Dell Misses The Boat On Blades - Analyst Insights

George Orwell once wrote that governments would maintain a state of perpetual war without victory in order to keep the attention of the masses on the next battle, and not the problems at home. While this 'Orwellian' viewpoint concerned itself mostly with the totalitarian politics of 'Big Brother', one top-tier IT vendor has taken Orwell's lessons to heart, and applied them well. And that vendor is Dell, which has sought to obfuscate its own failures developing blade servers by waging a perpetual war against its rivals, attacking them with FUD while ignoring the fact they have succeeded where Dell has failed.

>> Blades Left The Station Without Dell Onboard: In a new report on Dell's strategy of failure on the blade battlefield ("Dell Blows Smoke on Blades," July 1, 2004), IT analyst firm Illuminata harshly criticizes Dell not just for the failure of its model to churn out a successful blade product, but also for its unsportsmanlike efforts to disparage the efforts of its rivals who have demonstrated far greater success. Illuminata notes "Dell has been disparaging blade servers more often than not for at least 18 months" - and yet, it "has no decent blade server products" of its own and "its several attempts have been failures." Illuminata points out that Dell's failure when it comes to blades stands "in sharp contrast" to both its top-tier rivals, HP, IBM and Sun, as well as its smaller rivals like "Egenera, RLX, Tatung, and Verari, among others" - all who have succeeded where Dell has not. Indeed, as Illuminata puts it, "the blade form factor has left the station, and Dell isn't on it."

>> From Dud to FUD: Having failed in its own blade efforts, Illuminata notes that "Round Rock's marketing solution" is to "disparage everyone else's efforts, products, and successes" and to "suggest that blades are generally a bad idea-or at least, not ready for prime time." By spreading "fear, uncertainty, and doubt (FUD)," Illuminata says Dell is trying to buy time to "lather, rinse, and repeat - at least until Dell can get a respectable product out the door."

>> Dell Overemphasizes The Cost & Density Issue: Illuminata notes that among Dell's complaints is the relatively high price of blade servers, which by one measure can run 4-22% more than rackmount servers - and while this price premium is "quite real," Illuminata explains that it "reflects not only the more recent R&D costs for building this newer design, but also the currently lower shipment volumes and higher mix of specialized, customized components." Additionally, Illuminata argues that blades offers "superior TCO" - and adds that enterprises "don't pay for just the equipment purchase" but instead "pay for the total cost of ownership." And hands down, Illuminata believes "blades have abundant superiorities over rackmount servers that reduce ownership costs."

In addition to its price-argument, Dell makes the case that blades aren't dense enough, but Illuminata counters that "blades are intended to compactly implement 'low state' scale-out applications in which little or no data is permanently associated with a given compute engine" - and "as a result, their physical designs are optimized around having little or no on-board storage." All in all, while issues like "density and price are not bad criteria" and should remain "important factors for a wide range of datacenters, if not every one," Illuminata believes that Dell, by "putting them first and foremost," is being "so 2001! So dot-com. So yesteryear." As Illuminata sees it, "these are the criteria of the first blade startups three years back, not the current best thinking." Indeed, it adds, "it's no coincidence that most of those blade startups are long gone, and the survivor who once preached the density religion most fervently, RLX, has since converted quite completely to a software-centric religion." And, ironically, "if software is really what Dell believes is the utmost criteria, rather than density and price," llluminata notes that it's "not close to having estimable product in this space."

>> Dell Model Fails On Blades: Illuminata argues that "Round Rock needs to learn this lesson: the real value of blades is not created by a pure density or price improvement, but a fundamental advance in datacenter manageability," and this comes largely "through improving the core interconnects, and from software and manageability built in from the get-go." This in turn "leads to a different conundrum," as Dell is so strongly "committed to a low-R&D 'fast follower' strategy based on high-volume commodity technologies and a highly efficient supply chain and direct selling apparatus," but in this particular case, such a strategy "isn't well-suited to new technologies and design typeforms," since such "'game changers' and inflection points need considerable research, development, market experimentation, and software smarts," not Dell's strengths. That's why, Illuminata observes, "blades have been nailed by companies that are expert in those areas, not the Dells and other commoditizers of the industry."

>> Dell Can Do It, But Hasn't Really Started: Illuminata believes that in spite of the shortcomings of its commoditizing model when it comes to blades, Dell could, if it really wants, "put together a compelling blade server product line," since in addition to its "supply chain skills that can help it drive prices down, there are now plenty of good third-party software components that can be integrated to create a low-cost, high-function solution." But the real problem is that "Dell has yet to cross the real starting line." Illuminata thinks Dell's energy could be better spent on "getting its act together, rather than blowing smoke to obscure the gains already being enjoyed by those deploying flexible server infrastructures using, at least in part, today's strong blade products."

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