Matt Asay, author of The Open Road — a popular blog on CNet — suggests two reasons why Dell should acquire Red Hat. Alas, The VAR Guy strongly disagrees with Mr. Asay. Here are seven reasons why Dell will never acquire Red Hat.
First, some full disclosure: The VAR Guy spends far too much time admiring Asay’s blog and he generally agrees with Asay’s views on software and open source. Also, nobody is suggesting Dell has actually picked up the phone and called Red Hat about getting hitched.
Those details aside, here are seven reasons Dell will never buy Red Hat:
1. Mass Server Hardware Exodus: Red Hat is strong because it has OEM relationships with all of the major server companies. If Dell acquired Red Hat, every other major server vendor (HP, IBM, Sun) would reconsider their Linux strategies. Suddenly, Novell SUSE would become the de facto vendor-neutral Linux, leaving Red Hat as a Dell-centric server distribution.
2. Dead on the Desktop: Major PC companies are finally starting to pre-load Linux on a few selected systems. By acquiring Red Hat, Dell would eliminate Red Hat’s already slim chance to become a mainstream desktop for PCs and workstations. Rival PC, notebook and netbook (hello Psion lawyers) makers would accelerate their current moves toward Canonical’s Ubuntu and Novell SUSE.
3. Dealing with Microsoft: Dell has incredible leverage when it negotiates Windows licenses with Microsoft. Indeed, Dell’s high-volume sales business — coupled with Dell’s relationships with Canonical, Novell and Red Hat — allows Dell to push Microsoft hard on pricing. By aligning with a single Linux vendor, Dell actually loses some leverage against Microsoft.
4. Dell’s Primary Software Strategy: Rather than getting into the operating system game, Dell is getting into managed services software market. By acquiring Everdream and SilverBack Technologies, Dell has a portfolio of software for remotely managing desktops and servers.
The result: Dell or its channel partners can charge customers a monthly fee to remotely service and support Dell’s installed base of hardware. Customers are willing to pay a premium for pro-active remote support and managed services. (Just ask The State of Georgia.) Those same customers — many of them small businesses — are not willing to pay a premium for open source.
5. Dell’s Secondary Software Strategy: Dell also acquired MessageOne, which offers enterprise email via software as a service (SaaS). Similar to the managed services stategy, Dell’s MessageOne acquisition will generate recurring monthly revenue — like a cable company. Dell will ultimately evolve into a big hosting company powered by Dell server farms and SaaS applications. Instead of betting on a single operating system for those server centers, Dell will let customers mix and match operating systems.
6. Virtualization: By acquiring Red Hat, Dell would essentially hitch its virtualization strategy to Red Hat. Not smart. The far wiser strategy for Dell: Stay vendor-neutral and work with all of the major virtualization players — from EMC/VMware to Microsoft to Citrix and so on.
7. Technology History: Other than Apple, can you think of a single major PC or server company that thrives by controlling both the hardware and software? And is anybody willing to suggest that Dell-Red Hat could be the next Apple? Certainly not.
The VAR Guy will need to eat a healthy serving of crow if Dell ever acquires Red Hat. But in the meantime, our resident blogger will continue speaking his mind (anonymously).
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Shoot. Those are really good reasons! I think #1 and #3 are the best reasons, but I also know that Dell is trying to find a way out of its Windows dependence.
However, some of the concerns only stick if we continue to think of Red Hat as an operating system company. I admit that this is easy to do because Red Hat doesn’t do enough to disabuse people of this notion. Think of Red Hat as the gateway to an enterprise’s open source IT requirements, and you’ll see where I’m getting at. It’s not there yet, and so your concerns are very valid. But if Red Hat would raise its sights a little, and Dell met them…I think the combination could be powerful.
Points well taken, Matt. But The VAR Guy sees yet another problem. Red Hat has successfully pushed beyond Linux into the middleware market with Jboss.
Now, consider this: Dell is Oracle’s largest reseller. Does Dell really want to promote Red Hat Jboss middleware AND compete with Oracle in the middleware market? Sounds like an uphill battle for a box pusher…
I see the point about Red Hat as a gateway and I also disagree slightly with the VAR Guy about neutrality: Dell bought Equalogic then renewed its deal with EMC.
However, I don’t think a Red Hat acquisition is on the cards:
1 – Dell has a lot of trouble to deal with in the short term
2 – Longer-term, it is trying to buy/build a broad SaaS platform it can offer globally, and diversify from selling hardware to selling hardware with software as a service subscriptions. It made 3 good-sized SaaS acquisitions recently and will do many more. Red Hat is not a great fit in that sense as it is not a managed services player.
Hey The Var Guy,
I agree over all that Dell is very focused on created SaaS offerings and as such there is less focus on acquiring companies like Red Hat. That being said there are some flys in the ointment with the Oracle vs Red Hat middleware story. While Dell might be their largest reseller, their relationship has always been a complex and occasionally stormy one. Specifically I have three points around middleware and Dell however.
1. Oracle has spotty track record of channel relationships for its core database products and not much of a record at all for selling its applications successfully with OEM channel partners. BEA is a complex solution sell and its exactly the kind of thing Oracle tends to keep to themselves.
2. Oracle promptly upped the maintenance cost for all of its BEA customers after the acquisition right at a time when companies are looking for ways to drive down IT costs. Dells strongest selling point is driving down IT costs. That makes it a hard sell to Dell customers who are looking for deals. Where customers push back on Dell to drive down costs it also drives down Dell’s profit margins.
3. Dell is already selling JBoss and has been selling JBoss since before Red Hat acquired the company. The low cost and high value solution fits well into the conceptual strategy of Dells simplify IT. It is a perfect example of the reasons why open source is a good choice for Dell when it goes to market against IBM and HP who bring their own proprietary solutions to the table with license models and costly implementation and maintenance.
Gell Duru: The VAR Guy likes your creative naming convention, and he really likes your points. All three are on the mark. Our resident blogger must admit: He didn’t know much about the alleged Dell/Jboss connection until you mentioned it.
But that doesn’t mean Dell will ever open its wallet to buy Red Hat.
[...] Update: The VAR Guy smacks me around a bit for thinking Dell would imbibe Red Hat. His thinking is strong, but I still think it depends far too much on Red Hat boxing itself into a corner as “the Linux company.” If Red Hat gets ambitious with open source, all bets are off. [...]