Dell is much more than the piece-part desktop and server supplier that many corporate executives believe it is, says IDC Chief Research Officer Crawford Del Prete. “They bought Perot systems, Compellent, Wyze, North End, Quest, to expand their footprint,” he says. Today Dell is expanding into Cloud services and has built a strong consulting organization. It is ready and capable of partnering with customers at a strategic level.
But despite Dell’s best efforts, except for the deep relationships with clients maintained by its large but slow-growing Perot Systems subsidiary, it is still seen mainly as the self-service server and desktop Web storefront the defined its initial business.
It isn’t that Dell isn’t delivering the message to the marketplace, Del Prete said in an interview in the Cube with Wikibon Cofounder/Chief Analyst Dave Vellante and SiliconAngle Founder/CEO John Furrier. “It’s that people aren’t listening because everybody has Dell on their desktop and Dell in their server rack.”
This is a problem for Dell in an industry where the traditional strong growth has slowed dramatically this year under the impact of server virtualization and a slow economy. “The market historically has been growing at 10% to 15% per year,” Del Prete said. “This year it will struggle to make 5% to 7%.” This is driving consolidation as the big players grow by acquisition rather than just showing up, and Dell certainly has been one of those doing the acquiring.
The overall strategy is to expand into areas adjacent to the vendor’s traditional focus. So for instance HP is now up to about 11% market share in networking from virtually zero a few years ago, taking customers mainly from Cisco but also from Juniper and other players. Cisco, meanwhile, has been finding most of its growth in the server market, where it had no presence until recently.
Today, Del Prete said, Dell has a strong server line. In networking it still lacks core routing but does have a top-of-the-rack switch. It also still has some holes in storage. But it is steadily filling those, and several announcements were made during Dell World to advance that process.
Dell, however, is also reacting to the changes in the market by moving up-stack. For instance, he says, it is pushing Cloud services. Today if you are buying a server on Dell’s Web site you will see a banner asking if you want to move that workload into the Cloud instead. This is part of a larger marketing effort to position the company as a worthy strategic partner that can help its customers optimize their IT strategy, including both internal virtualization and cloud and external IaaS, SaaS and similar public Cloud services.
“I spend about a third of my time talking to IT leaders, running our end-user business,” Del Prete said. “I see them in two categories. One is looking for the attaboy for cutting expenses as a percentage of revenue. The others are trying to grow their business. The first group is in a race to the bottom. The other is struggling with how to have that conversation around growing the LOB. How do you transform the business by enabling technology?”
Their problem, he says, is that they have spent their careers working with infrastructure, and today that is getting delegated lower in importance. “So yes, buy a new server, more storage. But if we are going to think about how to transform our business, that’s going to come from the LOB.”
It is this conversation that Dell is trying to enter, but the lingering perception that it is a piece-parts supplier is preventing customers from even considering inviting it to participate. “They don’t think of Dell as somebody who can transform my retail experience or transform my channel experience. They think of them as ‘I’ll go on the Web site and buy a server.’” That is a problem Dell’s marketing needs to fix.
An Infinitely Expandable Business Model
On the other hand, Del Prete says, “what Dell has is an infinitely scalable business model.” As it applies that business model to more profitable segments of the industry, it can fuel strong growth. This scalability is a competitive weapon that it needs to wield, and that includes applying it to cloud computing.
One issue in its future is potential competition from original design manufacturers (ODMs). These companies, many based in Taiwan, are hyper-scale producers of electronic components and systems. At present they supply the big vendors, and that arrangement is likely to continue for some time. Today Dell executives believe the company can compete with the ODMs where it needs to, and Del Prete says, “I have no reason not to believe that that’s true.
“The question,” says Del Prete, “is as those guys gain massive scale, do they start adding features to their products, so that they can do business directly with AmEx and Texaco?”
That could be scary, he says, because it has all the aspects of a classic disruptive trend. “Once it does get moving, it’s a train that will be very hard to stop.”
Dell and the Desktop
The desktop market is vital to Dell, and despite statements to the contrary, Del Prete believes that market will remain strong for the foreseeable future. “I saw a tweet the other day from one of our competitors saying PCs are irrelevant. I think that’s laughable. I’ll ask anybody to create something on a tablet, and it’s hard to do.”
He agrees with Michael Dell’s analysis that tablets are for the most part consumption devices, whether they are used to consume movies or business analysis. However, when knowledge workers need to creating something, they will go back to their mostly Windows laptops. “As Michael said, PCs are an industry worth 400 million ships a year.” And that is not going to change.
Del Prete has been using versions of Windows 8 for six months and says that while it has flaws, it also has advantages. Microsoft has a tendency to have problems with every other release of Windows, and Windows 7 was a very solid version. Windows 8 may not be completely stable until SV 2 arrives.
However, he says, as Android and iOS develop, the operating system may become less central over time. Microsoft, he suggests, may move the focus up the stack to Office compatibility across devices. “You can get great Office compatibility if you are carrying a Windows phone and a Windows tablet and have a Windows desktop.”
This is important to Dell, which has bet heavily on Windows 8 for its next generation mobility platforms.
“I believe the PC has a long life,” Del Prete said. “What you’re seeing is the melding of forms. There’s a computer in your pocket, there’s a computer that you’re reading on, and there’s a computer that you create on. It’s about the job you want to get done.”