EMC and Dell: End of the Affair

Here is an article written by Claus Egge, analyst at IDC from 1991, now consultant and partner in Rainmaker Files.

It was as late as in December 2008, that EMC announced the extension of its reseller agreement with Dell and both CEOs took part in an interview.

This video can still be found on EMC site.

In the video Joe Tucci and Michael Dell extol the virtues of the deal, described as the most successful partnership in the industry. And it was indeed hard to see why either of them would be unhappy with the original partnership. Since its inception in 2001, employees of both companies only experienced continual upside while Dell executed and EMC innovated. Wall Street was also happy with the undeniable synergies. Michael Dell even quips in the video that the industry is going continue to consolidate and the two companies will continue to grow share.

Yet it was prior to this, in 2007 that Dell had made an offer for iSCSI storage company EqualLogic which had completed in January 2008. The EMC/Dell reseller agreement was intended to last through to 2013.

But now it finally looks like both parties have abandoned the idea that ‘together we are stronger’. If Tucci in December 2008 had been giving Dell the benefit of doubt, he eventually realised that Dell could and would sell its own disk EqualLogic disk arrays. And the EqualLogic acquisition became profitable very quickly.

Post December 2008, the Dell/EMC relationship managers on both sides may still have hoped that there was more growth to come, but this notion was quashed when Dell tried to grab 3PAR in August 2010. This bid failed, but was followed by another bid (almost 2 years to the day of the Dell/EMC extension) in December 2010 with a successful bid for Compellent.

The outcome to Dell has been that it is the master of in-house storage products even though there are still products originating from EMC in its line-up. And in the recent messages in the EMC quarterly earnings call, it spelt out that the Dell relationship had reverted from strategic to tactical and explicitly stated to be competitive.

The Seven Year Itch?
At the pinnacle of the partnership, Dell could claim that it had the upper hand in its relationship with EMC. EMC gained more from it and was more dependent on it than Dell. Nevertheless, during the first decade of the 21st century, both parties realised that size mattered and both bolstered their individual product sets in order to grow. The mantra was ‘become a system vendor, or fail’ with EMC & Dell going about it in different ways.

EMC is purer in its mission to facilitate all things related to information and its management. And let us not forget its highly successful acquisition of VMware. This became a huge asset, which it cleverly leaves at arms length not to upset its partner base. In this sense EMC has a server business (but without the hardware). Admittedly, it has more arrows to its bow such as Greenplum and VCE (renamed from Acadia).

Michael Dell was correct when he anticipated consolidation and he knew he had to contribute to it. Dell squared up to HP and IBM by adding Perot Systems in 2009 to strengthen its services business. It also spent more storage money by adding Ocarina and Exanet.

It was unreasonable to expect that the partnership model could last more than 10 years, given the ambitions of both organisations. As the cracks started to show it may have been naïve to renew in 2008 despite the mutual revenues at the time. Both companies articulate that they both serve the demands from enterprise IT customers consolidating their supplier landscape. Cloud-enabled solutions is a bigger challenge and both companies are likely to make more acquisitions here.