On Monday, the Federal Trade Commission sent out its list of transactions that have won early clearance from regulators. It means the acquisition can proceed as planned. Such deals can be cleared by either the FTC or the Department of Justice.
Dell was a likely suitor for Quest, as the two companies work closely on product integration and go-to-market channels. Dell has been on an enterprise buying spree for the last 18 months, with its major purchases including SonicWall (security), Wyse Technologies (virtual desktops), Force10 Networks (networking), and Make Technologies and Clerity Solutions (cloud applications and management). In the last quarter, Dell formed a new software division under the leadership of former CA Technologies chief John Swaison to expand its enterprise systems appeal.
A few months will pass before Dell officially closes its $2.4 billion acquisition of Quest Software. When the ink dries, though, Dell’s annual software sales will shoot above $2 billion. It’s an impressive critical mass achieved by a company that had virtually no software sales until recently. But it’s nothing compared to the $5 billion in software sales Dell hopes to attain by 2016.
Inside that goal is a tremendous channel opportunity and a few challenges. Each software acquisition Dell makes brings new, specialized partners to the Dell PartnerDirect program. And each acquisition raises the stakes for partners engaged with Dell.
In a roundtable discussion in San Francisco, Dell software president John Swainson laid out the Dell ambition and strategic plan to press and analysts. The ultimate goal is nothing short of transformation, in which organic software growth and acquisitions will steadily increase Dell’s software revenue, contribute to the diversification of the product portfolio, and create more attached sales opportunities, he told attendees.
“Companies like IBM, HP and Dell have to provide a computing platform with the server and the software-as-a-service,” Swainson said, according to Bloomberg BusinessWeek. “That’s what all these acquisitions and vertical integration are about.”
In the last 15 months, Dell has spent more than $5 billion acquiring eight companies that have filled several strategic gaps in its bid for a diversified portfolio of enterprise IT capabilities. The purchases of Force10 Networks and Wyse Technology have brought Dell into the networking and virtual desktop markets, and Make Technologies and Clerity Solutions are expanding Dell’s ability to build and deliver cloud solutions.
But it was the acquisition of SonicWall in February that started Dell down the software path. While SonicWall is primarily a hardware security company specializing in unified threat management and next-generation firewalls, Dell made it the first component of its new software division. It hired Swainson, the former CEO of CA Technologies and IBM veteran to run the division.
Currently, Dell does about $1.5 billion in software sales. That figure will jump to roughly $2.3 billion when Quest is officially folded into the company. And through more acquisitions in security, cloud management, systems tools and, potentially, databases and business productivity applications, Dell aims to build a rich software portfolio, Swainson said.
The software business development is not unlike the transformation IBM went through. The difference, Swainson says, is that Dell will have a critical mass in the near horizon – most likely 2016.
“IBM took 20 years to remix a business that was hardware-centered to one that’s software- and service-centered,” said Swainson, according to PCWorld. “It won’t take us 20 years to do that, but it also won’t take a year-and-a-half.”
Adding more software to Dell will make it a more palatable alternative to companies such as HP, IBM and BMC Software. It will even compete on some levels with the likes of Microsoft and CA Technologies. And, with Quest’s managed services tools (RMM and PSA under PacketTrap), Dell will become an even stronger competitor to companies such as Level Platforms, N-able Technologies, Kaseya, ConnectWise and Autotask.
Dell’s software ambitions have tremendous implications for the Dell channel. Dell has spent the last five years building a 100,000-strong global channel network of authorized solution providers to resell Dell products and services. Over the last 18 months, Dell has shifted its channel strategy from broad distribution to targeted engagement. It’s developed specialty programs to enable and incent partners with specific capabilities to drive enterprise and midmarket sales.
The recent acquisitions will only help Dell’s specialization and segmentation of its channel. SonicWall, Wyse and Quest bring new channel partners with specific capabilities and targeted performance to the Dell channel network. Through acquisitions, Dell’s channel will transform into a series of specialized segments with complementary skills and capabilities rather than the legions of generalists that populate the network today.
The challenge for Dell going forward is maintaining channel momentum amid additional software capabilities. The channel is steadily contributing more revenue to the Dell gross and bottom line. Software, however, has never been the strong suit of the broad channel. Dell will need to undertake channel training and enablement programs to make software a true success and maintain growth momentum.
Without a doubt, Dell will achieve its $5 billion goal by 2016. What will be interesting to watch is what partners will contribute to that goal and how the software strategy will influence Dell’s evolving channel program.