building and running cloud infrastructure, but that might not come with a huge price tag.

4. Push the envelope with ARM.

One of Dell's ARM server designs

One of Dell’s ARM server designs

Dell’s focus on alternative server architectures shouldn’t stop with its webscale business, but should color its entire hardware strategy. And if it wants to be the server maker for next-generation applications, doubling down on its ARM (s armh) investment is probably a good thing to do. Dell has already designed a couple of ARM servers, but they’ve generally been reserved for webscale and research customers, as well as for the Apache Software Foundation.
However, as even Dell has acknowledged, many big data and other applications that rely on distributed infrastructure and parallel processing don’t require brawny x86 chips. They just needs lots of cores, which is something ARM’s server designs can deliver at a fraction of the energy footprint. Assuming software vendors are on board — and a growing number appear to be — Dell could actually distinguish itself by being the only big server vendor delivering tomorrow’s applications on gear actually designed for their unique needs.

5. Tell Microsoft to suck it.

Or, rather, gently ask its new creditor and likely board member to take a back seat and hope the rest of the board agrees. Because if there’s one thing Dell can’t afford to do, it’s get locked up in the same last-millenium relationship that has both companies reeling today. Yes, there might — and maybe should — be some deals between the two companies to deliver Microsoft software on Dell hardware, but in an era of open source, cloud computing, VMware (s vmw) and Apple (s aapl), there’s no real future for Dell in pushing Windows anything down its customers’ throats.
Besides, I don’t think Microsoft actually needs to push its agenda in order for the Dell investment to pay off (and it’s not just because a successful Dell is the only way to make Microsoft’s investment pay off). Microsoft, too, is struggling to find its direction in a world increasingly dominated by alternative operating systems (mobile, desktop and server) and it should realize there’s precious little Dell hardware can do to get people to buy Windows.
If anything, Microsoft should view Dell as a great server vendor to power its Windows Azure and Office 365 cloud offerings and provide the physical medium for some next-generation enterprise software.
Feature image courtesy of Shutterstock user Dusit.