The Dell Effect

The services market, particularly in the area they’re intending to get into, pretty competitive and flat in terms of vendor growth. There is market growth there but a lot of that growth is being taken up by a more diverse range of players, he says.

"There’s opportunity there for them to ‘Do a Dell’ so to speak but we haven’t seen them too aggressively into that market. They’re still busy locally getting Unisys locally to do their work so we’re not seeing a huge amount of drive from them at this stage. They could make people sit up and take notice if they land a big deal but they’ve been a bit quieter than what we would have thought. The market is very crowded."

He adds that there are many established players such as IBM, HP, EDS, CSC, Dimension Data and AlphaWest and at state and local level, there’s even more players which is going to make things hard for Dell.

"It’s going to be very hard for Dell, it’s a near commoditised market now and they’re not going to get the margins they’re used to in the PC world.

"It’s going to be a real challenge for them, it’s a much more fragmented market and you’re dealing with people not machines. Good people want good salaries and Dell’s reputation is as a high volume, low margin business which is not necessarily a great fit for services."

Frost & Sullivan’s industry analyst -- security and services, James Turner, also believes that Dell will struggle to get really traction in the services market but not for the same reasons.

"Dell is going to be competing against a lot of relationship-based engagements. Companies that bring in the local IT person or the shop down the street. Dell’s going to be trying to displace these people by increasing its attach rate but the companies are going to look at the pricing and be cautious."

Enstor's Charlaff: Dell relationship has worked

Turner did agree with Hassey that it’s much easier to drive costs out of a product when dealing with machines rather than people.

"Driving costs out using economies of scale and modular services would be nice if Dell didn’t have to maintain staff. Services is all around doing things which means you’ve got maintain headcount. Even if Dell is sub-contracting out at some point someone still has to pay the wages.

"Dell will sell the box and they’re experts on a limited range of services, setting up rebranded EMC kit, and doing Exchange and Active Directory migrations are not exactly hard."


Dell deal has worked

One local integrator storage specialist Enstor is upbeat about its relationship with Dell. Enstor national sales manager, Paul Charlaff, says the company has been building the relationship for four years and it’s been a mutually beneficial partnership that has helped Enstor grow.

"When we first started working with Dell, other members of the industry thought we were mad and now all of a sudden a lot of people are keen to emulate what we’ve done," he says.

"We initially had a very strong relationship with EMC, and we still do, but some time ago we looked at where our value add is in the market and we decided that it was around storage systems integration. The customer can get the box cheaper from Dell and we were making the money from the integration so that’s where we’ve focused."

Enstor’s relationship with Dell has been so successful that it has tracked the company’s services division’s overall growth. "Our business has grown around the 30 to 40 percent per year on Dell business," says Charlaff.

And while he admits that Dell has put some pressure on margins, Charlaff believes that is more than offset by the efficiencies gained from the relationship.

"Dell has more than just Enstor delivering professional services, they are our customer and like any customer, price is an important element of what they do. But we are not the cheapest supplier to Dell.

"They don’t use us because we’re the cheapest. They use us because we’re able to do a job efficiently and deliver it to them and to their customer quickly so they get paid and it becomes a happy relationship." The company however, had been asked to revisit its pricing, he said. "Dell would be lacking in due diligence if they didn’t but they have never said that if we don’t drop our price they won’t use us. The last thing that Dell wants to do is drive us out of business because then they won’t have a good service provider. Dell has, however, said that if we drop our quality they won’t use us any more."