Crucial Choices Ahead for Dell


Dell is kicking off the new year with a reorganization aimed at serving customer categories as opposed to geographic regions in the hopes that faster innovation and better responsiveness will position it well against powerhouse vendors like IBM and HP.


On one level, it's encouraging to see Dell take a stronger interest in serving customer needs, rather than simply providing bigger and better hardware. And the fact that enterprise customers rate their own division within the reorganized company is encouraging. However, there is still some question as to whether Michael Dell truly understands the position the data center find itself in these days.


In the first place, hardware sales are trailing off due both to virtualization and the recession. So any hardware vendor that doesn't have a plan to branch into things like software services and data center management capabilities to transition to the cloud is in trouble. Does Dell have a plan along these lines? Apparently not. This article in American Statesman points up the fact that full-service partnerships are what the enterprise is clamoring for these days, not simple, 90s-style technology vendors.


Dell has made some strategic moves, such as its alliance with EMC to bolster network storage capabilities in the Dell data center portfolio. But if you look closely, this is a hardware integration effort that, while admirably aimed at providing turnkey solutions for the enterprise, has not yet risen to the level of a full-service initiative consisting of a mix of hardware, software, services and ongoing consulting and management expertise-the kind of thing that customers are getting from HP, IBM and others.


The biggest trap here is that Dell will find itself knee-deep in a technology sector that is very likely to become a simple commodity over the next decade or so. With all of the major strides in data center functionality now taking place on the virtual/cloud layer, hardware margins will become tighter and tighter. Wall Street is certainly aware of this, with some analysts expecting much of the tech sector to convert into a new kind of utility-providers of essential services that customers cannot live without.


This all goes back to a point I made in a blog last month asking the top vendors what business they think they are in. If the answer is hardware, well, there will always be a need for underlying hardware but it is no longer the cutting-edge business it used to be. But if the answer is enterprise/data center solutions, you now have the flexibility to provide the means to satisfy all manner of business needs.


HP, IBM, Microsoft, yes even Sun, seem to understand this. I'm not sure Dell does.