Dell's Small Software Acquisition Has Big Implications

Dell Inc. (DELL) quietly acquired a small software provider on July 18. But this tiny deal -- involving Silverback Technologies -- has big implications for Dell and the broader technology industry.

The deal was so small that Dell didn't disclose how much it paid for Silverback of Billerica, Mass.

Silverback is one of the companies I watch closely during my day job at TechIQ magazine. Frankly, I love the deal for three reasons:

1. It shows Dell is getting aggressive and looking at small, innovative technology providers.

2. It proves Dell understands two big market opportunities: managed services, and software as a service (SaaS).

3. It reinforces Dell's commitment to improving customer service.

Let me explain each point.

First, Silverback's online software allows technology consultants to remotely manage and troubleshoot customers' networks - across town, across the country or across the world.

In other words, Silverback moves Dell into the rapidly growing managed service provider [MSP] market. Key players in the market include companies like Autotask, ConnectWise, N-able and Kaseya.

Everyone from Intel (INTC) to Microsoft (MSFT) is trying to figure out the MSP market. Big high-tech distribution companies -- including Ingram Micro and Tech Data -- are also formulating MSP strategies. And established software companies like Symantec (SYMC) and Trend Micro (TMICY.PK) are introducing managed services.

So, how does Silverback benefit Dell? It's rather simple: The same way that big outsourcing firms like Electronic Data Systems manage Fortune 500 networks, Dell can now remotely manage thousands of individual customer sites.

In theory, that means faster, better customer service from Dell--especially to small and midsize businesses. We all know customer service has been among Dell's biggest problems in the past two years. This deal should help Dell correct that issue.

Still, the deal does involve a few challenges. For instance, Silverback's primary customer base includes so-called Value Added Resellers (VARs) - the technology consultants who help small and mid-size businesses build and manage their networks.

Dell's direct-sales model has traditionally competed with VARs. But in recent months, Michael Dell has taken steps to ensure his company works more closely with the VAR community.

Let's hope that approach continues with the Silverback acquisition. Dell does not want to alienate Silverback's customer base. If it did so, Dell would lose momentum with a growing number of VARs who now recommend Dell's servers, desktops, notebooks and storage systems.

Bottom line: At first glance, Silverback is a small, tactical acquisition. But take a closer look and you'll see Dell is making a strategic move into the managed services market. That's smart business that should reward Dell and its customers.

Disclosure: The author holds a position in DELL.

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