SAN FRANCISCO (09/26/2003) - Michael Dell is preaching again. On stage delivering a keynote at September's OracleWorld in San Francisco, he explained to the assembled masses how Dell Inc., with the help of Oracle Corp., will become a dominant player in the enterprise datacenter.
As words like "commoditization"' and "standardization" flew over the crowd, one couldn't help experiencing deja vu. It was only 19 years ago when the same man argued that his dorm-headquartered company would revolutionize the consumer PC industry through low-cost commodity components and a super-efficient, just-in-time manufacturing process.
Back to reality, and Dell has changed the PC industry. Chasing a publicly stated goal of becoming a US$60 billion company over the coming years, Dell is looking for a boost by applying the same commodity-driven approach to the enterprise datacenter.
"The IT market is diverging between custom- and standards-focused," Dell said on stage. "People betting on proprietary strategies will drain their budgets." He believes all signs point to IT departments adopting commodity products.
The question this time around is whether enterprises are ready to embrace commodity-based products in their core IT infrastructure.
Much of Dell's enterprise strategy hangs on the acceptance of clustered servers as an alternative to multiprocessor servers. The company is armed with a line of Intel Itanium 2-based servers, clustering technology from Oracle, in-house grid software, and a professional services organization currently generating annual revenue of $3 billion.
Dell also has a moniker for its strategy: "scale out computing." Under this model, Dell is working to convince the enterprise that datacenters should be powered by a large array of interconnected smaller servers based on open standards. And Dell is so confident it has the right approach that it stated in July it would not continue working with Intel on an eight-processor server that was being designed to run datacenter-like applications.
Rather than build a high-end server, Dell decided it would continue to push its two- and four-way servers, such as the PowerEdge 3250, a 2U-high server with two Intel Itanium 2 processors. The company believes a few of these servers coupled with grid computing software, cobbled together with a smattering of open source and Linux software, can replicate the performance of a high-end server.
It's a strategy designed to deliberately counter what Dell calls the "scale up" high-end multiprocessor server approach employed by IBM Corp., Hewlett-Packard Co., and Sun Microsystems Inc.
Naturally enough, Dell's strategy has its detractors. Namely the big three server vendors: Hewlett-Packard, IBM, and Sun. In fact, both Sun Microsystems and HP executives attacked Dell during OracleWorld.
Sun's President and CEO Scott McNealy argued during a press Q&A that there is no mystique about "no R&D, no innovation" commodity products. "Dell doesn't make the computer, Intel does," he said, further rejecting the notion that Dell is a serious high-end competitor. In fact, McNealy argues Dell's piecemeal approach to selling servers is not what enterprise customers want: "Stop buying this in pieces, we'll integrate it for you."
HP's CEO Carly Fiorina used her OracleWorld keynote to criticize Dell, without specifically naming the company, for its lack of innovation, and defended the notion that R&D is overrated. The only people who believe Moore's Law doesn't matter "are those who don't want to keep up or can't keep up," she said.
IBM's director of eSeries products, Jay Bretzmann, agrees with the sentiment. "If you don't have any technology to bring to the table then you have to go with the 'scale out' approach," said Bretzmann. "We have history, investment, experience. We use lots of what we've learned in the past."
However, Bretzmann isn't entirely critical of the model. "Scale out offers good reliability, but not good enough for some applications," he adds.
Others agree. Margaret Lewis, software strategy manager for AMD's server and workstation marketing division, said clustering is optimal for some applications but for others it just won't do. "Rendering film is great for clusters, but if an application is sharing the same database, then the added latency of clustering will pose a problem," Lewis said. "You can't live in a world when you say either clustering or multiprocessor servers. There is always a need for both."
On that note, IBM's Bretzmann agrees. "Transaction and database queries with 'scale up' provide you a consistent response time," he said. "There will always be some latency in 'scale out.' "
Numbers Speak Volumes
Michael Dell's response is to point to his factory floor and talk market share. Nobody sells more servers in the United States then Dell, he claims. High-volume economics are having significant impact on the development of enterprise-class systems, he argues. "For some of the vendors that are still trying to live the old way, (I have) to tell you: I believe it's a high-volume, low-margin business. I don't think it's going to go back to the old way," he said.
The Center for Imaging Science at John Hopkins University is one customer that believes Dell's story. A cluster of low-cost Intel-based servers running Linux is a viable alternative to using a multiprocessor server, explained Anthony Kolasny, director of IT at the center.
