The Dell-EMC deal is huge, but where’s it headed?

I forget about Dell. It happens all the time — I see that cheerful, round, delightfully dated logo and have something of an “remember when?” moment. Dell hasn’t been a serious part of the big consumer device discussion in years, and some of that’s by design, really. Dell isn’t stupid — it knows that its strength in the PC market is waning and that soon, there won’t be enough meat on the bone to sustain a company that just made one of the biggest pure tech deals ever.

Today, the company made it official and announced the (inconceivably huge) $67 billion deal that’ll bring it together with EMC — making it, in Dell’s own words, “the world’s largest privately-controlled, integrated technology company.” This acquisition of EMC proves total recognition on Dell’s part that devices are not it’s way forward. Instead, Dell is targeting big IT and the enterprise market.

Information Technology and enterprise are aggressively unexciting arenas for consumers, but at a time when Apple, Microsoft, Amazon, Cisco, HP, Dell and everyone else are vying for a piece of the big enterprise pie (albeit in very different ways), it’s no small part of the vast technology landscape. The Dell-EMC deal is almost inconceivably massive, with that $67 billion price tag, but also serves as a larger indicator of what’s taking place in enterprise computing: consolidation.

“The market cannot continue to sustain all of these players,” said Glenn O’Donnell, Forrester’s Research Director for Infrastructure & Operations Professionals. “It’s going to continue to shrink into a number of mega-vendors.”

Dell’s trying to claw it’s way into a infrastructure and enterprise market that’s being rapidly devoured by cloud services–most notably, Amazon’s. Enterprise is where the money’s at, but it’s not a market that’s especially friendly towards fragmentation. So, is the Dell-EMC deal a game-changing power play or a $67 billion death rattle? That remains to be seen.

“They’ve got to consider how they’re going to play as a new and different vendor. Perpetuating the old-school IT model is not going to work,” said O’Donnell with regards to Dell going forward. “In the general landscape of technology, one big question has been looming…and that is: ‘What is the future for traditional tech? Are the HPs and the IBMs and the Dells and such really in a position to succeed in this new world order where the Amazons and the Microsoft Azures and the other cloud players are taking over…More and more of the IT investment is going into the cloud services, so what does that mean for these more traditional models?”

There’s a clear divide between hardware-heavy, old-school enterprise models and the light, agile enterprise solutions that are quickly eclipsing the clunky business tools of yore. Dell’s marketplace perception has long been one intrinsically tied to the devices it makes–the physical deliverables that are becoming a shrinking line item in its revenue stream.

“That is something that they need to move their messaging away from,” said Mukul Krishna, the Global Head of Frost & Sullivan’s Digital Media Group, “from a device company…to a much more agile, reconfigurable enterprise solution, scalable partner for the technology enterprise.”

To put it simply, big business is trying to lighten up and those not willing to join the cloud game and rethink flexible, scalable enterprise systems will be left behind. “Many of the technology companies who have taken a beating because they’ve focused on a very hardware-centric approach for a long time, have been trying to figure out what they need to do,” said Krishna.

So why these two companies? And why now? Well, rumors have been swirling around EMC for some time in light of stalling growth. And Dell? It’s looking to reinvent.

“One of the main reasons that Dell went private is because it wanted to restructure itself without all of the scrutiny,” said Krishna. “Buying someone like EMC that has been for a long period and has a very strong pedigree of selling that enterprise market was a very, very good thing because they immediately solved the perception problem.”

Effectively pulling EMC off of the market will allow Dell-EMC to make decisions without the scrutiny that comes from answering to the slew of investors that come with the public trading territory.

“The major attractiveness is that by merging with Dell and taking the company private it puts EMC’s assets in the hands of an owner that understands the value of EMC’s technology and also provides clear leadership in Michael Dell (as Joe Tucci retires),” said Matt Eastwood, an analyst with IDC. “The go private nature allows the company to make long term strategic bets around cloud, security, and analytics which will be critically important for the company in the future. The investments are difficult to defend as a public company looking where investors have a shorter term horizon for their returns.”

And as a company that needs to rethink its strategy for staying relevant in an enterprise conversation that’s quickly taking off towards the cloud, that freedom to maneuver may prove to be vital. Or, shall we say, Pivotal.

