Dell Enters the Managed Services Business

Dell’s announcement that it plans to acquire SilverBack Technologies clearly shows how the IT industry is shifting from a product focus to a service orientation. While the size of this transaction was minute compared with the mega-deals that are getting headlines today, the significance of this acquisition could be great.

SilverBack was one of the original MSPs (managed service providers) who pioneered the managed services market, and shifted its business to become a remote monitoring and management services delivery platform provider for other aspiring MSPs. Part of the reason for this transition was because SilverBack was having difficulty building its own business as a MSP when the overall market was still evolving.

SilverBack was also one of the first enabling technology vendors to recognize that resellers, integrators and other aspiring MSPs needed more than just the right technology to deliver their services. SilverBack recognized these MSP wannabes also needed business training regarding how to package, price, sell and support a managed services business. In response, SilverBack developed a “franchise” model for getting new MSPs up and running.

To read about what a former SilverBack executive thinks about the acquisition, click here.

Despite this innovation, SilverBack has continued to face significant challenges as a stand-alone vendor. In addition to having to evangelize and educate resellers, integrators and other MSP wannabes on the virtues of managed services and how to do it right, it also faced a widening array of competitors including N-able, Level Platforms, Zenith Infotech, Everdream and Kaseya, not mention BMC Software, IBM and HP.

Since its target customers were often cash-restricted, SilverBack and its competitors have often had to structure its contracts to be “success-driven,” meaning SilverBack would be paid when the MSP sold its services. This extended the sales and revenue recognition cycles, and created an ongoing constraint on the company’s growth.

This acquisition by Dell is important because it shows that Dell is serious about regaining its momentum in the market, in part by strengthening its service delivery capabilities. Dell is in a unique position to leverage SilverBack’s capabilities through its direct sales model. Unlike its competitors who rely heavily on channel partners to support the end customer, Dell can deliver an added level of managed services to meet customers’ escalating support needs.

This advantage can enable Dell to demonstrate a greater ability to ensure higher reliability, security and return on investment of its products.

Ironically, Dell has made recent pronouncements that it will be adding indirect channels to its traditional go-to-market approach, which could complicate its managed services strategy. Going forward, Dell will have to clearly segment its managed service offerings to minimize the risk of channel conflict. It will must also overcome its own internal product-centric culture in order to fully leverage its new managed services assets.

Dell’s move is not the first time a product vendor has delved into the managed services market via acquisition. In 2004-2005, Cisco Systems and Sun Microsystems also tried to enter the managed services business via acquisitions of NetSolve and Sevenspace respectively, with limited success. Both were stymied by a combination of internal cultural and external channel issues.

Despite these challenges, Dell’s acquisition of SilverBack is further validation of the fundamental transformation of the IT industry. It is also another indication that IT vendors must shift their strategies from product to service differentiation in order to meet the changing needs of their customers.

Kaplan is managing director of THINKstrategies, a consultancy in Wellesley, Mass. He is also the founder of the Managed Services Showplace, www.msp-showplace.com, the largest vendor-independent online directory of managed services and insights. He can be reached at jkaplan@thinkstrategies.com.