Analysis: Dell morphing into IT services company

Dell Computer Corp.'s success as an enterprise server vendor paved the way toward this week's acquisition by Dell of IT services company Plural Inc.

The Round Rock, Texas-based computer maker recently joined the ranks of the top five server vendors in the world, taking the No. 5 spot behind IBM Corp., Compaq, Sun Microsystems Inc., and Hewlett-Packard Co. for worldwide server market share by revenue, respectively, according to IDC in Framingham, Mass.

With the merger of HP and Compaq moving Dell to the No. 4 position by default, the ability to provide enterprise-class IT services to support Dell's booming server install base was the logical next step.

"Dell is emerging as a very serious competitor in enterprise server platform business. And for a company to compete seriously in that segment it is very useful to have a professional services capability," explained Bill Martorelli, the vice president of enterprise services for the Hurwitz Group Inc., in Framingham, Mass. "They are viewed as a very significant competitor by the giants of the server business, and professional services is part of the winning formula."

Dell has an existing IT service agreement with IT service company and server maker Unysis and will add the capabilities of Plural to that mix, said Dell spokesman Mike Maher. Plural is a closely held 13-year-old New York company specializing in consulting, application development, and integration.

"[Plural] adds to the capabilities we already have, particularly since they specialize in Microsoft consulting and application development," Maher said.

And although Dell has been criticized in the past for being less a technology company than a build-to-order shop that prefers the safety of Intel components and Microsoft operating systems, Maher said industry standard components have become far more complex.

"Standards-based technology has done more and more complicated things and has moved higher up the food chain inside corporations, and I think you're going to see that our services business is going to follow that right along," Maher said.

But Maher backed away from suggesting that Dell was aiming to quickly ramp to the size and reach of an IT service organization such as IBM's Global Services, which is generally considered by experts to be the leader in IT services.

Andrew Efstathiou, a program manager for technology management strategies at the Yankee Group, in Boston, said Dell's services business is far from being serious competition for the services operations of rival hardware vendors IBM and HP.

"Dell is just starting and it is going to take a year or two to see if they have done it right," Efstathiou said. "They have to build the business organically and acquire some more services firms; I don't think one will be enough."

Unlike hardware and software acquisitions that threaten to confuse customers by altering product road maps, IT services seem to be just that to customers, a service, and customers may not be concerned about where good service is coming from, said J. R. Bibb, an innovation adviser for Shell Oil's IT international group in Houston.

"My personal view is there are many 'professional services' in the industry to call upon, and this [Dell/Plural] just adds to the mix for selection," Bibb said.

Services account for about 10 percent of Dell's revenue, with about 7,000 people working on services ranging from basic fixes for hardware problems to development of specific systems for large customers, Maher said. Dell reported net revenue of US$31 billion for its fiscal year ended Feb. 1, 2002.

Plural had revenue of $46 million in 2001. The company's 200 employees will join Dell and its five U.S. offices will stay open, Maher said.

The professional services organization, under which Plural will fall, is managed by Jeff Lynn, who joined Dell earlier this year from Compaq's services organization, Maher said.

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