Pivotal is a joint venture between EMC and its most notable offspring (VMware) and was designed to compete with the enterprise cloud giant, Amazon Web Services. Dealing in big data and cloud computing, Pivotal encapsulates much of what Dell-EMC needs to become to keep up with the burgeoning enterprise market.

“The assets and strategic direction of the Pivotal umbrella cannot be overlooked,” said Laura DuBois, an IDC analyst. ” There is a change underway in enterprises – custom applications and being written in new ways, mimicking the direction Pivotal has taken.  These new applications lend themselves to server-based storage approaches.  So Pivotal gives Dell expertise in the app dev side and Dell provides the infrastructure software and systems.”

What about everyone else? We’ve established that enterprise is a big market with big margins. Where does a $67 billion deal leave the rest of the enterprise players? In short, it may lead to significant changes in enterprise technology cooperation.

“For the broader technology market, there will be shifts in strategy and partnerships that emerge,” said Eastwood. “For example, Cisco (a long term strategic EMC and VMware partner) may need to strike deeper alliances with others including NetApp, Microsoft Citrix, etc.  At the same time, Lenovo (another EMC storage partner) may be drawn closer to IBM for their storage needs.  Longer term, I believe the merger or EMC and Dell together will create the biggest headaches for HP Enterprise as they have many of the same hardware assets but Dell will now have deeper software assets in security, data management, virtualization and software defined infrastructures.”

Here’s a new “drop-in” EC2 API for OpenStackers who want it

Many news cycles have been burned on the debate over whether OpenStack-based cloud providers should or need to support the major Amazon Web Services APIs.

Cloudscaling and its co-founder Randy Bias have long advocated that such support is critical to the success of OpenStack and promised Cloudscaling support for [company]Amazon[/company] elastic compute cloud (EC2) APIs. AWS, after all, is by far the market leader in the public cloud arena.

As of this week, Cloudscaling, now part of [company]EMC[/company], has made available a “drop-in” replacement for the existing OpenStack Nova EC2 API. Nova, OpenStack’s compute module, already offered a degree of EC2 API compatibility that a vendor could expose, or not, in its own cloud offering.

Rackspace notably chose not to expose it. [company]Hewlett-Packard[/company] at first opted to support the EC2 API, then reversed course in late 2013 — but within a year bought Eucalyptus, a provider of private cloud technology noted for its AWS API support. And VMware’s cloud chief Bill Fathers made it pretty clear on the recent Structure podcast that he doesn’t give a fig about supporting AWS APIs.

Bias, now VP of technology at EMC, is unwavering in his belief that AWS API support will strengthen OpenStack’s chances of success in the market. Cloudscaling also has promised support for key Google Compute Platform APIs.

Per Bias’ blog post:

I’ll reiterate again, since folks still sometimes get confused, I’m not advocating dropping the OpenStack APIs in favor of AWS.  I’m advocating embracing the AWS APIs, making them a first class citizen, and viewing AWS as a partner, not an enemy.  A partner in making cloud big for everyone.

His plan is to improve upon the existing Nova EC2 API — actually build it from scratch — and ask the community to test it out and support it. His rationale? People are using Amazon’s cloud and OpenStack needs to attract those people.

Bias used a chart from the November OpenStack user survey (which had 669 respondents) to illustrate his point. Nearly half of users surveyed use the EC2 compatibility API in production, 38 percent use it in development/quality assurance and 38 percent use it in proof-of-concept projects. By contrast, just four percent said they used the Open Cloud Computing Interface in production, one percent in dev/QA and seven percent in proof of concept trials.

Compatibility APIs

If you want the back story of the great API kerfuffle, check out this YouTube video of a debate between Bias, Mirantis co-founder Boris Renski and others.

[youtube https://www.youtube.com/watch?v=W7H5zFWUSVI]

Cloud Foundry Foundation names Ramji CEO

The Cloud Foundry Foundation, put in place last year to promote the open-source platform as a service framework, now has new leadership. Sam Ramji, former VP of strategy of Apigee, is now CEO.

