The Channel Implications of Dell's Acquisitions

Dell has been on a buying spree to create a new portfolio of automated, remote services as a part of its efforts to rejuvenate its overall business.

Not long ago this initiative may have been applauded when Dell was the computer industry's direct sales leader. But instead, Dell's recent acquisitions have been met with a different reaction as the company attempts to add indirect channels to its go-to-market strategy.

On Nov. 15, Dell acquired Everdream, a SAAS (software as a service) provider of automated service management and helpdesk solutions for desktop and mobile devices. This was the company's second acquisition of a remote management services company in less than six months. The first was SilverBack Technologies in June, which gave Dell remote server management capabilities.

Resource Library:

THINKstrategies believes that these transactions are part of Dell's larger strategy to strengthen its position in the market by adding a new layer of automated management solutions to its product and service portfolio. The biggest example of this strategy so far is Dell's acquisition of EqualLogic, an automated iSCSI SAN (storage area network) solutions provider with technology geared toward virtualization environments.

Although the EqualLogic acquisition generated plenty of headlines in the business and trade press because it was the company's largest acquisition to date, the SilverBack and Everdream acquisitions have raised many concerns among channel organizations.

Many VARs and integrators have harbored animosities toward Dell for years because of its longstanding direct sales model, which has circumvented the channel and helped to commoditize the PC and server market. So, when Dell fell on hard times in 2006-2007 many channel organizations were pleased to see the company suffer and were slow to respond to the company's overtures to establish new partnering arrangements.

Many of these channel companies have become equally apprehensive about the long-term implications of the SAAS movement and growing customer receptivity to managed services. They see both these trends as a threat to their business because SAAS and managed services give software and hardware vendors a new means to establish a direct relationship with end-user organizations and usurp the power of the channel company.

Although Dell has said all the right things about using its acquisitions to better support its partners, channel companies still have good reason to be uneasy about the implications of these moves.

SilverBack and Everdream were both among the first generation of independent managed service providers founded during the late 1990s. They pioneered the MSP business and have built solid automated, remote IT management platform capabilities. While these capabilities may pose a threat to the channel because they can be delivered directly to end-user organizations, in reality both companies have shifted away from providing direct services in favor of offering SAAS solutions to resellers and others aspiring to become MSPs.

It is the combination of the remote management and channel support capabilities that attracted Dell to SilverBack and Everdream. The company hopes that SilverBack and Everdream's growing success in supporting the managed services needs of channel companies could enhance its budding relationship with VARs and integrators as well.

Dell's vision is to be admired, but its success will depend on a dedicated education process and delicate politics. SilverBack and Everdream have learned the hard way that enabling channel companies to become MSPs requires more than good technology. It also entails helping them transform their business model to fully capitalize on the managed services opportunity.

SilverBack established a "franchise" program to help its partners become MSPs. Everdream has been building a similar channel education and support program. Dell is promising to enhance these programs to help its channel partners deliver a new level of remote management services to their customers, particularly midsize organizations. If it succeeds, it will enable channel companies to better position themselves in a world where product differentiation is fading.

But the automated, remote management capabilities gained from EqualLogic, Everdream and SilverBack are also scalable enough to enable Dell to enhance its direct support capabilities to small businesses and large-scale enterprises, where Dell plans to continue to sell direct. These remote management capabilities will permit Dell to deliver more profitable services to small businesses and more powerful services to its major accounts.

While these strategies may be a threat to some channel companies, complaining about them will not change Dell's strategy. Instead, Dell will modify some of its tactics to make its overtures to channel companies more palatable.

Therefore, enlightened channel executives should take a close look at how they can capitalize on the managed service capabilities Dell is developing to meet the changing needs of their customers.

Jeff Kaplan is the managing director of THINKstrategies (www.thinkstrategies.com), a Wellesley, Mass.-based strategic consulting services firm. He can be reached at jkaplan@thinkstrategies.com.