Dell Inc. once aspired to be a one-stop information technology shop.
Now, the Round Rock-based tech giant is refining its strategy a bit in the face of marketplace realities.
Dell said in May that it was dropping its previously announced plan to become a major global player in the offering of “public cloud” computing services.
A short explanation is in order here. Despite mountains of hype surrounding the subject, cloud computing — which permits the sharing of data center resources — is a proven trend toward greater efficiency, flexibility and potential cost savings in computing.
There are different kinds of clouds. In “private clouds,” a company uses its own shared servers, networking and storage to run a range of software applications and allows the applications and workloads to shift between computers to create more efficiency. Many businesses are moving toward private clouds.
“Public clouds” involve a similar kind of resource sharing, but in this case the software and data of many different companies are shared over the same hardware. The potential cost savings of public cloud computing attract plenty of potential business customers, but others are moving more slowly, analysts say. Those slower movers are alarmed by reports of service outages at public cloud providers. Also, the thought of running business-critical software from a public cloud makes many of them a little nervous.
What Dell discovered as it talked with more customers about cloud computing is that customers wanted flexibility, choice and better management tools.
The more Dell talked with customers, the more it realized that they really weren’t asking for a Dell-only public cloud service, said Nnamdi Orakwue, Dell’s vice president for cloud computing. Rather, customers wanted flexibility and choice among services vendors and a way to quickly track and manage various cloud services from a range of cloud providers.
That’s why Dell said in May that it had bought Enstratius, a five-year-old Minneapolis-based company that produces software that allows clients to manage and navigate services from multiple cloud vendors.
Orakwue says Dell was simply listening to its customers and moving “to where the puck was going,” which was getting the kind of software it needed to let clients more easily manage whatever sort of cloud they put their software and their data into.
Having that kind of capability to simplify management in a complex computing world “is where we think the big profit opportunity is going to be,” Orakwue said.
Analysts have a slightly different interpretation of the move. Dell, they said, wasn’t gaining much traction in public cloud services, where bigger providers like Amazon Web Services, IBM Corp. and Microsoft Corp. were already better established.
For Dell to develop a stronger public cloud offering, it was probably going to have to sink hundreds of millions in new spending into software development, analysts said.
They noted that the shift among many mid-sized businesses toward public cloud computing has turned out to be more gradual than first suspected. And finally, in a shaky sales market for personal computers — which still accounts for just over half Dell’s revenue — and the prospect of a management buyout, which is scheduled to be voted up or down by shareholders on July 18, the company had to prioritize its spending plans.
Better to partner with existing public cloud providers, many of whom are big buyers of Dell hardware. Some of them might even want to use some of the data centers that Dell has built around the world.
Analyst Charles King, with Pund-IT Inc., says Dell made the right call.
“At the end of the day, vendors need to focus attention and resources on the markets that they can enter and compete in effectively without making painful investments,” King said. “I think Dell looked around and decided that they had better places to spend that money.”
Enstratius’ cloud management technology, King said, gives Dell a way of delivering important value to its mid-market customers without the spending burden.
Dell did not divulge how much it spent on Enstratius, which has about 40 employees.
Dell over the past five to six years has spent heavily — more than $12 billion, analysts estimate — acquiring new businesses and technology to expand its businesses.
All that spending hasn’t entirely transformed Dell just yet, but King gives the company high marks.
“The moves have been almost uniformly very strong,” he said. “Most of their acquisitions have panned out very well, certainly far better than some that their competitors have made.”