The Dell-EMC deal won't stop Amazon but will hurt startups, says early VMware employee

Michael dell joe tucci emcDellEMC CEO Joe Tucci (left) shakes hands with Dell CEO and founder Michael Dell (right)

So Dell has decided to orchestrate the biggest tech acquisition of all time, paying $US67 billion to buy EMC, mostly via borrowed cash, and gaining control over EMC subsidiary VMware.

This combined company will be a force in the $US2 trillion market that sells technology to businesses.

Unfortunately, businesses are sick of buying technology and installing it themselves, says one of VMware’s earliest employees, Steve Harrod, who is now a VC at General Catalyst Partners.

That’s why Amazon’s cloud computing business is doing so well.

Companies like Capital One, GE, Ticketmaster and Yamaha America are increasingly unplugging some or all of their their data centres which means they are not buying computer servers, network and storage.

They are renting all of this stuff from Amazon

“For the relatively shrinking pie of the data center, the combined company will be one of the top players, for sure. But I think you are doing all this stuff and missing cloud and this [merger] does not provide a real threat to that,” he says.

“Amazon is just a monster who is going to continue to grow. Even Microsoft is doing quite well with Azure. I don’t think this [Dell/EMC] combined entity has what either of them have,” he says.

On top of that, Dell can’t replace a shrinking catalogue of enterprises customers by selling its gear to the cloud computing players. Amazon (like all the big internet cloud companies) tends to build its own low-cost equipment, not buy the kind of high-end expensive stuff that EMC is known for and Dell wants to sell.

There’s a threat to the crown jewel of EMC as well: VMware

Steve HerrodSteve Herrod/LinkedInSteve Herrod, Managing Director at General Catalyst Partners

Harrod joined VMware in 2001 and was there when EMC bought it in 2003. He says the reason why VMware has been successful under EMC was that VMware wasn’t forced to favour EMC’s hardware other other vendors.

But with the huge amount of debt Dell will have to service for this deal, VMware employees are worried those days are over.

“I think there’s nervousness, and rightfully so, on the part of VMware,” he said. “When VMware chose to be acquired by EMC, a big promise was that the sales team wouldn’t favour EMC storage and would be kept independent on all fronts. That’s harder to justify. There’s no question they are going to squeeze more cost and revenue out of the combined entity.”

This deal isn’t great for startups

Satya Nadella DreamforceBusiness InsiderMicrosoft CEO Satya Nadella

EMC is gone, VMware is distracted, Dell is taking on a new $US40 to $US50 billion in debt, and none of them will be shopping for startups for a while.

On top of that, Pure Storage’s awful IPO has scared late-stage startups away from going public for now.

“EMC, VMware and Dell were active buyers. This is going to put that on hold for a while. Cisco, HP and Symantec are all in a holding pattern,” he says. “The trickle down affect is that startups will either go it alone or they will end up in non-traditional places.”

For instance, one place they might wind up is Microsoft who has been “getting very, very active” with acquisitions again, he says, “as is Amazon, SoftBank and some of the Chinese companies.”

NOW WATCH: Here’s how many people die from terrorism compared to gun violence

NOW WATCH: Tech Insider videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.