Dell's Quest acquisition has given the hardware vendor more software muscle but the real test for the PC maker will be its ability to integrate the different software units it bought in recent times and create a cohesive software arm, analysts point out.
Phil Codling, research director at TechMarketView, said the Quest acquisition for US$2.4 billion, which was announced on Monday, will form the "kernel" of Dell's software business as he predicted that it will account for roughly two-thirds of the company's software revenue.
As such, Dell's chance for success in the software space is a case of making its other acquisitions fit around the latest addition to the organization, Codling surmised. Besides integrating technical intellectual property (IP), a critical factor will be the PC maker's ability to retain key Quest staff especially those skilled in software development and integrations, he noted.
He added Dell would do its best to "smooth over any lingering tensions" with Quest CEO Vinny Smith, after it outbidded venture capitalist Insight Venture Partners with which Smith has "links" with. The CEO had previously openly supported Insight Venture Partners' bid for the company, according to an earlier Wall Street Journal report.
Long transformational road ahead
Krista Macomber, analyst for computing and storage practice at Technology Business Research, did note the integration of Quest into Dell's overall organizational fabric will certainly not be a short-term endeavor.
This is because Dell has made other software acquisitions such as as SonicWall and AppAssure this year, and integrating all the diverse company cultures, including engineering and go-to-market strategies, will not be "an easy feat", Macomber stated.
Stuart Williams, director of software practice at TBR, predicted that Dell's journey toward creating a cohesive software arm will take at least five years. Beyond creating a competent sales team capable of selling more complex IT products, Dell would also have to shift customers' perception of it away from being just a hardware company, to being an IT solutions one.
It will have to rebalance existing partner and reseller relationships to include its new software services too, Williams noted.
That said, Charles King, principal analyst at Pund-IT, said the odds for Dell's Quest strategy and integration were "very good". He said the company has done an excellent job with most of its previous acquisitions, both in terms of capturing immediate value from the acquired companies' existing businesses and in integrating the new tech with its own.
Additionally, it has a long record of keeping the founders and management team of acquired companies on board, which is critical since software is a new area for Dell, King pointed out.
On this, Macomber agreed, citing its Wyse buy as an example with all employees retained by the company. "Dell appears to have its sights set on appealing to acquisitions' existing customer bases by allowing the companies to continue doing what they do well [and enhancing that] through integration into the Dell portfolio," she explained.
Need for software play
On Dell's decision to shift from hardware to focus on software and services, Roy Illsley, analyst at Ovum, pointed out that in today's cloud computing era, infrastructure is less strategic and profitable than the software and management layers.
Thus, Dell must be able to become a diverse IT provider to enterprise customers, which means it requires a pool of software engineers with the expertise and experience to develop cross-platform and cross-technology products, Illsley said. The company had in February brought in ex-CA Technologies CEO John Swainson to lead its software division.
With Quest now in its fold, the company is expected to develop its own integration platform that will serve as the layer managing the various products it will be selling, the analyst suggested.
"This approach will enable Dell to exploit sales of its hardware solutions independently, but also provide the channel with value-added offerings that can optimize hardware performance based on software priorities," he said.