the world according to dell

8/3/2019 The World According to Dell

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e W E E K S E P T E M B E R 1 9 , 2 0 1118

From Hardware toThe computer industry

started out as a hardware

business, but customers noware showing more interest

in solutions than they are in

products. So thats obviously

where were headed.

Michael Dell

Cover Story


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In 1992, at age 27, Dell becamethe youngest CEO to have his com-pany ranked in the Fortune 500. In1996, Dell started selling comput-ers through the Internet, the sameyear his company launched its firstservers. Since then, the businesshas zoomed to a 2011 market capof $26.6 billion.

Along the way, Michael Dell hasearned the respect of many peo-ple in both the IT world and thelarger global business community.Enterprise Strategy Group founderand chief analyst Steve Duplessiesummed up what a lot of people inthe business think and say about

Dell: Michael is a true one in abillionone in $25 billion, to bemore accurate.

I can summarize the man easily.When we were talking about a bid-ding war that turned into billions [in2010, Hewlett-Packard outbid Dellto buy 3PAR for $2.4 billion, a dealthat many industry observers saidwas overpriced], Michael said: I still

spend my shareholders money asif its mineas if its real money.And you know why? Because it is.

To other mucky-mucks spend-ing billions, its just numbers on aspreadsheet. Michael knows its realmoney. It was pretty profound. Theguy is real.

Moving in New DirectionsNow the company Dell built is

briskly moving into new areas thatdont involve selling and maintain-ing hardwaresomething thatwould have been a completely for-eign concept five years ago. It iswinding down its storage reseller

relationship with EMC and develop-ing new-generation IPs with storageacquisitions: EqualLogic (boughtin 2007) and Compellent (in 2010).

Dell also is averaging about twonew software company acquisi-tions per quarter. Recent exam-ples include application optimizerKACE, data management specialistOcarina Networks, security provider

Pre-med student MichaelDell started his computer-upgrading company atage 19 in his Universityof Texas dorm room in1984. Twenty-seven years

later, although hes traded that littleplace in Austin for a tad-larger head-quarters 20 miles up Highway 35in Round Rock, his company hasmoved about a zillion miles fromwhere it began.

With his design-it-yourself PCsin the 1980s and 1990s, Dell liber-ated personal computing in its ownimage, providing a cost-effectivealternative to IBM PCs and Apple

Macintoshes. In the mid-1990s, Dellmoved into the enterprise: It devel-oped its own PowerEdge servers,resold and serviced storage hardwarefrom EMC, and made it all economi-cally attractive for the companys coregroup of customersspecifically,midrange and small businessestopurchase and deploy the type of ITinfrastructure they needed.

The Texas-based PC and server maker has expanded greatly into

areas nobody would have considered five years agosoftware,

services and cloudsand Dell may have HP to thank for boostingits personal computing business.

By CHRIS PREIMESBERGER

Software and Now to the Cloud

Cover Story

P H O T O S C O U R T E S Y O F D E L L


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Cover Story

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SecureWorks and cloud infrastruc-ture integrator Boomi. (See DellsKey Acquisitions Since 2007 onpage 23.)

The computer industry startedout as a hardware business, butcustomers now are showing moreinterest in solutions [preconfiguredcombinations of software, hardwareand services] than they are in prod-ucts, Michael Dell told eWEEK inan interview at hisoffice in Round Rock.So thats obviouslywhere were headed.

Look at the exam-ple of a large hospi-tal. What they reallydont need is IT. Whatthey want are betteroutcomes for theirpatients. That meansthey need all sorts of tools, like evidence-based m ed i c i ne ,health information systems, betteraccuracy of prescriptions, claimsadjudication systems and affiliatedphysician systems.

Thats what we do now. We wantto provide all these tools in whatpeople refer to as the cloud.

As a result of its acquisition activ-ity in the last five years (since Dellreturned to the CEO job in Janu-ary 2007 after a three-year hiatusas board chairman, replacing KevinRollins), the company is movinginto providing cloud systems andcloud services in a big way. Putit all together, and Dell is quickly

approaching the rarified air occupiedby such venerable all-purpose ITcompanies as IBM, Hewlett-Packard(HP) and Oracle.

When Michael returned to takeback the CEO job in 2007, the com-pany was struggling and hadntchanged its business model, saidCharles King, an analyst with Pund-IT Research. Back in 2007, change

was in the air; there was a strongsense that the old model of pursu-ing only the business of low-margin,industry-standard products for theirown sake was not going to continueto be as profitable as in the past.

Since returning and moving hiscompany away from its image asa maker of low-cost PCs, Dell hassought out strategic acquisitionsthat the company can spin into newprofit centers.

The kinds of companies we liketo acquire are proven, but sort of unknown, Dell said. Well acquireabout eight companies a year, and

Dave Johnson [Dell senior vice presi-dent and chief of acquisitions] willhave to look at about 250.

The best companies are thosewe are already partnering withbecause we understand them andthey understand us. We de-risk alot of the acquisitions because wealready know what were doing.

EqualLogic, a new-generation

storage company whose arrays andsoftware fit right into the cloud-computing model, is a good exam-ple of what Dell does with itsacquisitions: namely, magnifyingtheir value into its 180-countrysales network, and providing capitaland personnel where required.

