Dell becomes key software player with Quest purchase

We’ve watched the IT industry transform itself in the last few decades, moving from the idea of having everything fully integrated to a more best-of-breed “a la carte” style of computing solutions. But now the pendulum is swinging back toward a highly integrated, proprietary stack of hardware and software solutions. At least, that seems to be the direction hardware vendors are trying to take us.

As an example, Dell has made no secret of its desire to become much more than a hardware vendor. To further that goal, the company recently announced it has entered into a definitive agreement to acquire Quest Software after concluding a bidding war with Insight Venture Partners. Quest originally received a $23 per share bid or a $2 billion offer from Insight Venture back on March 9. Dell’s winning price tag was announced at $28 per share, or $2.4 billion.

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Why did Dell pay a 44 percent premium for Quest, based on the company’s closing price on March 8? And what exactly does Dell hope to get for its money? Dell may be the No. 3 computer manufacturer in the world, but the company knows that to keep up with the changing marketplace, it needs to expand beyond PC and server sales. One way to do that is to expand into a growing and profitable software business, which will also allow the company to move into new markets. With this acquisition and the other moves recently made, Dell is off to a good start.

It’s important to note that the Quest acquisition isn’t Dell’s first venture into the software market. The company has completed a number of valuable software acquisitions, most notably AppAssure, Boomi, Kace, Scalant, SonicWall, and Wyse Technology. To tie all of this together, back in February Dell announced the hiring of John Swainson, a 26-year IBM veteran and former CEO of CA, to serve as president of its newly created software group.

The Quest acquisition brings to this new software group a portfolio of cost-effective system management products designed to simplify the management of IT.I ts key areas include database management utilities, Windows Server management, application performance monitoring, data protection, identity and access management, and user workspace management. Within these categories, Quest brings solutions for the physical, cloud, and virtual environments, which could immediately pole vault Dell to the front of the line as a major virtualization and cloud software leader, thanks to technologies Quest gained through acquisitions of Vizioncore, Surgient, and most recently VKernel.

Dave Bartoletti, a senior analyst at Forrester Research told InfoWorld that he thinks the Quest acquisition is a bold move, putting Dell into the big leagues for application performance management in particular, and virtual infrastructure management overall. “Quest has pulled together an impressive range of visibility, performance, and optimization tools, and does a great job of innovating across the portfolio,” Bartoletti added.

On a conference call discussing the acquisition, Swainson told press and analysts, “From an industry perspective, there are three key trends that are driving an increased need for a dynamic, yet easier-to-manage, software solution. Firstly, the exponential growth of data; second, the rapid growth of cloud-based solutions; and thirdly, the increased presence of consumer devices being brought into the enterprise. All of these trends are creating significant business risks and businesses are looking for ways to increase their ability to deal with them.”

Swainson said that Dell’s software strategy is focused on addressing these customer needs with three key tenets:

The first aspect of which is to leverage and build upon our existing software portfolio. After going through the process of assessing Dell’s software assets, after I joined the business, it was clear to me that we had a good base of software IP from which to build both standalone and embedded within our hardware solutions.

Second, we’re in the fortunate position of not having a large legacy hardware or software base. So, we can look forward to emerging technologies that will potentially cannibalize some of those opportunities, rather than look backwards at supporting legacy that might constrain our thinking or offerings. Our solutions will focus on the current problems with a particular aspect, or a particular focus on simplification and automation in solving our customer’s needs.

Finally, we’re going to be focused on key areas of software where we think there’s good, long-term potential that will integrate well with Dell’s existing hardware and services businesses. Quest brings us an unbelievable portfolio of software assets that we’re going to use as the foundation of our software solutions business. The Quest assets address many large and growing areas of the industry. In total this industry segment is about $30 billion and is expected to grow at $10 billion a year for the next four years.

Competitors like Hewlett-Packard and IBM have long offered a software stack solution around their own branded servers. IBM’s management software strengths go back to its Tivoli product line, which was later bolstered by its purchase of Platform Computing. HP has been building out a software division of its own, building on the strengths of its Operations Manager product line. Both companies have been expanding to provide private, managed, and public cloud services as well.

Watching other hardware vendors, Dell must have realized there needs to be more to its future than hardware alone. Growth will come from delivering end-to-end solutions, but the company will need more software expertise if it plans to pull off the plan. With the Quest acquisition, Dell gains nearly 1,500 software sales experts and 1,300 software developers to make that happen.

By adding Quest to Dell’s software division, Dell will have about $1.2 billion in annual revenue ($857 million from Quest), a figure that could double within a few years if Dell makes good use of its acquisition.

The key will be to see how Dell addresses the overlap in software technologies gained with this acquisition from what it already has in play, as well as how it handles bringing these technologies together into a cohesive offering. Acquiring software technologies when you have the money to do so is easy. Stitching all of those technologies together so that it makes sense for the end-users is the tricky part — even for software industry veterans. Dell has an opportunity and a challenge ahead of it.

This article, “Dell becomes key software player with Quest purchase,” was originally published at InfoWorld.com. Follow the latest developments in virtualization and cloud computing at InfoWorld.com.