Since Dell keeps telling folks it wants to buy some companies, we’ve written out a list that Michael Dell should consult as he expands his eponymous empire. Second-hand sources quoted in the Wall Street Journal today said that the company was seeking deals in data storage and tech services. The article also noted that Dell hired a former IBM deal maker last month who has since been sued by his former employer to keep him from getting involved in strategy discussions at the computer giant. So since Dell’s new M&A guru can’t offer up ideas, we thought we’d take a stab at it. Readers, feel free to offer up your own suggestions in the comments below.

CommVault: Dell already supplies CommVault software (including de-duplication software) in some of its storage boxes, and accounted for about 22 percent of CommVault’s sales in the last nine months of calendar 2008. With the fight over Data Domain, de-duplication is hot. And storage is clearly an area where Dell wants to buy something.

oDesk: Dell equals low-cost hardware and just-in-time manufacturing, and as a services play, oDesk mimics that philosophy. Need a developer for next week? Through oDesk, Dell could provide a cheap contractor on a just-in-time basis. This isn’t the IBM services model, but it’s quintessential Dell.

ParaScale: This startup makes software that allows companies to build their own storage clouds. This is another way Dell can create a low-touch services offering to customers, rather than get into an intensive, consulting-based relationship with companies that require cloud storage from an outside vendor.

Vyatta: With Cisco launching its own servers, and HP emphasizing computing and switching in its gear, why shouldn’t Dell be bold and acquire its own switching assets? Vyatta is like the open-source Cisco, and combining it with Dell’s servers gives folks low-cost, functional products — something people come to Dell for in the first place.

Palm: I know, I made fun of this last month, and have an idea that Dell would likely grind down the Palm folks with its exacting and less-than-innovative culture, but it’s also a move that could make sense. Perhaps Dell could model this deal on its Alienware acqusition that left the high-end gaming maker a separate subsidiary that didn’t have to deal with Round Rock.

Vyatta , a Belmont, Calif.-based company that makes an open-source routing platform, has raised $10 million in Series C funding led by Citrix Systems. Previous investors Comcast Interactive Capital, Panorama Capital and ArrowPath Venture Partners also invested in this round of funding. The company had previously raised a total of $18.5 million.

The investment in Vyatta shows that Citrix is losing ground to the VMware-Cisco Systems colossus. Those two companies are becoming stronger players inside the enterprise data center, both from a server and a networking perspective.

As we’ve outlined in the past, virtualization is going to force networking vendors to change. There were two scenarios that we outlined; one was that networking vendors could shift their business and sell to cloud operators — Cisco is doing that with its unified computing efforts.

The other option was for routers, load balancers and firewalls to run inside the “virtual appliances.” Some believe that the routing, blocking and distribution of traffic can be done well in a “cloud environment.” The Vyatta-Citrix relationship falls under this category. Vyatta sells networking software and hardware appliances to enterprises and service providers. Their products are based on the x86 architecture, which can be virtualized using hypervisors such as Citrix’s XenServer virtualization product.

Citrix is a believer in this trend and it recently virtualized its Netscaler platform as part of its efforts to virtualize network resources. While Vyatta is small, it helps Citrix get into the enterprise routing market. For little Vyatta — well, being part of Citrix’s cloud efforts can’t hurt.

Disclosure: Vyatta founder Allan Leinwand is an occasional guest contributor to GigaOM.

When a company builds a web site in the real world, they assemble servers, routers, switches, load balancers and firewalls, wire them up, configure them and go live. But when that application moves into a cloud environment, things change. In a cloud model, the customer isn’t dealing with physical equipment. So who handles all the wiring? And more importantly, how do networking vendors get paid?

Many operational clouds still require their customers to corral their own machines, however virtual. Amazon Web Services is a good example of this. To build an application, the operator still needs to do what they do in the real world — assemble servers, routers and switches to make a data center — only this time, they’re configuring virtual servers instead of real ones.

On the other hand, development clouds like Salesforce.com or Google’s App Engine hide the underlying machines, and handle all the networking equipment — virtual and real — on behalf of their customers.

Either model means a big transition for the makers of traditional networking equipment.

Option 1: Virtual appliances

In a cloud world, the routers, firewalls, and load balancers run inside “virtual appliances” — virtual machines pre-configured to route, block or distribute traffic. Cloud users still have to configure and provision them.

Open-source software dominates the virtual appliance world. For load balancing, Pound is one open-source alternative. For firewalling, there’s IPChains; for routing, Xorp. Some clouds already include these components: Cloud builder 3Tera, for example, offers users a catalog of data center components, including many open-source elements, in its default configurations.

Some vendors stand to gain from a move towards virtual appliances. If you want the kind of service and support you’d get from a vendor, Vyatta does for networking what Red Hat did for servers and MySQL did for databases. And while Checkpoint makes equipment, its software-based firewalls are more easily deployed in a virtual environment than many of its appliance-only competitors. The pendulum swings back to software.

If equipment vendors want to target this market, they need to convert their equipment and licensing models to virtual appliances and differentiate themselves based on software functionality rather than on box color or port density. Companies like rPath and jumpbox both specialize in turning traditional software into virtual appliances.

Option 2: Sell to the cloud operator

But what if the cloud handles the network equipment? This is the case if you’re using a development cloud like Salesforce.com or Google’s App Engine, or if you rely on a turnkey cloud like Joyent or Heroku. The networking equipment vendor sells to the cloud operator.

Which is No Fun At All.

Selling to a utility is notoriously challenging. Carrier sales cycles take months or even years, during which margins get squeezed razor-thin. At the same time, the list of requirements grows dramatically. Because clouds buy tremendous amounts of equipment, they have strong negotiating power. And they often build their own management tools, removing the differentiation a vendor’s software provides.

To make matters worse, clouds may need different equipment. Vendors are innovating, of course: Cisco’s new high-end switching platform, the Nexus 7000, seems well suited to this task. Further, the company has had strong carrier sales since its acquisition of Stratacom in 1996.

Some clouds may even find they have the expertise and economies of scale to build their own equipment. By buying directly from chipset manufacturers and using open-source libraries, they can bypass equipment manufacturers entirely.

One way or another, it won’t happen overnight. While the advent of utility computing is sure to change the networking industry, it will be some time before the trend puts a dent in enterprise IT equipment revenues. Less than 2 percent of CIOs surveyed by Goldman Sachs considered cloud computing a priority.

But someday soon, that load balancer you deploy may be a virtual one. That means two big changes for equipment vendors. One, selling licenses instead of boxes; and two, repositioning their sales forces to sell to telcos and utilities.