Hardware-heavy Dell ramps up services play

It may be best known for its low-priced notebooks and its direct sales channel, but Dell Inc. is building a strong services play around its core competencies in desktops, notebooks and servers, aiming to tap an area of the IT budget that is increasing sharply.

According to data from Gartner Inc., services spending now accounts for 66 per cent of global IT spending and is rising. Some 25 per cent of the IT spend is devoted to hardware and just nine per cent to software.

Steve Meyer, vice-president of worldwide services marketing, Dell product group, said spending is increasing because services innovation hasn’t kept pace with hardware and software innovation, showing relatively flat growth by comparison.

“For every IT organization, this is consuming more and more resources each year,” said Meyer.

With IT services, Dell estimates that some 75 per cent of the spend is on IT infrastructure services, such as infrastructure design, deployment and installation, hardware and software support, training, help desk, and recovery and recycling. He said this is where Dell is making its play, leveraging its core competencies as a hardware vendor.

“You hear a lot about the sexy side, like new application development. But it’s the basics, keeping the lights on, that consumes the most resources,” said Meyer. “It’s easy to get hardware on the floor but deploying it is another story.”

Don Kerr, director of services with Dell Canada, said the company has designed its services offerings with an eye toward helping clients better manage increasingly complex IT environments and improving utilization. Kerr said that unlike companies that push the purchase of more hardware capacity up front than is immediately needed, Dell recommends a more modular approach.

“We say, ‘Don’t do that,’” said Kerr. “Buy the capacity as you need it so you can take advantage of natural price declines.”

An operator of a stable of specialty channels like History Television and a distributor and co-producer of programs like the CSI franchise, Toronto-based Alliance Atlantis has been a Dell services customer for nearly six years.

Jeff Stein, manager, emerging technology systems with Alliance Atlantis, said Dell’s services team has played a major role in the company’s recent IT activities, including projects around virtualization, storage area networks and blade servers.

“New projects are happening all the time, on demand, and we don’t always have the resources to do it,” said Stein. “We look to Dell because we know whether we’re dealing with storage or servers they have the expertise.

Infrastructure utilization is a key concern for Alliance Atlantis, and in addition to offloading some of the workload so that his IT staff can focus on more strategic business areas, Stein said he also looks to Dell for best practices and advice. It’s a trust that Stein said didn’t come overnight, but took nearly two years to develop.

“At the end of the day, there are a lot of similarities between the vendors in terms of hardware,” said Stein. “It’s really the professional services and understanding of the business (that makes a difference).”

Michelle Warren, a senior analyst with Partners Research in Toronto, said overall demand for services is increasing as technology innovation raises the complexity of the management challenge.

Companies are looking to outsource basic IT services, such as new desktop deployment, so that full-time IT staff can be more strategically utilized elsewhere. “It’s easy to get a budget for hardware spending right now because hardware (cost) has come down so dramatically,” according to Warren. “But the issue then is, what do you do with the machines?”

With its hardware business, Dell is uniquely positioned to make a services play with its hardware customers, expanding on the relationship built through that unique touch point, Warren added.

“Their services offerings all revolve around the hardware sale, so they stick pretty close to their core strengths around servers, desktops and notebooks,” explained the analyst. “With that strong relationship, they’re able to actually know what the client is looking for.”

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