Dell in Jeopardy with their Red Hat and Oracle Partnership

Ed Scannell of VarBusiness published an scathing article called Cracking Dell's Code last week. He wrote: "Shifting market conditions, poor business decisions and lagging technology are creating fissures in the direct-sales giant--and creating opportunities for solution providers." Two days later Oracle and Sun announced the renewal of their partnership. We believe Dell's luke warm commitment to Linux may make them the first casualty of the open source wave. Also consider that Dell sold a total of 5 servers priced over $25,000 in the third quarter while HP and IBM sold thousands.

Not long ago, people couldn't imagine the downfall of F.W. Woolworth Company. You may have never heard of it, but in the early 20th century, the company built the tallest building in New York, had 1000 stores and seemed impenetrable. Frank W. Woolworth pioneered the five and dime stores. In 1920, F.W. Woolworth Company's shadow loomed everywhere.

Today, you know the once mighty Woolworth giant as the Foot Locker. It went from a diversified retail monster to a mall store. It took 85 years, but that came before we had the Internet.

Now, it may be Dell's turn. Larry Ellison used subtext in his announcement last week when he said:

Solaris is the preferred 64 bit platform, but that doesn't mean we won't develop on Linux.

We have a very close relationship with Dell. The new line of 64-bit servers we've seen from Sun, that compete directly with Dell, is a wonderful piece of engineering—it's larger than anything Dell makes. We've got a good relationship with Dell, but the Sun 64-bit line is a very compelling machine.

Add that to Ed Scannell's analysis and it adds up to an interesting trianglization. Here's what Scannel wrote:

Casting a pall over future rapid growth [at Dell] are not just smarter and more aggressive competitors, such as Hewlett-Packard, Toshiba and Lenovo, but also the company's unwavering commitment to shipping only Wintel operating systems and chips, and its wait-until-the-market-develops attitude toward hot technologies, such as Linux, blade servers and dual-core chips.

Confirming how far Dell has to go in terms of establishing a meaningful high-end, Intel-based server strategy, the company sold a meager five (5) systems--yes, five!--priced at $25,000 or more during last year's third quarter. During the same period, IBM and HP each sold thousands of comparable units, according to IDC.

So, Dell can't sell servers. They still remain the undisputed leader in laptop notebooks sales and lagging PC sales. But what kind of future can you expect in those categories where prices have been free falling?

What about Linux?

Dell actually had an early lead with Linux back in 2000. But they ran into a buzz saw because of their close relationship with Microsoft. Andrew Orlowski of the Register figured it out when he reported in a story that Microsoft sharpshooter Joachim Kempin turned his guns on Microsoft's own OEM customers:

The States' remedy hearing opened in DC yesterday, and States attorney Steven Kuney produced a devastating memo from Kempin, then in charge of Microsoft's OEM business, written after Judge Jackson had ordered his break-up of the company. Kempin raises the possibility of threatening Dell and other PC builders which promote Linux.

"I'm thinking of hitting the OEMs harder than in the past with anti-Linux. ... they should do a delicate dance," Kempin wrote to Ballmer, in what is sure to be a memorable addition to the phrases ("knife the baby", "cut off the air supply") with which Microsoft enriched the English language in the first trial. Unlike those two, this is not contested.

The bullets aimed Spaghetti Western-style at the feet of the dancing OEMs translate to Microsoft withholding source code, according to the memo.

Many us of will never doubt that something happened after Michael Dell in his LinuxWorld 2000 West keynote affirmed Dell's commitment to Linux. In Orlowski's report he further explains:

Earlier memos described that it was "untenable" that a key Microsoft partner was promoting Linux. Kuney revealed that Dell disbanded its Linux business unit in early 2001. Dell quietly pulled Linux from its desktop PCs in the summer of 2001, IDG's Ashlee Vance discovered subsequently, six months after we heard Michael Dell declare his love of Linux on the desktop the previous winter.

Compaq was also mentioned in other memos, with Microsoft taking the line that OEMs should "meet demand but not help create demand" for Linux.

Imagine Dell's future had they gone after the high performance computing market like IBM and HP. But they didn't and they had some glory years. Michael Dell may have enough money that he could downsize Dell and take up another endeavor. Unfortunately, the Foot Locker already exists.