Opinion: Dell's buying into managed services will ignite fears of commoditization.It was only a matter of time. Sooner or later one of the managed services platform vendors that have gotten so much attention in the last couple of years was going to be acquired.
Now it's happening. SilverBack Technologies, based in Billerica, Mass., is the winner of this particular race. The surprise in this development is the buyer—none other than Channel Enemy No. 1—Dell.
Dell disclosed July 18 that it has entered into an agreement to acquire the privately held SilverBack, whose remote monitoring and management platform Dell, based in Round Rock, Texas, plans to integrate into its operations.
The deal is likely to make some, if not all, of SilverBack's partners very nervous, considering Dell's uneasy history with the channel. In addition, SilverBack's competitors will have to grapple with the prospect of commoditization and wonder if they, too, shouldn't sell or merge.
For months, rumors have circulated through the industry that SilverBack was negotiating a sale. But, as is often the case with these types of deals, the vendor wasn't about to disclose anything publicly. Some managed services executives, however, had acknowledged that, not only had they heard the rumors, but they were also being approached by potential buyers.
For Dell, the benefits of the acquisition are obvious. The company is no longer the Wall Street darling it once was, and it has had to start working hard to regain the loyalty of customers it has disappointed with poor service. To regain its former luster, Dell is making an aggressive push into services, which explains the SilverBack purchase.
Also, for the first time, Dell has started to sell its products at retail chains, and its executives have intimated that the vendor is putting a channel program in place. Of course, it wasn't long ago that Dell made a practice of antagonizing the channel by urging customers to "cut out the middleman" and "buy direct."
How SilverBack's channel partners will react to the sale remains to be seen, but I would hazard to guess that a good number will be unhappy. Some may look for a new managed services vendor.
SilverBack's partners include companies that have transformed themselves into MSPs (managed services providers), or that are in the process of doing so. They have taken this route after concluding they couldn't survive on a product-pushing model. Margins were too thin and the vendors they worked with, such as Hewlett-Packard, were at times making matters worse for them by trying to replicate Dell's direct model.
Dell, with its rock-bottom pricing and public disdain for the channel, was a major reason VARs and integrators had to fight for their survival. Dell had a huge hand in the commoditization of computer products.
Of course, the commoditization would have happened with or without Dell, and the channel companies that have moved to embrace the managed services model should, in the end, be better for it.
Still, SilverBack's partners are likely to worry about the commoditization of a model they embraced to escape commoditization elsewhere. The commoditization of remote monitoring and management already has been predicted, and MSPs have been warned to immunize themselves by continuing to add value. But will Dell's grand entrance into the space accelerate the process?
It's entirely possible. And as the commoditization potentially accelerates, SilverBack's competitors inevitably will reevaluate their market standings. One or two might even be compelled to seek a buyer or merger partner to stay competitive.
Just as this first acquisition in the managed services space was inevitable, further consolidation is a certainty. Now, the floodgates are open.
Pedro Pereira is editor of eWEEK Strategic Partner and a contributing editor for The Channel Insider. He can be reached at ppereira@ziffdavis.com.
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