Dell continues to inch its way deeper into corporate data centers with a standards-based, modular approach to computing that is starting to catch on industrywide. Competitors such as Hewlett-Packard (HP), IBM and Sun Microsystems are recognizing a move away from proprietary systems and toward standard, low-cost boxes. But how will Dell - which continues to post positive earnings even in these tough economic times - keep its position as the low-cost leader as other systems vendors move into its territory?
Deni Connor and Jennifer Mears recently spoke with Dell President and Chief Operating Officer Kevin Rollins to hear about where Dell is heading.
Q: How do you envision the computing center and the networked infrastructure supporting it to change in the next couple of years?
As standards continue to emerge you will see more and more Intel and Microsoft/Linux-based systems in the data center, and a continued decline in the Unix space. That's obviously advantageous to us. Many of our competitors have big bets in the Unix space, so we believe that that's going to continue to deteriorate their performance and be a drag. At the same time, customers are moving more to standards-based products. We only have those, and all our efforts of development and customer satisfaction are based on those products. We see that the move in the industry technologically is coming toward us.
Q: How does Dell use standards to commoditize a market and capitalize on it?
If you look at where standards play, they don't play very well with companies that have proprietary structures. They don't have a cost structure in terms of [research and development] and their sales models that really supports it. Subsequently, you've seen what were the largest server companies in the world lose money in their current enterprise businesses. The issue is when you move to standards, cost, logistics, distribution and efficiency become extremely important. Those companies are not set up to fly in that environment. Take Sun: They were always Unix and they're having trouble. HP is the largest Intel server company in the world, and even they don't make any money. So the real benefit is we already have a model that is refined for that standards-based, commodity-based environment. As we see more software and systems management software come and support standards - which we are - it flies into the sweet spot of our business model and leaves the sweet spot of our competitors' business models.
Q: What do you think of high-level directions such as utility, autonomic, grid or on-demand computing? How real are they, and do they pose any threat to Dell's business?
They are very fancy buzzwords for models that have existed in the past that have proven unsuccessful. If you assume that the status quo will never change and that companies will continue to have all the complexity and challenges in the data center, there will be some of them who will want an on-demand type of capability. The vast majority of systems that are sold are not to that type of environment. They are to small and midsize businesses and large companies that are not looking for that kind of value and are finding they can move to a grid structure, which is more aligned with standards and simplicity. They actually can get more cost savings, and they are not outsourcing or 'de-skilling' their company in an area that they, frankly, are going to need in the future. I don't think you can find any company that has outsourced its entire IT infrastructure in the on-demand mode and been a leader in their industry.
Q: How does Dell view on-demand technology, and how are you meeting demand for that with your customers?
We are meeting it with the standards, which say as you need more capacity you buy more thin, low-cost servers and you add capacity incrementally. The problem with on-demand is fundamentally you are buying a great big mainframe and paying for the portion you use. Someone eats the cost of that unused capacity somewhere. Basically, it's a strategy to sell big iron, because it is either going to cost the customer money or IBM money. We've seen companies go away from Sun systems because they had to buy huge capacities and fill it up over time. A much more efficient model is to buy just what you need and as you need more buy more thin servers with standard architectures that can handle all of your needs while you grow. The pay-as-you grow method is more efficient for suppliers and for customers.
Q: What are the factors that you look for in markets in order to be able to enter them?
There are several things. One is the emergence of essentially a merchant component industry. You've got to start finding the movement from proprietary ownership of all the product to a merchant ownership where you can see suppliers making the molecular components that go into the product, rather than one company owning it all. The second thing we look at is a kind of umbrella profit pool, meaning a large enough profit pool that is worth collapsing, but still be profitable. Third, we have to look and see customers are requesting or suggesting that Dell participate in the marketplace so we have some customer pull on what we're going after.
Q: Looking ahead three to five years from now, how will Dell be different as you respond to things that you're seeing in the market?
Well, we have a US$60 billion target for the company, or goal I should say, that we're about two years into a five- or six-year program. So far we're on track. That shows we would have only about 50 percent or less dependency on client business, and the rest would be in enterprise products, servers and storage, networking products, services and then software and peripherals, which is to a great degree printers and displays. So that is what we had envisioned.
We're wondering now whether this whole notion of the consumer electronics industry might be a little bigger, so that might skew it a little bit toward the consumer side. But we will still have the predominance of our products outside of the client, which are desktops and notebooks.
Q: Are there some future technologies that you feel aren't getting enough attention?
Bandwidth and wireless capability we wish were accelerating a little faster. There is another area in the standardization of systems management so that you have uniform management across storage, telecom and servers. That software technology capability really hasn't emerged in a standards form yet. That's something that could use a lot more pushing because we're going to need it for the myriad of clustered thin servers in the future. Customers don't want to have a multi-system management environment. They'd like to have one that could manage all the hardware and all the systems.