Kolasny explained he has purchased an eight-node cluster of Dell servers that the center will use in its lab to study, compare, and process medical images of subcortical brain structures. The Dell cluster was chosen for its cost-effectiveness and its support for 64-bit processing.
"Clustering and grid technology has been around for seven years; (enterprises) just hadn't heard of it," said Kolasny. "It is now starting to become a cookie-cutter solution." Rudimentary monitoring and process batch software is all that's needed to run a clustered solution.
However, that might be oversimplifying the issue. Mark Melenovsky, director of server market research at IDC observes that a key issue faced when coupling Intel-based servers is management. "When you have 100 servers, you need to manage it more efficiently," he said.
"Dell has been successful in the small and medium business market alone, but (to be successful) in the enterprise, partnerships with software and service partners are key," Melenovsky said.
One of Dell's most high-profile friends is Oracle. Dell says Oracle's 9i RAC (Real Application Cluster) database software makes it possible to run a business application across a number of Intel/Linux servers strung together to replicate the performance of a high-end multiprocessor server.
Dell also gains much-needed management capabilities from Oracle. Thanks to September's launch of 10g -- a grid-enabled version of Oracle's database and application server -- Dell is starting to fill out the management story.
Partners aside, the other significant component Dell brings to the table is its relatively quiet services division. "What we choose to do is real simple and straightforward," said Gary Cotshott, vice president and general manager of Dell Professional Services. "Our strategy in services is very tightly tied to our core business. We're not in the business of being in the service business."
Cotshott explained Dell is attempting to make professional services as standardized and commoditized as the rest of its business. He said Dell aims to take away the mystique and cost associated with consulting engagements. To that end, Dell Professional Services concentrates on helping its enterprise customers design an infrastructure based upon commodity components, namely the Linux OS and Intel-based servers.
In operation for over a year, Dell Professionals Services and Dell Managed Services currently account for 10 percent of the company's revenue. They include a customer support group and a custom solution development team, where custom integration of third-party products occurs in a Dell manufacturing plant.
Messaging, consolidation, migration, and Microsoft are the organization's primary focuses. Cotshott says this "early-stage business" handles all facets of assessing, designing, architecting, integrating and implementing the infrastructure for enterprise applications. He calls it a complete lifecycle of services.
If you think it all sounds a little ad-hoc, Cotshott is quick to defend, arguing Dell is developing a standard set of practices that it can apply over and over again in a services framework for other clients.
The approach is radically different from the competition's less transparent approach to solving enterprise technology issues, he said.
But questions remain about how deeply enterprises will buy into Dell's approach. For Michael Dell, it's a case of counting on the continued shift away from proprietary technologies toward industry standard architectures.
"We are the epitome of mass customization; that's what Dell does," Dell said. "I think we do that better than anyone else in the industry."
-- Mark Jones contributed to this report
Revenue growth possible indication of future datacenter success
By Scott Tyler Shafer
If history is a reliable indicator of future success, Dell appears set to take corporate datacenters by storm given its rapid ascent in the storage market.
In its fiscal year 2003, Dell's storage business netted the company $1 billion in revenue, which represents 20 percent of its total revenue and 87 percent growth year over year. In the last quarter alone, Dell reported a 46 percent increase in its storage sales. And the company sees even more growth on the horizon.
Much of the success can be attributed to its partnerships with EMC Corp. and Microsoft Corp. In September, Dell announced it enhanced its NAS appliances to run Microsoft's latest NAS operating system: Microsoft's Storage Server 2003. And last June, Dell extended its reseller agreement with EMC.
The new deal runs through December 2008, two years beyond the original agreement signed in October 2001, and permits Dell to manufacture the CX200, the lowest end of EMC's midrange CLARiiON line, in its three manufacturing facilities.
"Our partnership with EMC was done to increase our revenues and address more market," said Russ Bailey, a senior product manager for Dell's storage group. "(Manufacturing in-house) allows us to take advantage of our supply chain processes and facilities."
However, success in the storage market for Dell did not come overnight. The company initially resold storage systems developed by Quantum and Network Appliance. Those two agreements fell apart when Dell realized it could make its own storage systems at a much lower cost.
Bailey was unwilling to reveal a revenue target for the storage group for the fiscal year 2004, but with the development of the CX200 in house and the work Dell has done to influence EMC's manufacturing processes, it is likely Dell will replicate its success this year.
Scott Tyler Shafer is an InfoWorld senior writer.