In the statement announcing the news, Ramji was painted as a neutral outsider to the Cloud Foundry effort:

Ramji’s absence of ties to any of the Foundation’s member companies underscores the community’s embrace of coopetition between major vendors to drive Cloud Foundry’s success.

When it comes to open source efforts like Linux, Eclipse and OpenStack, it’s important to demonstrate that no one vendor can big-foot the process.

The foundation was formed about a year ago by Cloud Foundry backer Pivotal with its federation partners [company]EMC[/company] and [company]VMware[/company], as well as [company]Rackspace[/company], [company]IBM[/company], [company]HP[/company], [company]CenturyLink[/company], ActiveState and [company]SAP[/company]. Notably absent is [company]Red Hat[/company], the Linux and OpenStack player that is pushing its own distinctly non-Cloud Foundryish OpenShift PaaS.

The offloading of governance to a foundation was meant to provide an “open governance” model and ensure that no one backer controlled the process. Then, in December, the group tapped the Linux Foundation to provide bread-and-butter PR, logistics and planning services. The release for this news, for example, was sent out by the Linux Foundation staff.

The foundation also named nine new members:

  • EMC – John Roese
  • HP – Bill Hilf
  • VMware – Ajay Patel
  • IBM – Christopher Ferris
  • SAP – Sanjay Patil
  • Intel – Nicholas Weaver
  • Pivotal – Rob Mee
  • Swisscom – Marco Hochstrasser
  • ActiveState – Bart Copeland

EMC and Elliott kiss and made up — for now

It looks as if EMC and activist investor Elliott Management have worked out their differences at least in the short term. EMC added two Elliott-friendly directors to its board, bringing the total to 13.

The new directors are José Almeida, chairman and CEO of Covidien, and Donald Carty, retired chairman and CEO of AMR.

Elliott Management worked with [company]EMC[/company] to find these directors, according to a statement. In connection with this news, Elliott, which had been pushing for EMC to break up its “federation” of companies, has agreed to a “limited standstill” agreement. As part of that it will vote for EMC’s proposed slate of directors at the next annual shareholder meeting, scheduled for April 30, 2015.

Earlier this year, Elliott Management, which has a $1 billion stake in EMC, started pressing for the storage leader to sell off its stake in VMware. Its argument was that both companies would be more valuable to shareholders separate than together — a premise that EMC CEO Joe Tucci roundly disputed.

Elliott Management’s Jesse Cohn said in EMC’s release, “Both Joe and Don are strong and experienced executives, and we believe they will bring invaluable perspectives to the Board’s ongoing review of EMC’s strategic direction.”

In a research note, Wells Fargo analyst Maynard Um said this move does not necessarily preclude a VMware spinoff later this year but “stays the potential for a disruptive proxy battle … and adds valuable expertise to the board.” And, it could lead to shareholder-friendly measures down the road if EMC makes more concessions.

emc federation

Note: This story was updated at 8:20 a.m. PST with Wells Fargo analyst’s comments.

It’s no Silicon Valley, but Boston’s getting perkier for startups

The greater Boston-Cambridge area has no problem attracting bright young people from all over the world to its colleges and universities. But it has well-documented issues keeping the best-and-brightest local when they graduate (or don’t graduate as was the case for [company]Facebook[/company] founder Mark Zuckerberg and [company]Microsoft[/company] co-founder Bill Gates).

But things are looking up, according to local tech execs and venture capitalists. Witness the Innovation District, a shiny new tech hub that blossomed under the late and lamented Boston Mayor Thomas Menino. Located in what was once a sea of parking lots on prime harborside real estate, the area has exploded for tech startups in the past year. District Hall offers wi-fi and desks and meeting rooms for local entrepreneurs — and wandering journalists — who need a place to set up shop for a few hours. There’s more on Boston’s spot in the tech universe in this  Re/Code special report.

Boston Seaport District's District Hall

Boston Seaport District’s District Hall

The importance of mass transit

Expanded MBTA hours — the last trip of the day for key subway lines is now 1 a.m. on weeknights and 3:00 a.m. on Friday and Saturdays. The last trip used to be at 12:30 a.m. (Expanded hours are still in the experimental phase however, The Massachusetts Department of Transportation plans to revisit the issue later this year.)

