Dell Plans A SaaS Surprise

| About: Dell Inc. (DELL)

Is Dell (NASDAQ:DELL) purely a hardware company? Not for much longer. Dell plans to unveil a partner-driven Software as a Service (SaaS) strategy in late 2008 or 2009, according to a conversation I had June 20 with Greg Davis, VP and general manager of Dell’s Americas Channel Group.

The SaaS strategy involves so-called managed services software, which Dell (and its partners) can use to remotely maintain and troubleshoot small business networks, servers and desktops. Two recent Dell acquisitions -- Everdream and Silverback Technologies -- will provide the foundation for Dell's SaaS push.

Bold Move

Sometime late this year or in 2009, Dell intends to become a Master Managed Service Provider (Master MSP), which means IT consulting firms will be able to leverage Dell's own network operation centers (NOCs) to manage customer networks.

This is a potential win-win for Dell and its partners. But it also comes with some challenges.

On the upside, small technology consultants won't have to build expensive data centers to support customers. Instead, they can pay Dell a monthly fee for such services, and then offer those services at a slight price primium to small businesses. The result is recurring monthly revenue for Dell and its partners.

If the Master MSP strategy succeeds, Dell will have successfully transformed itself from a PC company into a true SaaS company. But the journey toward becoming a Master MSP won't be easy.

Risky Business

Now, for the challenges. Some potential partners don't trust Dell because of the company's direct sales heritage. And many partners don't want to turn over customer names when registering potential contract wins with the PC giant.

Dell's Davis is working overtime to address those concerns. He's in San Francisco this week, meeting with several dozen partners to explain the company's MSP and channel strategy.

Those face-to-face discussions seem to be working. As of March, Dell had successfully recruited more than 6,000 new partners into its US channel sales program.

Dell has also sent multiple memos to partners to clarify the company's managed services strategy and communicate the company's pricing policies for partners.

Competition Looms

While progressive, Dell’s SaaS strategy is somewhat similar to Master MSP services offered by Do IT Smarter, Ingram Micro Seismic, Jamcracker, Symantec Protection Network, Secure My Company, and dozens more.

However, traditional Dell rivals like Hewlett-Packard (NYSE:HPQ) and IBM (NYSE:IBM) are late to the managed services game.

Skeptics think Dell's direct sales executives will eventually undermine the company's partner strategy. I'm betting those skeptics are wrong. Dell needs partners to help drive its own sales and profits higher.

Alienating those partners would spell certain doom for Dell and its shareholders.

Disclosure: none