It's Your Move Dell

By now, most of us have seen the move by HP to acquire EDS for $13.9 Billion. This is good move – albeit risky – by Mark Hurd and HP to compete with IBM at an enterprise level. HP understands that enterprise credibility is built with a comprehensive product and services portfolio that can address large customer’s IT needs. Dell doesn’t get it, but I suspect they got a good education today.

From a services perspective, the move by HP leaves Dell with few options to get into the services race. About the only possible acquisitions left are Unisys (already a Dell services partner), Accenture, Computer Science Corp, and Perot Systems. Accenture is probably the cream of the crop, but their price – thanks to HP’s move – may be more than Dell wants to pay at this point.

And although Dell has quietly parted from the anti-acquisition (aka “the Dell way”) methodology of getting into a market, the problem is, Dell’s mentality is still small time. In case you haven’t noticed – it was easy to miss – Dell managed to pick up a few companies and threatened to climb out of the services cellar. For example Dell acquired Everdream in November 2007, Silverback in July 2007, ASAP in August 2007, and MessageOne in February 2008. All of these moves may have been necessary, but as Simon Cowell might say, these acquisitions are “all a bit forgettable”. In other words, there’s no brand recognition, nothing that customers can hold onto to (or Dell can point to) that shows Dell now has enterprise services credibility.

But IT service isn’t the only place where Dell lacks enterprise credibility. Dell’s product portfolio is lacking the power to reach into some enterprise accounts. This situation reminds me of a meeting at Compaq (circa 1994). The gist from executive management was that Compaq (a $20 Billion dollar company at the time) could not compete in some accounts because it did not have enterprise products necessary to win the account. In other accounts, it could only win a portion of the IT budget (those tied to x86 servers and small business storage). Compaq executives realized – correctly – that the Compaq brand lacked enterprise credibility—they needed to acquire the technology and talent necessary to compete, rather than building it internally over several years. As a result, they acquired Tandem (Non-stop platform) and DEC (enterprise services, storage, workstations, VAX, 64-bit computing, top-notch compiler team…the list is so long), which gave Compaq the goods and brand recognition to compete at an enterprise level.

Dell needs to do the same. They’re basically at the same point Compaq was in 1994. The Dell brand is lacking the enterprise punch to compete. And with more HP “feet on the street” than ever, Dell will increasingly be marginalized -- pushed out of accounts where they don’t have the product portfolio to “own the entire account”. They need to acquire the technology rather than slowly building internally/organically.

So what is Dell missing besides services? Let’s take a look:

• Enterprise Management (and software): Even if OpenManage (Dell) could compete with System Insight Manager (HP), Dell doesn’t have an enterprise management story to tell. IBM has Tivoli. HP has OpenView. These software divisions are big business for HP and IBM. If Dell wants to compete, they should acquire BMC, CA, or Symantec. Perhaps the best choice is Symantec. Dell and Symantec already have a strategic partnership, plus Symantec has desktop and server management capabilities (through the Altiris acquisition), enterprise backup and volume management (Veritas), and anti-virus software that would compliment Dell’s desktop business.
• Enterprise Servers: Although x-86 servers make up a majority of the server market (especially in terms of units sold), for some applications, customers require systems that have a higher class of availability and performance. In this area, IBM and HP have products at the “mainframe” level (Z-Series and Superdome respectively) and the “workstation” level (P-Series/i-Series and Non-Stop/HP-UX respectively). Dell doesn’t. This problem is harder for Dell to solve. Perhaps Dell can wait for AMD and Intel to solve this product gap problem for them through the future scalability of the x86 server architecture. But another possible scenario is for Dell to acquire Sun (which could be had at a good price). This may sound like madness, but so did the HP/Compaq merger when Carly Firoina and Michael Capellas announced the plan in 2001. Today, the HP/Compaq merger is widely regarded as the right move because it gave HP the product portfolio and services it needed to compete with IBM in the enterprise. Dell needs the product punch and the enterprise brand credibility that Sun can provide.
• Enterprise Storage: A bright spot for Dell. Darren Thomas has this portion of the product group headed in the right direction. Dell has rebuilt the PowerVault brand back with a plethora of products from the NX1950 to the MD3000i. The EqualLogic acquisition was the right move because it gives Dell an enterprise iSCSI storage platform. But Dell’s messaging around iSCSI is lackluster, and they run the risk of being eclipsed by Cisco’s march toward FCoE. In addition, it’s painfully obvious that Dell’s relationship with EMC isn’t going to last forever. The EMC relationship, in some ways, hurts Dell’s enterprise credibility. Customers don’t give Dell the credit (that they probably deserve) in enterprise storage because they feel that Dell has “partnered” their way to the enterprise rather than built it (or acquired it) themselves. Dell must continue to quietly replace their EMC product line, and at the same time, acquire storage technology that will build on their EqualLogic acquisition – such as storage management, data management, and data protection

Look, I’m not saying Dell is going away. Far from it. They have a solid place inside many data centers. But Dell must address their brand perception issue or face serious future problems. I’m not the only one who is asking the Dell question. Check out Henry Blodget's interview with Aaron Task on Yahoo Finance.