Mass transit is a big issue for tech startups both in the Innovation District where many of the aforementioned parking lots are now construction sites — and Cambridge’s traffic-clogged Kendall Square.

Hubway, the short-term bike rental service also got shout-outs from local entrepreneurs who know that many young employees want to live within walking or mass transit reach of their jobs.

Colin Piepgras, VP of engineering and co-founder of Digital Lumens, is a big booster of the district, where his company now resides. The fact that the MBTA’s Silver, Red, and Orange Lines are all accessible as are North and South Stations “all glued together by Hubway” is a huge draw, he said via email. That means “easy access for employees regardless of where they’re coming from,” he said via email. Bonus points for the water taxis to Logan Airport — just across the harbor — and the commuter ferry to the Aquarium, in downtown Boston.

[company]LogMeIn[/company] CMO W. Sean Ford agreed, saying via email, that the Innovation District has not only transformed the city’s physical landscape but made it much easier for tech companies “to attract the world’s best and brightest talent.”

Chris Lynch, partner with [company]Atlas Ventures[/company] agreed with all of the above and also cited new facilities like Blade — which co-founds consumer technology startups and Hack/Reduce near Kendall Square, which promotes big data-focused talent and projects.

 

Hack/Reduce building.

Hack/Reduce building.

Some big IPOs help

A couple execs pointed to several recent successful IPOs over the past year — Wayfair, Care.com, and HubSpot — as proof that Boston-Cambridge can nurture startups from infancy to adulthood and not necessarily end up as acquisition bait for larger companies.

“The amazing thing about these IPOs is that they are not classic technology infrastructure companies — long Boston’s meat and potatoes,” said Andy Palmer, founder of KoaLabs, a co-working space in Harvard Square.

As [company]TripAdvisor[/company] (of Newton Mass.) and [company]Kayak[/company] (based in Norwalk, Conn. but which runs technology out of Concord, Mass.) already showed in the travel segment, “building consumer internet companies in Boston is not only possible, it’s also desirable due to the high quantity of engineering talent and the loyalty of that talent,” Palmer added.

Drafting off the big boys

Some locals decry the fact that promising local startups end up in the clutches of “outside” tech powers– [company]IBM[/company], [company]Oracle[/company], [company]Facebook[/company], [company]Google[/company][company] — have all purchased area startups. Others say this is a good thing. Ditto the fact that the computing giants from Silicon Valley — Google, Facebook, and VMware as well as Microsoft and Amazon — all have big facilities in Cambridge.

Palmer said Google’s new Cambridge office is particularly important as it makes Cambridge a core hub for startups globally — the internet search kingpin is pushing the Google Cloud Platform as a foundation for startups — taking on [company]Amazon[/company] Web Services.

Fighting non-competes

Massachusetts laws surrounding non-compete agreements —backed by EMC and some other local IT giants — still hinders startup activities in the state. Palmer clearly feels strongly about the laws which, in his view “radically constrained innovation and limited the expansion of our starup ecosystem relative to NYC or California.”

Silver lining is that the most attractive job candidates refuse to sign these documents. And that, he said, will force big companies to change — or go without the best people.

Summing up,the Innovation District and Kendall Square are able to lure top startups but may become a victim of their own success as rents skyrocket. If the region really wants to rival the San Francisco-East Bay-Silicon Valley tech nexus, there needs to be expansion beyond those two hot spots. That’s why burgeoning efforts to promote Roxbury’s Dudley Square and Allston-Brighton and Watertown west of the city as tech venues are key.

But the bigger point here is that the hub doesn’t really have to be another Silicon Valley to succeed, it just needs to get more hospitable to tech startups.

Plexxi names EMC vet Napolitano its new CEO

Rich Napolitano made a name for himself as top U.S. sales guy at Sun Microsystems and then as leader of EMC’s unified storage push. Now he’s CEO of Plexxi, a networking startup.

Why EMC thinks it’s ready to power the internet of things

EMC President Jeremy Burton came on the Structure Show podcast this week to talk about the company’s current plan to deliver hybrid cloud-storage systems and its future plan to provide the infrastructure underpinning the next generation of big data and internet-of-things applications.