Dell Accelerates Transformation; Back To Its Storage Roots?

ORLANDO, Fla.--As this week's inaugural Dell Storage Forum winds down, the gathering of analysts, customers, channel partners and executives offered compelling evidence that the company, once known for its direct sales focus and miniscule R&D budgets, really is changing. Only time will tell if the transformation takes, but if it doesn't, it appears it won't be for lack of effort.

During his keynote on Wednesday, Michael Dell said he actually started off as a storage vendor from his University of Texas dorm room, making disk subsystems for IBM PCs. It was only when Marin Marietta ordered 150 systems, Dell's biggest order at that time, and asked about buying the home-made PC he was using to configure the disk subsystems, that the company made its first transformation.

Fast forward to 2008 and Dell reportedly accounted for $1.29 billion (11.5%) of EMC's $14.9 billion in storage revenues. During its stint as a storage reseller, the company sold billions of dollars worth of EMC equipment. However, for its most recent quarter, Dell attributed the huge shortfall in storage revenues, a 13% year-over-year drop, to its declining reseller relationship with EMC.

On the other hand, that same quarter also saw Dell grow its fiscal 2012 first quarter earnings 177% year-over-year on a 1% increase in revenue. Dell-owned storage revenue, including that of recently added Compellent, was up 11% from a year ago, says analyst Greg Richardson, Technology Business Research.

In a recent report, Richardson wrote that, through the purchases of Compellent, SecureWorks, Boomi and KACE, Dell has inorganically positioned itself to take on competitors such as IBM and HP, which can address large-scale buildouts of integrated hardware and software with their services and software portfolios: “As a vendor that traditionally preferred to work alone, Dell has done an about-face with its use of channel and service partners, and is designing solutions that enable partners to add high-margin revenue by attaching services to Dell offerings.”Dell's initial efforts to build a formal reseller channel got a kickstart when it acquired EqualLogic (iSCSI storage area networks) in late 2007. After adding a number of other companies--including storage vendors Exanet (network-attached storage) and Ocarina Network (data compression and deduplication software)--it made its next major channel upgrade with the February 2011 acquisition of Compellent (multiprotocol tiered SANs).

Dell's channel accounts for more than a quarter of the company's enterprise sales, and as it integrates the products, gets its partners trained and selling more of its products, and expands its global presence, that percentage is only expected to grow. Greg David, VP and general manager, global commercial channels, says his group is expected to at least double its business this year.

“Our channel business [alone] would be No. 350 on the Fortune 500 list,” says Bob Skelley, global director, enterprise architecture channel. Channel sales grew 40% in the first quarter, with 16,000 deals done in North America and another 17,000 in Europe. Compellent sales have more than doubled and are expected to grow even more this quarter, says Dell. The company has added 300 new partners and expanded into 12 more countries.

But the channel is only one half of the Dell makeover. The other is the move to owning its own intellectual property. The company is throwing money and resources at its new acquisitions, doubling the number of engineers working both on new products and leveraging the technologies across the various product lines. During the past year, Dell says, it added more than 5,000 growth resources, a 50-50 split between additional sales resources and engineers dedicated to the development of Enterprise Solutions and Services.

This week Dell announced the EqualLogic FS7500 combination scale-out NAS and unified storage offering that leverages the Dell Scalable File System, a high-performance, clustered file system originally developed by Exanet. In April it announced a new version of Dell Boomi AtomSphere, Spring 11, designed to simplify midsize to large businesses' paths to the cloud. Another recent addition to the Dell family, system management appliance-maker Kace, has more than doubled the number of customers in the year it has been part of the company, almost doubled its staff and has almost as many openings it's looking to fill.Dell is becoming a technology leader, at least as far as storage goes, says Terri McClure, senior analyst, Enterprise Strategy Group. “These types of scalable solutions [FS7500] will be the norm over time in the enterprise, and here we have Dell as one of the vendors leading the way. Did we ever think we’d say that about Dell storage?”

Phil Soran, former Compellent CEO and now president of Dell Compellent, says the big storage vendors were lacking in innovation--or, what is called in Texas, “big hat, no cattle.” That's something Dell could be accused of just a few years ago, but no longer, he says: “Dell is kind of the hottest storage startup.”

Things don't always go smoothly, says Skelley, but the key is to learn and adapt. He says there were bumps along the road in executing a channel strategy, but that the Compellent acquisition gave Dell the chance to retool its channel with things like an improved deal registration program.

Bringing all these cultures together has been a great challenge, says Michael Dell. “We're going fast, but it's not fast enough.” Last quarter the company had record profits, he says, so the transformation is going very well. Almost half the 105,000 workforce, 45,000 are in services. “It's a very different company from five years ago.”

See more on this topic by subscribing to Network Computing Pro Reports Research: 2011 State of Storage (subscription required).