Dell's Services Play: Necessary But Late

Dell paid a huge price to buy Perot Systems and with services not a traditional part of the PC maker's DNA it will be interesting to see how it manages and integrates the new assets.

For me, the Dell/Perot deal is a pretty simple debrief.

Dell has been trying to gain relevance in the enterprise, with servers, storage and services. The company had no real comparable services arm to compete with EDS/HP or IBM Global Services. They are worried about getting further commoditized at the device/PC level and about not having an offsetting high margin services play. They’re smart enough to know they can only streamline their cost structure so low and become further efficient at commodity PCs as a sustainable business strategy for so long. They also were last to the game with a meaningful outsourcing services offer. Lastly, they also needed vertical industry practices to gain more business user relevance (and stop selling on price and feature/function to the IT Director).  So, Perot brings them all of those things, with a stated focus and successful history in a couple of big verticals (government and healthcare).  

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It just seems to me that Dell paid a HUGE price for this (60 percent-plus premium over current stock value). But the clock was ticking.

As it relates to making a big play in the data center, Dell’s strategy and strength remains to be seen. I guess it will depend on how they package the server products, services and non-server devices (storage, networking) into an integrated, branded offer. To compete with IBM in that space will take decades. Services are not really in Dell’s DNA, so it will be interesting to watch how they manage and integrate the Perot assets. The only other big guys they could have bought this way that would have given them a comparable set of assets would have been CSC, Deloitte or one of the Indian offshore SIs – or some federal integrator (but that would be too vertical specific).

I think what will be interesting to watch will be how Dell uses its consumer and SMB insights to creatively package Professional Services and managed services into “commodity” packages of computing-as-a-service to enterprise accounts. Meaning, can a largely consumer-oriented brand dominate in the market because they understand how the user wants to use technology -- as the market moves to SaaS, managed services and mobility computing? How far out of their selling and marketing “comfort-zone” will this acquisition take them? 

For Dell solution providers (or those interested in becoming their channel partners) caution should be the watchword when evaluating how the PC maker will weave Perot’s services competency into its channel engagement programs – or not. Dell channel chief Greg Davis recently hired a channel veteran, Nancy Reynolds (previously Trend Micro and Novell) to lead their enterprise channel strategy. And they are certainly investing in training, enablement and performance incentive programs for their growing  number of channel partners.  But, many solution providers still vow to never “partner” with Dell, citing their historic direct-only selling model and bias. 

It’s back to the big question of “what’s the enterprise data center backbone?” The network? The computing devices? The business applications? It seems to me that he who owns the network infrastructure will be the puppeteer with all the strings in the next decade, at least as it relates to selling discrete technology. I see Cisco as the one to beat there – and we all know this company’s commitment and resources allocated to partnering. But, he who can package standard IT components into a meaningful service offer and back it up with strong SLAs and outsourcing services will be the one to whom the user writes the ultimate check. Further, the company who can harness the services opportunity AND do it through a scalable, empowered indirect channel organization will surely prevail. 

The winner of that battle remains to be seen.  I’d place my money as of today on IBM first, HP second, Cisco third and Dell last.   

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