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When the news came that Hewlett-Packard would acquire Electronic Data Systems for more than $13 billion earlier this month, all eyes turned toward the looming services battle between HP and market leader IBM.
Then there’s Dell.
For a number of years, Dell had been one of the main suppliers of PCs and other hardware through EDS in deals that usually involved large federal contracts, such as a 2000 agreement to supply servers, workstations and PCs to the Navy and Marine Corps for a total of $1.4 billion.
Now Dell and its customers are faced with new choices and possibilities in the wake of the EDS merger.
The HP and EDS deal comes at a time when Dell is looking to build out its services division as the company looks to move away from its image as a low-cost box maker into a more full-service IT provider. During its most recent annual earnings report, the company reported its services revenue hit $5.2 billion, a 4 percent increase from the previous year.
Steve Schuckenbrock, Dell’s senior vice president for Global Services, believes that the company’s services model is moving away from the traditional offerings that companies such as EDS supplied, toward a model that focuses more on creating ways to deliver software and services through a SAAS (software as a service) or cloud computing model.
“The other model [that Dell is looking at] is the more cloud-based, on-demand-oriented services and the ability for customers to take advantage of some pretty significant trends in the services space around remote infrastructure management and cloud-based services, and that’s clearly what we are doing,” said Schuckenbrock, who was previously an executive vice president of services at EDS.
Despite its recent interest in services,Dell is far behind both HP-$17 billion-and IBM-$54 billion-in a market that Gartner estimated as worth $740 billion in revenue in 2007.
In EDS, Dell Could Lose a Product Pipeline
With those types of numbers, Dell’s relationship with EDS still matters a great deal to the company and its core business of selling PCs and servers.
In his view, Schuckenbrock believes that EDS customers will ultimately decide what type of hardware they want for their businesses even with new HP ownership.
Lindy Hanson, an analyst with Technology Business Research, believes that Dell’s relationship with EDS had not been as strong as in the past. In the last few years, EDS had turned to other hardware vendors, including HP, to provide a different source of desktops and notebooks for customers.
Dell Looks at Services in Wake of HP-EDS Deal
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“I think some of that revenue has already been diverted from Dell over time, but the acquisition [of EDS] just opens the door for even more of that,” said Hanson. “With EDS, before and after it merges with HP, if the customer has a particular preference that is what the customer will get, but there is also a lot of room to influence the customers as well.”
Dell is not the only hardware vendor that works with EDS that could be affected by the HP merger. Sun Microsystems and Xerox each have a relationship with EDS and offer hardware that HP has within its product portfolios.
Focusing on Down Market Green Fields
The one services area where Dell is making some headway against competitors such as EDS is with small and midsize businesses that are looking for ways to manage e-mail, software licensing and other assets.
“That’s an area where some of the bigger outsourcers like EDS or HP haven’t focused on, and there’s definitely an untapped market there for Dell to push more managed services to the SMB market,” said Hanson, adding that Dell’s model, so far, is to build up its practice through smaller acquisitions and develop its own platforms for services.
In the past year, Dell has made the acquisitions it has needed to develop this services model, including Everdream for its SAAS platform and Silverback for its infrastructure management technology.
For Dell, Schuckenbrock believes that the type of services model his company is building will not only manage e-mails, but also provide the failover and disaster recovery services needed to ensure that e-mails continue to be processed in the case of a major disruption.
By going toward the cloud or SAAS model, Schuckenbrock believes that Dell is cutting down on the process customers go through when choosing an outsourcing provider, selecting the equipment needed and then signing long-term contracts. Whether Dell builds it own data centers for hosting or whether it builds those facilities for customers is yet to be determined.
HP and IBM are also eager to build out these types of cloud computer centers as well.
Although Dell wants to move toward this services model, Schuckenbrock concedes that the company will need additional pieces to support this business, especially when it comes to offering consulting services. He declined to discuss if Dell was thinking about a specific acquisition.
“We will continue to build out the software portfolio that builds the cloud and really present our customers with a choice between the traditional model that dominates the market and the complexity associated with that model versus the simplicity that we are trying to offer through the cloud,” said Schuckenbrock. “This is going to play out over the next three to five years, not the next three to five months.”