When we bought EqualLogic [in2007], they had about 3,000 custom-ers; now theyre well over 30,000customers, Dell said. Weve hadKACE for seven quarters; their busi-ness is now seven times larger thanwhat it was before the deal.

I dont know if we can keep doingthateight quarters/eight timesbigger, nine quarters/nine timesbiggerbut well certainly find outif we can.

Dells Take on HPDuring the interview, Dell wasin an ebullient mood, which wasunderstandable. A week earlier, hiscompanys biggest competitor inthe personal systems business, HP,had announced its plans to leave thebusiness entirely to focus more of itsenergies on software and services.(According to industry analysts

Top: Building No. 1 at Dell Headquartersin Round Rock, Texas. The company

bases about 15,000 of its 103,300employees at the sprawling complex.Left: Dells Executive Briefing Centerfeatures interactive demonstrations.


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Company Has a Way to GoDespite its successes, Dell isnt all

the way back to where some industryanalysts think it should be. The stockprice has been hovering in the $15range for about two years; in late2007, it was double that price.

In 2009, during the height of theU.S. macroeconomic crisis, the com-pany saw its revenues drop 16 per-cent in one quarter and was forcedto cut expenses back by $3 billionand lay off about 2,000 workers inthe PC division. Dells most recentquarterly earnings report (Q2 2011)came in under Wall Street expecta-tions and showed only modest gains,with revenue up a mere 1 percentover last year, totaling $15.66 billion.

So it behooves Dell & Co. to makegood on all of its marketsespe-cially those being vacated by a largecompetitor such as HP.

Peter Levine, a general partnerat venture capital firm AndreessenHorowitz, has known and workedwith Michael Dell in various rela-tionships over many, many years.Prior to moving into venture capi-tal, Levine ran the data center andcloud group at Citrix, which hejoined in 2007 after serving as CEOat XenSource. Previously, he wasan executive at storage and securityprovider Veritas, which was boughtby Symantec for $10 billion in 2005.

Levine said that more hardwarecompanies are turning their focuson software infrastructuresimilarto what Dell is now doing.

Ive seen them go through theevolution from being a PC/servervendor to being a full-service orga-nization, Levine said. The move tocloud computingand the empha-sis on software and building out asoftware/hardware solution stackaround cloud computingis aninteresting and innovative approachfor the company. Theyre taking

their hardware and service assets,coupling that with software assets,and moving toward the cloud com-puting infrastructure space.

Michael Dell is a visionary leaderwhos succeeded in the last couple of years to increase the value of the com-pany from a customer perspective,Levine said. Thats ultimately howthese things get measured. Theiracquisitions in the service space havemade them more comprehensive.

Nevertheless, Levine doesntbelieve the company is completelyout of the woods yet.

There is a subtle differencebetween what I and other people

might think of Michael Dell versusDell as a company, Levine said. Dellas a company, to me, still feels likea hardware company. I know theyrerapidly changing that to increasetheir service offerings. Ultimately,I think its going to come down tosoftware, which is going to make ahuge difference in their overall abilityto deliver all these new capabilities.

I think theyre on a great path toget there. I think Michaels a visionaryleader for the companythats whyhe came backand we can see a lotof things in process. Their next move,providing cloud infrastructure andhosting applications as a service, is asmart one.

Sensing a Changing MarketPund-IT analyst King believes

Michael Dell has learned some valu-able lessons from other com-panies about what to doandwhat not to doin order togrow Dells core business andexpand into new areas.

HP is a great example of this, King said. It did $41billion in the PC businesslast year at a 5 percent mar-gin. Basically, a third of theirbusiness produced about 15percent of their profits.

What [Michael] Dell didwas look around to see whatother CEOs have doneespe-cially [Samuel] Palmisano atIBM, who has moved quicklyand aggressively to a software-and service-driven business,using software as a differen-tiator for their hardware.

Dell will continue in the PCbusiness and will find plenty

of buyers. [Michael] Dells kept hiseye on the prize: the cloud and all thesoftware and services that go with it.

Theyre selling into nine of thetop 10 Web services providers in

the world, and they were the firstvendor to create a hyper-scale cloudcomputing unit to focus specificallyon those data centers. Dell may beunderestimated by some people.That would be a mistake.

eWEEK Senior Writer Chris Preimes-berger can be reached at [email protected].

DELLS KEY ACQUISITIONS SINCE 2007

NOVEMBER 2007 EqualLogic: new-generation virtualized storage for midrange enter-prises; $1.4 billion

SEPTEMBER 2009 Perot Systems: appli-cations development, systems integration, strate-gic consulting services; $3.9 billion

FEBRUARY 2010 KACE Networks: sys-tems management appliances; terms not disclosed

JULY 2010 Scalent: data center automationsoftware; terms not disclosed

JULY 2010 Ocarina: storage managementand deduplication; terms not disclosed

NOVEMBER 2010 Boomi: software-as-a-service integrator; terms not disclose

DECEMBER 2010 Compellent: high-endvirtualized enterprise storage hardware and soft-ware; $940 million

Source: eWEEK


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