It's official.
Dell, master of the hardware supply chain, is a software company. Or
rather, it has a budding software company within its ranks, the Dell
Software Group, which already has a revenue run rate of $1.45 billion.
John Swainson, president of the group, said at a press briefing in San
Francisco Thursday that he had been asked by CEO Michael Dell to create a
software business that complements Dell's hardware sales. It's expected to
give Dell's direct salesforce of 20,000 and Dell VARs and partners the
chance to follow up a hardware sale with Dell software that adds value to
the system.
Dell will also
depend on the group to provision it with application performance
management, virtualization management, and systems management software
that may be packaged with Dell hardware systems before they ship.
The cornerstone
on which Dell's software ambitions will be built is its recently announced
agreement to acquire Quest Software for $2.4 billion. In Dell's history,
it's a deal exceeded only by Dell's purchase of Perot Systems for $3.4
billion. The deal is still pending and is expected to close in September,
Dell spokesmen said at the event.
[ For
more on Dell's software strategy, see
Why Dell Bought Quest Software.]
Dell has moved
from PC vendor to server seller to assembler of racks of servers. As it
adds networking and storage to its racks, it's been configuring them with
networking, storage, and virtualization management software in its vStart
packages launched last year. In the future, Dell wants to be a complete
systems management software vendor for its systems as well as provider of
hardware, said Swainson.
Its target buyer
is the often overlooked small to medium-sized company with 215-2,000
employees, said Swainson. These companies have small IT staffs with large
responsibilities. "The sweet spot for Dell is the mid-market…We want to
produce a set of solutions designed for that market," Swainson declared.
Michael Dell told
Swainson "to build a software team, not to build an independent software
business, but (a team) highly synergistic with Dell's existing hardware
business," he said. And that's what he plans to do.
Quest is key to
Dell's ambitions because its expertise as a software company cuts across
key areas of Dell interests. Quest supplies vFoglight, one of the few
third party tools to be as popular as VMware's own tools with VMware
customers. VFoglight can be used for monitoring and performance management
of applications running in virtual machines--and it can manage
applications in both VMware and Microsoft VMs. A key element of Dell
software is that it will assume the customer base is using heterogeneous
hardware and software, Swainson said. Virtualization, systems management,
and systems security will all be areas of focus for the Dell Software
Group, he said.
"Analytics and
business intelligence is an underserved area of the mid-market," Swainson
said. Dell will offer an in-memory, analytics system that doesn't require
custom hardware, he added.
Dell will also
get into business applications but it has no intention of going head to
head with Oracle or SAP, two of the largest application suppliers. Both
tend to address customers above the mid-market and both are key Dell
business partners, he noted.
Quest has
generated a large community of relational database users through its Toad
tool, used by developers producing applications for use with the Oracle
database system, Microsoft SQL Server, MySQL, and IBM DB2. Dell will be
able to leverage the Quest tools and user community to better reach
database users in the mid-market, he said.
Don Ferguson, CTO
of the Dell Software Group, said he had just returned from a two-day visit
to Quest, tucked away in the coastal communities south of L.A., and had
been surprised by some of the hidden software assets that the company
hadn't been able to capitalize on yet. Its Toad tools and relational
database represented a major opportunity for Dell, Ferguson said.
"Business
intelligence users typically have a data scientist to work with data. We
think we can deliver a solutions so you don't need a data scientist. We're
reasonably confident that we can build analytics/BI solutions that do not
require a scientist," he said. Dell will also strive to embed analytics in
the systems management software that it plans to produce.
Matt Medeiros,
former CEO of SonicWall, a network security firm that Dell acquired in
April for an undisclosed amount, is now general manager of security
software in the Dell group. Building more security capabilities into Dell
systems as they ship will make them more attractive to the mid-market
customers, he said.
Dell faces a
formidable task in training its large direct salesforce and many channel
partners to add software products to the long list of Dell hardware they
are already trying to sell, said Swainson. IBM spent 20 years converting
itself from primarily a hardware company into a server company that also
sold services and software.
Swainson is
shooting to grow Dell's software revenues from 1.5 billion to $5 billion
within a few years and make it a business with 30% margins. That means it
would represent only 10% of Dell's revenues but 25% of its operating
income, and thus become a significant business inside of Dell. The
software business has the prospect of being a higher profit business than
Dell's hardware lines, was his implicit message.
To get to $5
billion, "it won't take us 20 years, but it will take us longer than a
year and half," he noted.
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