Features - Enterprise Data Insights:

DELL SAYS ENTERPRISE MOMENTUM IS GATHERING
By William Fellows, the451.com

With the wind in its sails from the bolstered EMC relationship and key hires from Hewlett-Packard/Compaq in place, Dell's enterprise ambitions are gaining momentum. Storage, servers and services are where the margins are, and Dell's long-term business plan calls for it to be an enterprise player. But hang on, Dell doesn't have more than an eight-way box, it doesn't do Unix, and does it even have a services and integration business?

Impact assessment

With the PC market cooling off, Dell is now building an enterprise business. The arrival of modular, commoditized server architectures combined with Dell's low-cost direct model, some heavyweight partnerships, key hires and new efforts in services and marketing are expected to drive its enterprise revenue up from 20% of sales today.

Competitive landscape

Enterprise vendors may not like each other, but none of them will want to contend with Dell's model, if it can be applied to the enterprise. The competition will rightly point to Dell's lack of enterprise experience, its lack of anything bigger than an eight-way, its lack of Unix (and hardly religious zeal about Linux) and its apparent lack of a services and integration business. Most enterprises are unlikely to switch to Dell anytime soon for mission-critical computing, unless modular computing takes off in a big way and Windows or Linux is up to the task. For what it's worth, Gartner Group believes a Dell/Sun Microsystems combination makes the most sense, and is most likely, in the long term.

The451 assessment

The messages Dell could be using to build enterprise credibility are ones it currently talks about only in passing and doesn't yet articulate as competitive positioning or differentiation. The unsung benefits of its direct model include the huge mutual benefits for partners, the lack of internal conflict over sales and the opportunity to maximize customer service because it knows everything about who its customers are. Tapping associations with emerging technologies such as grid computing, being more forthright about Linux and offering some genuine innovation would help it get on to the radar.

Context

Dell derives 20% of revenue from enterprise sales -­ 10% from services. It estimates an enterprise sale is now a 50% processor and 50% storage and services mix. And 49% of that storage is networked, compared with 51% direct-attached or tape. Linux is a small, single-digit percentage of its business right now.

The fact is that Dell has some major challenges ahead of it, quite apart from the enterprise. For one thing, 70% of its business is in the US, 20% in Europe and 10% in rest of the world. In short, can it do in EMEA what it did in the US with the direct model? The company believes that in the last quarter it had a 30% share of the Intel server market in the US, versus HPQ's 30.5%. In Europe, it had 14.8%, versus HPQ's 45.4%, and worldwide it had 20.5%, versus 36% for HPQ.

Strategy

To be sure, Dell won't deliver the enterprise overnight. The company is dependent on 'industry standard' computing Wintel and Lintel environments maturing to the point where its direct model can be effectively leveraged. It's a model that works on volume, and Dell doesn't believe the very high-end Wintel technologies from the likes of Unisys, HPQ and IBM are mature enough or are a volume sales opportunity. It is also engaged in a battle for supremacy in Intel servers with its new nemesis HPQ. It's not ready, willing, able or ever likely to fight a RISC replacement battle.

Indeed, Dell's firm belief, according to Walid Moneimne, vice president and general manager of Dell's EMEA enterprise group (fresh from Compaq's enterprise business), is that the enterprise market it will serve is one that scales out, rather than up, and is focused around the new breed of modular processing technologies epitomized initially by blade servers.

The acquisition of Compaq by Hewlett-Packard, while creating a far bigger adversary than Dell faced from them individually, has also handed it ­- and other vendors -­ a new opportunity to get onto customers' shortlists. Users, Dell says, typically do RFPs with three more vendors for new purchases, and the consolidation of Compaq into HP means there's often another seat at the table for prospective suppliers now.

The problem is that Dell has little experience of the enterprise, compared with the incumbents. It doesn't appear in the quadrants of those that measure and define the market, and doesn't speak the language either.

Describing its value proposition and differentiation in the enterprise as the ability to offer 'end-to-end solutions' isn't going to turn any heads. We think Dell should work on messages and positioning that leverage the real potential of its model, and begin associating with emerging enterprise technologies, such as modular and grid computing, which play to its strengths.

Message in a model

Its direct model has a number of advantages. Its use of partnering works to its long-term advantage, compared with the usual stop-gap and often politically fraught relationships that vendors strike with each other. The company is not so much filling gaps in product lines but creating mutually beneficial virtual companies by locking vendors into its supply chain and the enormous benefits it brings. The products it gets in return exhibit the same low-cost economies of its own IP, because they use components sourced through its supply chain and bring partners a Rolls Royce distribution vehicle.

The EMC relationship Dell has for Clariion NAS and fiber channel storage sees products manufactured by EMC with components sourced from Dell being sold, serviced and supported by Dell. The deal will extend to Dell manufacturing a low-end Clariion box using Intel chips and ATA drives in due course. It has gotten EMC through doors that the array maker could never otherwise have hoped to open. And pass-through business for EMC's Symmetrix line (typically where a customer wants to do the kind of replication not supported by Clariion) is now happening. It's not inconceivable that Dell will eventually carry Symmetrix, too, as its enterprise experience builds. Moreover, who would bet against Dell when it enters the printer market using the same approach, as it has vowed to. The single model means there are no internal conflicts between teams engaged on direct sales and indirect channels. There's also no conflict around having to keep up sales of legacy licenses -­ and services sales to these accounts ­- in order to maintain revenue: Dell has only one source of revenue.

The direct model also means that Dell knows everything about all its customers and can deliver customer service ­ something other companies with indirect models pay fortunes to find out. Think about the amount of money Microsoft must spend on just trying to get customers to fill out product registration forms.

Dell offers integration services, some managed services and has a small but growing professional services business that it's rolling out on a geographical basis. It recently bought Plural to give it some momentum in this space. And we are told to expect a significant push into services following the hiring of Jeff Lynn, the former head of Compaq's professional services business.

Other messages that need to be communicated are 'scale out, not up.' The emerging modular, commodity computing market is premised on this, and it's what Dell does best. In a two-day briefing on its enterprise ambitions ­ as much a learning exercise for Dell as for attendees ­ Dell didn't mention the deal it had struck with Platform Computing the previous day for its grid computing software. And yet this is exactly the kind of opportunity Dell should use to create messages that stimulate its enterprise credibility.

Dell doesn't do Unix. What does it do? If it is going Linux it should be a bit more religious about it. With IBM having made a huge commitment to Linux, it isn't going to disappear. In general, some innovation around emerging enterprise technologies would surely pay dividends for Dell. And it doesn't have to go to war with RISC and Unix vendors to do this.

Competition Enterprise vendors may not like each other, but none of them will want to contend with Dell's model, if it can be applied to the enterprise. The competition will rightly point to Dell's lack of enterprise experience, its lack of anything bigger than an eight-way, its lack of Unix (and hardly religious zeal about Linux) and its apparent lack of a services and integration business.

Most enterprises are locked and loaded, and are unlikely to switch to Dell anytime soon for mission-critical computing, unless modular computing takes off in a big way and Windows or Linux is up to the task. For what it's worth, Gartner Group believes a Dell/Sun Microsystems combination makes the most sense, and is the most likely, in the long term.

Courtesy the451.com