Dell Outlines Big Software Ambitions

It's official. Dell, master of the hardware supply chain, is a software company. Or rather, it has a budding software company within its ranks, the Dell Software Group, which already has a revenue run rate of $1.45 billion. John Swainson, president of the group, said at a press briefing in San Francisco Thursday that he had been asked by CEO Michael Dell to create a software business that complements Dell's hardware sales. It's expected to give Dell's direct salesforce of 20,000 and Dell VARs and partners the chance to follow up a hardware sale with Dell software that adds value to the system.

Dell will also depend on the group to provision it with application performance management, virtualization management, and systems management software that may be packaged with Dell hardware systems before they ship.

The cornerstone on which Dell's software ambitions will be built is its recently announced agreement to acquire Quest Software for $2.4 billion. In Dell's history, it's a deal exceeded only by Dell's purchase of Perot Systems for $3.4 billion. The deal is still pending and is expected to close in September, Dell spokesmen said at the event.

[ For more on Dell's software strategy, see Why Dell Bought Quest Software.]

Dell has moved from PC vendor to server seller to assembler of racks of servers. As it adds networking and storage to its racks, it's been configuring them with networking, storage, and virtualization management software in its vStart packages launched last year. In the future, Dell wants to be a complete systems management software vendor for its systems as well as provider of hardware, said Swainson.

Its target buyer is the often overlooked small to medium-sized company with 215-2,000 employees, said Swainson. These companies have small IT staffs with large responsibilities. "The sweet spot for Dell is the mid-market…We want to produce a set of solutions designed for that market," Swainson declared.

Michael Dell told Swainson "to build a software team, not to build an independent software business, but (a team) highly synergistic with Dell's existing hardware business," he said. And that's what he plans to do.

Quest is key to Dell's ambitions because its expertise as a software company cuts across key areas of Dell interests. Quest supplies vFoglight, one of the few third party tools to be as popular as VMware's own tools with VMware customers. VFoglight can be used for monitoring and performance management of applications running in virtual machines--and it can manage applications in both VMware and Microsoft VMs. A key element of Dell software is that it will assume the customer base is using heterogeneous hardware and software, Swainson said. Virtualization, systems management, and systems security will all be areas of focus for the Dell Software Group, he said.

"Analytics and business intelligence is an underserved area of the mid-market," Swainson said. Dell will offer an in-memory, analytics system that doesn't require custom hardware, he added.

Dell will also get into business applications but it has no intention of going head to head with Oracle or SAP, two of the largest application suppliers. Both tend to address customers above the mid-market and both are key Dell business partners, he noted.

Quest has generated a large community of relational database users through its Toad tool, used by developers producing applications for use with the Oracle database system, Microsoft SQL Server, MySQL, and IBM DB2. Dell will be able to leverage the Quest tools and user community to better reach database users in the mid-market, he said.

Don Ferguson, CTO of the Dell Software Group, said he had just returned from a two-day visit to Quest, tucked away in the coastal communities south of L.A., and had been surprised by some of the hidden software assets that the company hadn't been able to capitalize on yet. Its Toad tools and relational database represented a major opportunity for Dell, Ferguson said.

"Business intelligence users typically have a data scientist to work with data. We think we can deliver a solutions so you don't need a data scientist. We're reasonably confident that we can build analytics/BI solutions that do not require a scientist," he said. Dell will also strive to embed analytics in the systems management software that it plans to produce.

Matt Medeiros, former CEO of SonicWall, a network security firm that Dell acquired in April for an undisclosed amount, is now general manager of security software in the Dell group. Building more security capabilities into Dell systems as they ship will make them more attractive to the mid-market customers, he said.

Dell faces a formidable task in training its large direct salesforce and many channel partners to add software products to the long list of Dell hardware they are already trying to sell, said Swainson. IBM spent 20 years converting itself from primarily a hardware company into a server company that also sold services and software.

Swainson is shooting to grow Dell's software revenues from 1.5 billion to $5 billion within a few years and make it a business with 30% margins. That means it would represent only 10% of Dell's revenues but 25% of its operating income, and thus become a significant business inside of Dell. The software business has the prospect of being a higher profit business than Dell's hardware lines, was his implicit message.

To get to $5 billion, "it won't take us 20 years, but it will take us longer than a year and half," he noted.

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