Proposed Dell-EMC merger leaves customers divided

Proposed Dell-EMC merger leaves customers divided
Analysts: Dan Harrington, Michelle Bailey, Simon Robinson

Almost all of the attention paid to the record-setting $63bn deal by Dell to acquire EMC yesterday focused on financial details. But what really matters is how their customers react to this news, and whether they believe Dell can meet their organizational needs long-term. In general, customer perception is encouraging: 31% of IT decision-makers describe the acquisition as a positive move, compared to 20% that see it in a negative light. Dell customers are particularly positive about the deal; however, there are strong concerns among the EMC customer base. More than 40% of EMC-only customers (those that currently buy no products from Dell but do buy from EMC) have a negative impression of the acquisition, compared to just 15% of Dell customers. These findings are based on the opinions of 447 enterprise IT decision-makers – part of 451 Research's Voice of the Enterprise community – polled less than 24 hours after the announcement.

The 451 Take

Based on what customers know right now about the deal, it's not expected to have a major impact on short-term spending, but there are some concerns around the effect this combination may have on EMC-only customers. Major deals like this will always create some level of opportunity for competitors, and 25% of IT buyers in our study are not yet sure how this will impact their spending. Our numbers indicate that the overall effect is at best flat to down in terms of spending, but this could change as Dell provides more detail about its post-acquisition plans. In the meantime, many IT decision-makers will likely be open to fielding sales calls from competitors. Dell will need to be clear and definitive about its product roadmap, and its support and organizational plans, across all product lines going forward.
Those perceiving the deal as a good one think the two companies will complement each other (39%), and they appreciate the broader array of products from a single vendor (22%). Those critical of the deal are concerned it will be a distraction to both companies (27%) or think the combined company will fail (18%). Also cited were vendor lock-in (10%) and reduced bargaining power (7%), common concerns when dealing with single-sourced vendors. Existing Dell customers, which are typically comfortable purchasing a variety of products from PCs to servers, see more to gain from the acquisition than storage-centric EMC customers or virtualization-centric VMware clients. Dell customers believe they will benefit from access to a much larger portfolio of technologies across storage, information security, IT services, servers and PCs from a single vendor. This lends itself well to current IT buying patterns, which favor converged and integrated offerings from a smaller number of vendors.

Where we expect the combined company to struggle is with EMC-only customers that have a different perception of Dell than existing Dell customers. Forty-three percent of all EMC-only customers view Dell primarily as a PC supplier, and another 20% identify it as mainly a low-cost supplier. Conversely, 42% of Dell customers mainly identify the company as an enterprise systems supplier. Most concerning is that 42% of EMC-only customers believe the combined Dell-EMC company is not aligned with the goals of their organizations, and 13% report they will spend less than previously planned with EMC (more than twice the rate of Dell customers).

Most of the negativity among EMC-only clients is focused on the potential distraction to both companies (29%), and a belief that the combined company will be unsuccessful (18%) or have limited product innovation (15%). As one respondent put it, "The fight over control will take years to sort itself out, and innovation will suffer." There will be plenty of work ahead for Dell to convince EMC's existing customer base that it has real enterprise chops and will do the right things with its product portfolio. Dell will need to pay careful attention to account management practices as the two companies merge, and be sure to take time to educate today's EMC-only customers about the breadth of its enterprise capabilities. This will involve coordination across marketing, direct sales and channel partners, which is not an insignificant task.

Based on the information customers have today about the acquisition, the move by Dell is not expected to have a drastic effect overall on short-term spending plans. However, there is a very real concern of disaffecting EMC-only customers with their limited knowledge of Dell. Any major acquisition such as this opens the door for competitors, and fully one-quarter of all IT buyers in this study are unsure of the impact of the acquisition on their spending plans. It should be noted that while only 8% of buyers overall expect to spend less as a result of the buyout, only 2% report that they will spend more, so the overall effect is at best flat to down on customer spending.

This could change as more details emerge from Dell regarding its intentions to evolve product, sales, its services organization and partnerships. Most IT decision-makers will likely keep a close eye on these developments and be more open to fielding sales calls from competitors as a result. Dell should expect that its competitors will spread plenty of fear, uncertainty and doubt around the perceived distraction (29%), lack of company fit (21%), potential for failure (18%) and slowdown in product innovation (15%), all of which are major concerns for EMC-only customers. In the coming weeks and months, Dell will need to reinforce its (very real) enterprise capabilities and be as clear as possible about product roadmap, support and organizational plans across its own products, EMC and VMware to alleviate the evident unease in the market.

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