Competition, Cooperation, and Dell’s Cloud Strategy

By Tom Fedro

It’s not too much of an out-of-the-box strategy to position a company in such a way that partners handle non-core activity.  Really, the point of a partnership in the first place is to enable a company’s strengths to benefit another’s weaknesses and vice versa.  Still, in technology there’s been a trend toward handling everything in house in the last decade (or just buying up companies that handle what you want.)  So, it was interesting for me to read that

Dell’s cloud strategy is to be a supplier and allow the channel to build private and public clouds. 

The decision to supply the technology but to allow channel partners to set up the cloud networks is an obvious one, but it still resonates oddly because of the resistance most large technology companies have shown in similar situations.  The channel has reacted positively, and there’s no surprise there.  Dell can certainly provide the servers and the software, but creating their own public cloud network or servicing the creation of private or hybrid networks falls well out of the scope of Dell’s core business, and as Michael Dell has completed his quest to bring the company private, he’s wise not to be distracted.

To me, the critical issue at hand, really, is the nature of competition and cooperation.  Had Dell chosen to provide the public cloud service, the company would have instantly gained competitors it didn’t have yesterday, many of which are current partners.  It would have done so while not positioned to have a definitive competitive advantage.  Instead, the company now has new partners in the cloud sphere it didn’t have a week ago.

Believe it or not, this post has nothing to do with cloud computing.  Really, it’s just an example, an illustration.  Dell is a large technology company with a large enterprise development division.  Almost inexorably, pseudo-market forces demand they enter into cloud development.  Those forces are wrong.  They’re the same forces that drive technology companies into non-core ventures on a regular basis.  They make for neat little press releases and short term upticks in share price, but they do nothing for the value of the company.  One of the basic business concepts at play in a new market is “barriers to entry.”  In simplest terms, that can be phrased as “What does a company need to overcome to get established in this segment?”

For a large tech company with resources and infrastructure available, it’s easy to see barriers as non-existent.  I wonder how many poor decisions are made in the technology segment simply because it’s possible to make them.  Dell was wise.  The company’s positioning as a supplier, as an enabler if you will, of cloud technology might not be as sexy and exciting as sitting at the helm, but it’s good business, and that’s ultimately the key for any enterprise.