Since the early days of the computing industry users have pondered: Do I go with the big vendor or the smaller start-up? The big vendor offers breadth of portfolio and global coverage. The small start-up offers best-of-breed specialization and a hunger to make the deal. Which tends to be the better choice?
I’m here at Dell EMC World (pictured above, center) listening to a parade of (extremely capable) Dell EMC execs make the pitch that bigger is best, and is only going to get better. Usually, their argument rests on economies of scale: the ability to take advantage of lower costs as more stuff is produced. But what really are the economies of scale in the rapidly evolving tech industry? And are these economies reason enough to bias your buying to a big, massive, beast of a company like Dell EMC?
Capital intensive sectors, like microprocessor or memory manufacturing, clearly face economies of scale. It costs about $4B to produce either the first or the ten millionth new semiconductor part today. Not businesses for the feint of heart, but also not a business that Dell EMC is in.
The production of system software used to be a marker for economies of scale, but open source development has altered those economies pretty drastically. So, LAMP (Linux, Apache, MySQL, PHP), OpenStack and other open source system software have taken a bite out of system costs, freeing companies like Dell EMC from a lot of painful grunt work. No obvious EoS advantage to Dell EMC here.
Manufacturing? Computing equipment is assembled all over the world today, driven by cost differentials in a range of resource factors, especially labor. Great supply chain allows some companies to take greater advantage of these different factors. That clearly is a Dell EMC advantage. Likely economies here to Dell EMC, which they can pass on to you.
Services? Again, EoS isn’t obvious. Digitally enabled services may offer EoS, but anything that involves labor features costs that scale pretty linearly. Again, not a huge advantage to any one vendor.
Size doesn’t seem to matter too much when it comes to the types of products Dell EMC sells. When does it matter, then?
Engagement. Dell EMC’s promise is “choice and flexibility” across an expanding portfolio of infrastructure-related goods and services. Simply put: Dell believes it can generate economies in contracting and possibly financing. As technology gets more specialized — and each piece part represents a smaller part of an overall solution — the costs of contracting rise rapidly.
Moreover, as technology gets embedded more deeply in business, especially customer-facing activities, the risk/rewards of initiatives change, which drives changes in contracting.
Contracting for technology is changing. For example, SaaS is an innovation on contracting for software. But contracting is not evolving as fast as it should. For high-end technology services, contracting costs can easily consume 15-20 percent of total costs. In products, less so. In too many shops, though, contracting is left to procurement, which focuses on up-front costs, and not in a strategic relationship management function, which can focus more on relationship lifecycle costs and returns.
Dell EMC is promising to be a superior partner over time. Are there economies there? Can be, but Dell EMC has to take concrete steps to innovate in how they package technology, something that hasn’t really happened yet.
Moreover, getting the most out of the biggest will require changes on your part, too. Are you ready to move from a procurement to a strategic relationship management approach to dealing with mega-vendors like Dell EMC? If you are, then maybe economies of engagement benefits will flow to you. If not — if you’re going to treat every contracting moment as an opportunity to wring every last dime out of up-front costs through procurement — then don’t presume that bigger is better for you.