Is Michael Dell Making the Right Moves?

Sure, Apple's (AAPL) Steve Jobs has owned the innovation spotlight in recent years. And Dell Inc. (DELL) has never been known as a resource and development (R&D) center. But instead of making the easy moves, Michael Dell is making some challenging ones — pushing deep into the managed services and software-as-a-service (SaaS) industries. With a little luck and a lot of execution, I expect those moves to pay off handsomely by 2009 or so. Here’s why. Consider the following PC industry events: HP (HPQ) acquired Compaq; Lenovo (LNVGY.PK) purchased IBM’s (IBM) PC business; and Acer acquired Gateway (GTW), just to name a few moves. My key point: While the PC industry consolidated around fewer players, Michael Dell was seemingly asleep at the switch.

Or was he? Whether it was dumb luck or industry smarts, former Dell CEO Kevin Rollins didn’t make any big PC acquisitions during his time at the company’s helm. By the time Michael returned to the CEO chair in early 2007, it was clear that buying up PC companies involved painful patience (example: HP-Compaq) or an inconsistent payoff (example: Lenovo with IBM’s PC business).

Dell could have looked elsewhere for a big acquisition — perhaps swallowing long-time partner EMC, another direct-sales veteran that’s embracing channel partners these days.

Marching Orders

Instead, Michael has been busy pushing deeper into the SaaS and managed services markets. Small, targeted acquisitions — involving Silverback Technologies, Everdream, and the new deal for MessageOne (here’s the scoop on that) — are typically easier to digest than massive “mergers of equals.”

Not that anything is really easy these days at Dell. Sources tell me Silverback insiders are having a very difficult time adjusting to Dell’s big-company operations. And the folks at EqualLogic — a storage company Dell recently acquired — are spending considerable time in Austin, Texas, striving to adjust to Dell’s culture.

Still, Dell is finally moving into fast-growing markets. Working with Wintel remains a Dell priority, but true industry innovation and competition has allowed Michael to explore new opportunities in such areas as:

• Desktop Open Source (see Dell’s relationship with Canonical for Ubuntu Linux desktops and soon, servers)
• Open Source with Voice over IP (here, Dell is working with Fonality on Asterisk)
• Software as a Service (MessageOne)
• Managed Services (Silverback, Everdream)

All four of those markets enjoy double-digit growth, and perhaps even faster growth. Top managed service providers easily doubled their revenue in 2007 compared to 2006, according to the MSPmentor 100 research report. Dell is positioned well to ride that wave, assuming the company doesn’t upset partners along the way.

Of course, Dell could suffer more setbacks. Hewlett-Packard has considerable momentum these days and Dell’s channel strategy remains unproven. But Michael is planting some key seeds that should bear fruit in 2009.

Disclosure: none