HP vs. Dell: A Tale of Two Announcements

By Art Wittmann

You’ve probably read by now that HP is exiting the IaaS market. The move comes at the same time Dell is purchasing EMC, and HP grabbed the opportunity to say what a “huge distraction” that will be for Dell. Talk about a clumsy attempt at redirection.

Before we get into the Dell/EMC deal, it doesn’t surprise me that HP figured out it can’t contend with Amazon and Google in IaaS. The surprising thing is that it ever thought it could, given that the Helion public cloud was always a me-too service.

It’s not a perfect analogy, but I think of IaaS offerings like coffee. Amazon, along with close competitor Google, and somewhat more distant competitor Microsoft, are in the business of selling straightforward drip IaaS. You can get a couple of flavor shots, but the job of customizing and fancifying is left to you. Think Dunkin’, McDonald’s and every gas station in America. In contrast, HP, and a bunch of other niche and hybrid players, are more like Starbucks — they want to customize your coffee, sometimes to an absurd degree, and tack on a hefty upcharge for the service.

Beating on the analogy a bit more, Amazon is increasingly eyeing that Starbucks model. You can add a lot of options to the basic AWS brew to make it into whatever you want, for a price. Still, IT or partners need to know what the end goal is — there are many more choices, but it’s still up to you to know how you want your AWS coffee.

Over at HP, they’ll sit down and have a lifestyle discussion about just what pumpkin-spiced monstrosity should be custom-built for your needs.

It’s not unfair to say that facing down the likes of Amazon and Google, not to mention its best partner Microsoft, in the public cloud simply amounted to too much price pressure for HP. It’s also not unfair to say that most HP watchers knew the company wouldn’t be serious about a run at these behemoths. Gartner even removed HP from its 2015 IaaS Magic Quadrant.

But what is unfair to customers and partners is that this has become the HP way. Take a half-measure run at a new market, see that competing will be tough, and drop the commitment, stranding anyone who believed in you. HP did the same thing with Palm and webOS. The latter had a following, but despite its words to the contrary, HP was never serious about webOS after it killed the hardware platform.

Where it has been committed is to making solid, enterprise-class servers, and to a lesser degree, storage systems. The company has always held what used to be the enviable position of being more commodity-priced than IBM and more service-oriented than Dell, which made it the biggest seller of computer hardware in the world.

Looking back, 2008 was a big year for HP. Not only did it buy EDS during the depths of a recession, but in the company’s zeal for efficiency, it also shuttered a part of its business that would have been helpful at either end of the cloud battle. In 2008 and 2009, then-CIO Randy Mott very publically took HP from 85 data centers worldwide down to six. While it no doubt gained efficiency, it lost too much floor space in the process — particularly as it looked to EDS to bring in new managed hosting business. It’s not just Carly Fiorina who deserves heat for bad strategic choices by HP execs.

Future More Foggy Than Cloudy

Filling the sweet spot between commodity and white-glove players in the IaaS business won’t be all that much easier than competing against AWS and Google. Not only has HP downsized its data-center holdings, it faces stiff competition at almost every turn. IBM’s SoftLayer, Equinix, NaviSite, Terremark, Rackspace and a host of others offer the sorts of services that midmarket and enterprise customers are after — plus the ability to stand up hybrid clouds in their own data centers and their external partners’ locations of choice. They’ve all had a more consistent story than has HP. And it would be a mistake to count out Microsoft Azure up and down the use-case stack.

Given the above, there’s more than a little irony in Meg Whitman’s crowing about the distraction that Dell and EMC will face with their merger. HP has been the epitome of distracted as it’s broken itself into two companies and fumbled its way from one bad plan to the next. And though HP management has done a lot to try to keep life easy for partners, complexity will inevitably creep in.

Meanwhile, those who sell Dell gear will likely be used to selling some EMC products, and will soon have a bunch more on their sheets.

I’m not saying things will be easy for Dell. There were a number of problems with EMC’s business, not the least of which is that its high-end storage systems will continue to see margin pressure as object-storage software provides a lot of the data security that would previously have been built into specialized hardware. There’s still a good market for Symmetrix storage cabinets at the high end of the enterprise space, but a growth business it’s not.

Then again, that’s one of the good things about not being publicly traded. You can milk a cash cow without being hyper-concerned about the market’s perception of your margins.

In EMC, Dell gets some very big customers used to paying some very big bills for highly strategic, if not leading-edge, storage systems. It gets a good security play in RSA, it gets a stake in VMware, it gets good content-management systems, the best line of high-end storage in the industry, and arguably one of the top content-addressable storage systems. All this sets Dell up pretty well for a future cloud-dominated world. More importantly, it positions it nicely for today’s cloud-aspiring world — meaning cloud doesn’t dominate yet, by a long shot, for most business IT spending.

Partner Takeaways

As the partner ecosystem looks at the pressures of cloud, we tend to hear things that are just wrong — like “on-premises computing is dead,” or “public cloud will be the only way that businesses will consume computing.”

There’s no evidence to support that. In fact, while IaaS use is growing, on-premises enterprise computing is growing too. There’s more data being produced, there’s more need to crunch and present it in real time, and there are more regulations constraining where data can live. SaaS remains a huge boon for SMBs and a great tactical advantage for midmarket and enterprise businesses. Dell’s strategy seems to mirror the opportunity in these markets far better than HP’s approach does.

Some poor product decisions aren’t helping. For years, HP has been in the uncomfortable position of struggling to reconcile its strategy with a strange mix of offerings. Take security. A few years ago, it bought Fortify and ArcSight and was going to be an infosec company. Now, it’s sold TippingPoint, which was a central part of that security strategy. Again, where’s the follow-through?

Meanwhile, Michael Dell seems to have a pretty good handle on where he wants to go.

“Our new company will be exceptionally well-positioned for growth in the most strategic areas of next-generation IT, including digital transformation, software-defined data center, converged infrastructure, hybrid cloud, mobile and security,” Dell said in his Oct. 12 statement. The company’s recent Dell World summit was chock full of announcements around those areas as well as partner program updates.

Bottom line, both companies have big jobs ahead of them. But Dell seems to have a strategy that involves its partner ecosystem, while HP has spun a story about its partner ecosystem that only loosely matches what it’s actually doing. That said, HP tactically has lots of pieces and parts that are appealing to partners — think Helion, participation in OpenStack, its purchase of Eucalyptus and products like CloudSystem. Can Whitman pull it all together in a way that makes HP once again one of the best companies for partners?

Given its recent history, I wouldn’t bet on it.

Follow Business Technology Group VP Art Wittmann on Twitter.