Dell acquired Quest Software because no hardware vendor is surviving on the sales of hardware alone--the demand is for integrated systems.
Dell is transforming itself, and one measure of how far Dell is willing to go is its $2.4 billion acquisition of Quest Software, a company that has built several key competencies without establishing a dominant brand in any one of them.
But Dell is betting its ongoing investment in software, such as the Quest product line, will make it a bigger brand in emerging hardware/software systems. In addition to expertise in security and end user access management, Quest has gained a measure of attention for its virtualization initiative as well.
"We see virtualization as the next great frontier within IT," said Vinny Smith, CEO of Quest in January 2008 as it acquired yet another virtualization startup, Vizioncore. Unfortunately for Quest, VMware, Microsoft, and Citrix Systems all had a similar vision at the same time.
With the enterprise software stack evolving rapidly, Quest’s unusual, and unsung, combination of competencies suddenly looked more valuable to a number of suitors this year, and Dell had to outbid an alliance of Insight Venture Partners and Vector Capital to land its prize.
Other names might have become more prominent, but Quest had acquired several best of breed products in particular areas. Vizioncore's vRanger Pro for VMware servers became the second most popular product in the backup field to VMware's own system. Surgient's cross hypervisor management product went into Quest's Cloud Automation Platform and became a runner-up for the Best of Interop award last year.
Thus Dell, which got its start configuring personal computers online, is now pushing toward configuring virtual servers in the data center and virtual desktops defined in software that are piped down to end users as lightweight devices. Some of those end users are sitting at Wyse thin clients, another recent Dell acquisition. To make that acquisition work, Dell needs to expand its software portfolio.
Dell has already launched plans to offer desktop virtualization running not only on Dell servers in the enterprise data center but also Desktone's end user virtualization from Dell's own data centers in the cloud. In doing so, it can be hypervisor neutral and offer different virtualization strokes to different folks, if that's what enterprise users require.
Dell has had to plunge into the software business to keep up with the changing marketplace. The emergence of VMware and virtualization as a force in the data center meant that Dell had to change as well to keep up. It started assembling racks of servers with virtualization, storage, and networking built in to compete with similar packages from a VMware subsidiary, Virtual Computer Environments, and HP.
Software is now as important to Dell as hardware in that it is software that help its stay abreast of markets and enter new ones. Instead of offering storage as an afterthought, it began building out Equallogic and Compellent storage systems that can be easily integrated and managed with its hardware.
In the fields of data center management and end user computing, it will have to continue to combine competitive x86 hardware with equally competitive software ease of use and management systems. Already Dell's software division is worth $1.2 billion, according to its president, John Swainson. That figure that could double within a few years if Dell makes good use of its Quest acquisition (revenues $857 million).
IBM has always had a software business associated with its branded servers. HP built out a software division on the strength of its former OpenView systems management products. Now Dell is finding that future profits lie not in hardware alone but in the integration packages. And it takes more and more software expertise to deliver them.
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