Dell Courts Service Providers as Part of Trend

SAN MATEO (04/10/2000) - AS Dell Computer Corp. last week announced a series of products, services, and initiatives focused on the service provider market, the changing future for customers in the high-tech industry began to come into focus.

For everyone from hardware to software vendors, it seems the new most-valuable customers are service providers, and this shift in attention away from corporate IT buyers is changing the dynamics of the industry.

"We see service providers becoming very significant buyers," said Bruce Caldwell, senior analyst at Gartner Group, in San Jose, Calif. "If they [service providers] are smart they will resell what the end-users want, but the ultimate choice of platform is in their hands."

Dell is heavily courting service providers. Citing a 7-million-square-foot build-out of data centers worldwide in the next few years, CEO Michael Dell last week called the outsourcing market a "huge opportunity" and described his company's moves as "a change in the fundamental business model."

"Only 5 percent of the servers needed for the Internet build-out are in place," Dell said. "This represents a shift from classical values."

Dell is only the latest of the major hardware vendors to shift its attention to the burgeoning opportunity in the service provider market. Companies such as Sun Microsystems, IBM, and Compaq Computer have already signaled their intentions to serve the emerging space, which has put the relatively young outsourcers in an unusually powerful position; they are able to choose which platforms they resell to their growing customer base.

But with so much energy being redirected toward this new market, questions have arisen as to how much attention vendors will be able to pay to more traditional markets, such as individual IT shops.

"There are trade-offs involved," said Judi Webster, vice president and general manager of the Internet Partners Division at Dell. "We've had to refine our internal behavior in terms of sales-force compensation and the sharing of customer information. Customer ownership is morphing, and we are making some fairly radical statements."

In a sort of self-fulfilling cycle, the vendors' shift in business focus may even drive customers to the ASP (application service provider) model, further accelerating the transition.

"ASPs have tremendous customer interface time, and they will be the eyes and ears of a lot of the hardware makers and ISVs," said Cameron Chell, president of the ASP Consortium, in Wakefield, Mass. "There will be some trade-offs; there are always sacrifices."

One of those sacrifices is customer contact, and Dell in particular will be heavily leveraging its years of customer interface to gain entry into the ASP market.

"What is really interesting to them [outsourcing companies] is that we have the customers," said Mike Lambert, senior vice president of the Enterprise Systems Group at Dell.

Despite this emphasis on service providers, traditional customers seem only mildly concerned about being abandoned by their existing vendor contacts.

"I figure I'm generating enough business that someone will have to pay attention to me," said one IT manager at a Fortune 500 company. "If they stop, I'll take my business elsewhere."

Also significant is Dell's move away from its image as a PC company and toward that of an Internet infrastructure provider. The company announced a new line of servers, which are called PowerApp appliance servers. Available now, the systems are the thinnest Dell has to offer and are specifically designed for packed data centers. The PowerApp servers are priced starting at $1,899.

Dell Computer Corp., in Round Rock, Texas, is at www.dell.com.

Dell's new direction

Dell unleashed products and services aimed at the service provider market.

* Infrastructure Computing: New line of servers for Web serving and caching* Service Provider Direct: Set of programs to meet service provider needs* "E"xpert Services: Service offerings through partnerships with those such as Arthur Andersen and Gen3 Partners

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