Dell Is Changing its Stripes

Can Dell transform itself from a hardware maker into a full-fledged software vendor, too? Based on its recent shopping spee, it sure is trying.

• Company: Dell, Inc.
• Headquarters: Round Rock, Texas
• Employees: 109,400
• 2012 Revenue: $62.1 billion
• CEO: Michael Dell
• What They Do: Dell gets about two-thirds of its revenue from PCs, laptops and servers. It also sells storage and network gear and has an IT services arm through its acquisition of Perot Systems. It recently made a push into software through several acquisitions, and by planning to buy systems-Amanagement vendor Quest Software.

The Pitch

Dell is in the midst of a turnaround plan to reduce its dependence on PCs and expand into more profitable areas such as software and services. It has moved to acquire more than a half-dozen software firms recently, including cloud-integration vendor Boomi, security vendors SonicWall and SecureWorks, and IT-management specialist Quest Software.

Dell’s goal isn’t to build an independent software business and compete with Oracle and SAP. Rather, it wants to combine its hardware, software and services into prebuilt packages that it says will make it easier for midsize firms to adopt technologies like data warehousing and virtualization. John Swainson, the former CA Technologies chief brought in to run Dell’s software business, says Dell is targeting four areas: security, systems management, business intelligence and applications. For that last one, it will partner with firms like Microsoft and Intuit to offer hosted versions of their applications.

The Catch

Analysts say Dell is buying the right companies, but they note that it’s challenging for a longtime hardware vendor to switch gears and build a new business. For starters, Dell has to retrain its sales staff to sell complex systems combining software and hardware, something Swainson acknowledges is “no small feat.” It also needs to reeducate thousands of channel partners.

Plus, Dell has some integration work to do. For example, Quest has 125 products in areas like Windows Server management, performance monitoring and data protection. Dell hopes to apply those capabilities to its other software products, but Swainson says the process will take two to three years to complete.

“It’s not an inconsiderable or simple task they have ahead of them,” says Charles King, an analyst at Pund-IT.

Nor has everything gone smoothly. Dell planned to launch a hosted analytics service using its Boomi software this year, for instance, but that rollout has been pushed back to 2013.

The Score

Tippett Studio, which provides visual effects and animation for Hollywood movie studios, uses three racks of Dell’s high-density PowerEdge C6145 servers in its rendering farm. The company also has 200 to 300 Dell workstations for its visual artists.

CTO Sanjay Das says he gets attentive service from Dell, and for that reason he would take a close look at its software. He’s evaluating Dell’s Kace management appliance, which includes software for rooting out problems in systems and networks.

But building a software business will be an uphill battle for Dell, Das says. Not only is it traditionally a hardware vendor, but it doesn’t have a history of research and innovation the way a rival like Hewlett-Packard does, he says. “I think it’s a humongous challenge for Dell.”

Many companies have already chosen their strategic software partners, he notes, so Dell must differentiate itself. And buyers favor vendors with expertise in a particular technical area. For instance, Das is evaluating Cisco’s Prime software alongside Kace, in part because he already uses a Cisco switch for networking.

“The reason I’m looking at Cisco Prime is because all systems management ultimately goes over the network, and who better understands networking than Cisco?” Das says.