Dell Remakes Itself

Michael Dell thinks the future of his company lies in reducing IT complexity for customers. "We're simplifying your client infrastructure, we're simplifying your data center," he told attendees at the Oracle OpenWorld conference in San Francisco two weeks ago. "And we're launching services to assess complexity and simplify your environment." Dell said he plans to triple the size of the company's services business within three years.

Acquisitions are one way he plans to get there. In a turnaround from its historical organic-growth strategy, Dell has acquired five companies in the past four months, topped off with the Nov. 15 agreement to acquire Everdream, a provider of on-demand software services for managing business PCs. Dell sees Everdream complementing its August acquisition of ASAP, a provider of software and services for IT asset management, and its July acquisition of SilverBack Technologies, whose technology helps service providers manage and monitor their customers' servers, storage systems, networks, and desktops. Dell offers SilverBack to Dell resellers and integrators, and will use it to build out its own IT infrastructure services, a spokesman says.

ATTITUDE ADJUSTMENT

FIVE ACQUISITIONS
IN FOUR MONTHS SILVERBACK TECHNOLOGIES
Service delivery platform for remote monitoring of IT infrastructures ASAP SOFTWARE
Software and services for purchasing and deploying IT assets ZING SYSTEMS
Consumer software and services for audio and entertainment devices EQUALLOGIC
iSCSI storage area network systems EVERDREAM
On-demand software service for remote PC management

But Dell as a services company? That would require customers to think about Dell as more than a Web site where they place orders. "Our relationship with Dell is pretty quiet," admits Scott Baynes, CTO of Netgain Technology, an application service provider with 250 Dell PowerEdge servers running in its data center. "We order lots of servers from them, and I expect to get a standardized server at a good price."

Baynes, however, gives a thumbs up to Dell's planned $1.4 billion acquisition, announced Nov. 5, of EqualLogic, a provider of iSCSI storage area network systems. Baynes, an EqualLogic customer, has found its products to be less costly and complex than comparable systems, and more in line with Dell's low-cost philosophy than the systems Dell sells with longtime storage partner EMC. "The Dell-EMC offering initially sounded attractive, because Dell tends to commoditize things and lower prices, but EMC was too expensive," Baynes says.

Dell's products and services expansion through acquisitions should appeal to IT buyers for whom simplicity means having fewer technology vendors to manage. That makes Dell like Oracle, where the one-stop-shop philosophy for software has outweighed occasional complaints of service and support hiccups arising from its manic acquisition strategy.

It also makes Dell a bit more like Hewlett-Packard, which is doing something right. Although HP's Technology Solutions Group (servers, storage systems, services, and software) grew at just half the blockbuster pace of its Personal Systems (PCs and notebooks) for its fiscal quarter ended Oct. 31, it accounts for more than a third of HP's total revenue. HP beat Wall Street estimates last week, announcing a year-over-year 28% increase in third-quarter profit, to $2.16 billion, and a 15% increase in sales, to $28.3 billion. HP surpassed Dell last year as the worldwide leader in PC shipments, and Dell continues to struggle: It was the only major PC vendor to lose market share in the third quarter, according to Gartner, retaining the No. 2 spot with a 14.4% share, compared with 15.9% a year ago. Dell has managed to hold onto its lead as the top provider of PCs in the United States, though.

If Dell can pull off the integration challenges that come with rapid acquisitions, its services play should benefit its customers and itself. "Theoretically, no one knows your hardware better than yourself," says IDC analyst Richard Shim. "And by not going after services, they'd leave a lot on the table for other vendors."

Don't expect Dell to ignore additional opportunities, either. It's probably in only the first lap of its breakaway run from its organic-growth legacy.