Scott -
Interesting analysis, but I think DELL is smart to choose this path. IBM and HP have also chosen to be both a host and a provider to hosts. DELL, through its recent organization change, sets up a separate business unit for this, so they can focus on hosting with one set of resources independent of their mainstream business. They also seem to be developing a hosting presence with Intel, so why not capitalize on the knowledge and business relationships there to expand?
They might "undercut their own sales" in some cases, but sales to ASP hosts are a tough business without much differentiation, so DELL would compete with "white box", VA Linux, and the rest of the low end. I see this more as the ultimate direct sale - they are selling to themselves. If there is a viable business hosting ASPs, that is icing on the cake after the hardware and services piece. They also have the ability to move where in their P&L the profits show up, since DELL the host business can pay "fair market value" to DELL the hardware vendor rather than sell at a deep discount to a third party. If they do a great job with their own sites, they stand to attract business from other hosts who want to have the same level of service and cost... so even the competition argument seems weak. |