Dell – you changed the IT game once. The competition has reacted and turned the tables. Now, it’s your move.

[Posted by: Drue Reeves]

Comments

[marc farley]

Hi Burton guys, (I couldn't see who posted this, so I'm using the generic handle) Marc Farley here from Dell

HP made a good deal for HP. I don't think it would have been as good a deal for Dell, for some of the reasons you give - Dell doesn't have the enterprise brand and credibility yet that HP does. Buying EDS wouldn't have changed that.

In regards to using Compaq as a case study for building enterprise credibility through acquisition, I tend to recall that many of those acquisitions weren't all that terrific. The best part of it, by far, was the storage part - and Dell has already copied that with the EqualLogic acquisition. So I don't agree that Dell should be following in Compaq's footsteps.

The situation with enterprise acceptance of Dell's products is a lot better than people think. We are extremely competitive with server technology and have been doing a lot of the right things that matter to IT people. It's funny how the sweet spot in the market has changed from performance to energy efficiency the last couple years, but the pendulum continues to swing in the direction of energy efficiency and we are leading the industry in energy efficiency.

We also have excellent cloud-oriented products (that we are delivering) that are doing very well too, but I'm not supposed to say too much about them. Of course, those product successes don't necessarily translate into changes to the Dell brand, to make it more enterprise-wise and I agree that we need to work harder to make that happen.

Storage, as you say got a lot better with the EqualLogic acquisition. But as you also point out, it wasn't all that bad before, thanks to the EMC relationship. There is a lot of storage talent at Dell today.

This is probably going to sound strange, but I also don't agree that there will be an issue with our iSCSI agenda and the industry's work on FCoE. I myself don't like FCoE very much (as you probably know), but there are others inside Dell who see it (rightfully) as a growth market that we need to participate in. Still that's all future stuff that has a long ways to go.

The enterprise management question is an interesting one. Maybe that's something we need to do and maybe it would be a complete waste of time. There's a lot of vendor lock-in that customers don't want related to enterprise management. The integration work we've been doing with partners such as Microsoft (SCCM) are certainly very good for our customers. Maybe an open-market approach won't work for us, because there are no barriers for HP or IBM to copy us. But maybe customers will come to realize that out integration points actually do build a lot of value, just as EqualLogic's integration points with Microsoft and VMware build a lot of value.

The one thing I absolutely agree with is that Dell needs to work harder on its enterprise brand.

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Storage, as you say got a lot better with the EqualLogic acquisition. But as you also point out, it wasn't all that bad before, thanks to the EMC relationship. There is a lot of storage talent at Dell today.

[Drue Reeves]

Referb and used computers -- first of all, thank you for your comments. Nice to have you out here.

The storage division is one of the bright spots for Dell. I really think Darren Thomas has brought a lot to Dell. The storage team at Dell is a bright group. Having said that, storage management continues to be an issue for Dell. They have 5+ storage management interfaces including: EQL, Open Manage, Navisphere (EMC's Clariion), Windows Storage Server, MD3000i (LSI's interface), and several more.

On the server side, my opinion is that Dell really missed the boat by not picking up the Sun HW from Oracle. Oracle was looking for a suitor and Dell missed the boat. Dell's brand says "client" not "enterprise". They needed the Sun brand name to boost their enterprise image. Now, there's no one out there to be had. So, how will Dell build an "enterprise" brand image (where the margins are rich)? Organically? Not likely.

On the services side, I'm not sure they had to buy Perot. Since EDS went to HP and PWC to IBM, Dell had a captive market in Perot, CSC, and Accenture. Perot, CSC, and Accenture were most likely going to sell Dell HW, just to keep HP and IBM services out of an account.

So, Dell's acquisition and market acquisition makes little sense from an enterprise perspective. Someone at the top better get their act together...and quick.

My guess is, we'll see Dell pick up a big-time management vendor in the next few months....say BMC, CA, or Symantec. If they stick to the client side of the market, Symantec would be a better buy, IMHO.