Why Microsoft should invest in Dell: It's all about tablets and the cloud

Why would Microsoft invest up to several billion dollars to help Dell go private and become part owner of the company? For Microsoft it's all about two of tech's biggest growth drivers: Tablets and the cloud.

The New York Times reports that Microsoft may contribute up to several billion dollars to participate in a takeover bid for its long-time partner Dell. The Times reports that the private equity firm Silver Lake is heading the buyout bid, and looking for big-money investors. Microsoft is considering joining. The few billion it may contribute wouldn't dent the company coffers at all -- the Times notes that Microsoft currently has more than $66 billion cash on hand. With that size war chest it could invest in Dell, buy out Nokia, and barely notice it.

Still, several billion dollars is several billion dollars. So why would Microsoft spend that much money to become Dell's part owner?

For a start, tablets. PC sales are dwindling, and tablet sales growing. The days of PC dominance are over, an IDC report concludes. And a report by DisplaySearch found that in 2013 tablets will outsell notebooks by a wide margin -- more than 240 million tablets versus 207 million notebooks.

The future is tablets. And with the Windows RT-based Surface and Windows 8-based Surface Pro, Microsoft has made clear it will invest whatever it takes to try and break into that market. So far, that effort hasn't paid off. Surface sales have been lackluster and hardware partners aren't flocking to RT. In fact, one of Microsoft's key partners, Samsung, has said it won't release a Windows RT tablet in the U.S. because there isn't enough demand for it.

Here's where becoming part owner of Dell can help, by tapping into that company's expertise with design, manufacturing, and sales. I don't expect Microsoft to focus on the consumer market; between iPads and inexpensive Android tablets, that market is locked up, and will likely stay locked up.

Corporations are another matter, though. Microsoft can piggyback onto Dell's expertise into selling to businesses. Imagine a combined sales force of Dell and Microsoft selling PCs, tablets, and services to enterprises. It could be a tremendous winner.

Forrester Research analyst David Johnson agrees. In an interview with the Wall Street Journal's CIO Report he said that also important for Microsoft was that a deal with Dell would be a way for Microsoft to sell its cloud services to corporations:

"Enterprise IT needs to have ways to build their own world-class private cloud infrastructures that are orders of magnitude easier to achieve, without having to put the pieces together in-house. In the face of VMware and others surrounding software-defined datacenters, converged infrastructures...will be critical. A Microsoft investment in Dell could really shake this up in short order."

He believes, in the words of the Journal, that "Most importantly of all, a deal could help Microsoft and Dell create a one-stop-shop for corporate customers to buy or lease computing infrastructure, networking, storage and software."

I think he's right. And for all these reasons, investing in Dell would be a very smart move for Microsoft.

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