Few CEOs have witnessed more change from the same seat as Michael Dell. When he founded Dell in the 1980s, his Austin company was among the first to sell PCs by mail, often at a lower price and with better tech support than established competitors offered. The '90s saw Dell extend that lean and mean approach to become a pioneer in user-customized systems and just-in-time manufacturing. And in the 2000s, with the rise of Linux, Dell established itself as a leading supplier of hardware to the data center -- both x86 servers and enterprise storage systems.
Today, Michael Dell oversees a global corporation that, with the 2009 acquisition of Perot Systems, has become an "enterprise solutions" company targeting the midmarket. By that, Dell means prepackaged combinations of consulting services, hardware, and software -- to serve verticals like healthcare or to address horizontal needs like enterprise-class security. The strategy appears to be working: When Dell announced its FY11 results in February, it reported the largest revenue increase in the company's history.
As part of the IDG Enterprise CEO Interview Series, Chief Content Officer John Gallant -- along with InfoWorld Editor in Chief Eric Knorr and InfoWorld Executive Editor Doug Dineley -- sat down for a 45-minute interview with Michael Dell. A key part of the discussion focused on Dell's aggressive plans to grow his portfolio of solutions by acquiring more intellectual property and what that means for customers and longtime partners. Along the way, Dell was willing to speculate about new devices that blur the line between notebook and tablet and even what the computer industry might have looked like had his venture never existed. We began by asking him to elaborate on his company's decision to put solutions, rather than hardware, first.
John Gallant: Dell says it has become an enterprise solutions provider. That's a big shift from being a box seller and a fast adopter of new technology. Why is Dell making this change and what are you trying to accomplish?
Michael Dell: Throughout the latter part of the '90s and early 2000s, we started creating more and more powerful enterprise products, and as we sold those products into the data center, it became clear to us that customers wanted more than products. We started to build a bigger business services capability and to verticalize the business. It was most prevalent in the public sector -- because it was a business of verticals, with education and health care and the defense and civilian aspects of the federal government. As we were doing that, it became clear we needed to go faster.
So we bought Perot Systems, and for the last year or so we've been pretty aggressively investing both organically and inorganically in accelerating our solutions momentum. The reason is that we found that it works really well. I think the reason it works is that we're solving the real problem that the customer has -- and getting into the real opportunities in a bigger way.
Gallant: How were you approaching customers before?
Dell: Five years ago we would say: Hey, we've got shiny boxes. And the customer would sort of say: Well, don't really care, I'm busy, leave me alone. What do you actually know about my problem? And can you help me solve this problem I have? I'm trying to build a next-generation supply chain. I'm trying to make my sales force more productive. I want to get better outcomes for my students or my patients. If you know something about that in the vertical that I'm in, then I want to talk to you. If you don't, go away and leave me alone.
Building that capability requires new skills, new capabilities, new intellectual property, some of which we can grow organically, some of which we have been acquiring. I think it also changes the frame of reference of the opportunities for Dell, because now we look at the entire $2.7 trillion IT industry and say: That's actually the entire space that we're going after. We're not confined to this box or that box.
If you look at what we're doing today, certainly you can find some places where we're highly advanced -- like in health care IT, where we're number one in the world. We're doing health information systems and evidence-based medicine systems, electronic medical records and claims adjudication systems, affiliated physician systems, and really entire solutions that help care providers ultimately deliver better outcomes for patients. That's actually what they want to do. They don't want shiny boxes, although shiny boxes may be part of the solution. We've changed the conversation, and that is producing a steady stream of improving results financially. Our GAAP earnings in the last year have more than doubled. That's a good thing. We like that. People seem to like that.
Gallant: I would imagine so.
Dell: That success gives us a greater degree of freedom in terms of our ability to expand and grow and invest organically and inorganically. And that requires some new things. It's not as if we started doing this last quarter, right? So three and a half years ago, we bought a company called EqualLogic up in Nashua, N.H., and that was in a space that we were pretty familiar with. Dell has sold 15 million servers in the last decade -- pretty hard to find a data center where it's not Dell. About a third of the servers sold in North America are Dell. So what goes with servers? Well, storage goes with servers, networking goes with servers. Those are pretty obvious places for us to expand.
Doug Dineley: You mentioned vertical solutions; Dell has also talked about a big focus on providing horizontal solutions that go across midsize companies of all kinds. What sorts of solutions are really catching on with those customers right now?
Dell: Among all the solutions, you'd say roughly 80 percent of them are horizontal and 20 percent of them are vertical. To the extent you can create the horizontal solutions first, you can sell them to everybody, and there's more demand. Things like virtualization -- no great surprise there. What does the next-generation data center look like? How do I implement cloud computing? What does the mobile client look like? What about IT security, migration to the cloud? There are pretty big horizontal solutions that are highly repeatable activities. You can almost apply factorylike thinking in terms of how you deploy them -- efficiently for customers, with a very high degree of predictability that's going to be successful and implemented on time. It's just not that hard to do over and over again.
Eric Knorr: That scales nicely from your perspective.
Dell: Yes, and we very much focus on the midmarket because we see a lot of new solutions being created there -- and moving up. Think about x86 servers. When the x86 server started, it wasn't in the world's biggest companies. In fact, I remember very well going to some of those big companies and they said go away because we're doing mainframes, we're not doing x86 servers. Actually, x86 servers started with the small, nimble, fast companies, worked their way up into medium and large [businesses], from the Web tier to applications and to the database layer. And now it's finally eating away at the core of the data center in the world's biggest companies.
If you look at any new company, it's all x86. Google and Baidu, these guys don't have mainframes or mini-computers. The whole thing is x86 and probably some ARM coming out in the future as well. So you think about flat tree networks. You think about virtualization, think about iSCSI, think about social computing, and all the forms that new collaboration skills take. This stuff all starts with small midsized organizations.
If you look at the actual total IT industry, at $2.7 trillion, you have consumer over here, and then you have these big global companies, and then you have the public sector -- which is actually bigger than consumer or global. But the two biggest parts are SMB -- which is the biggest -- and large companies. Now, what's really interesting is that if you look at it from the frame of reference of the big vendors in our industry, they usually design things with big customers in mind.
Knorr: What's wrong with targeting big corporate customers?
Dell: It's not necessarily a bad thing to do. We sell to those customers, they sell to those customers. They use channels and distributors and multistep distribution to deal with these customers, although one could argue whether they've done a particularly good job at it or not.
So we sell to the biggest companies in the world and we sell to the smallest, the consumer. But we also think the SMB market is not only the biggest, but it's also the fastest-growing. Think about all the new emerging companies around the world.
The other thing you find is that the pyramid of companies is like unbelievably wide. Go to LinkedIn and they have advanced search tools that let you look at companies by size. You'll notice that there's an enormous number of companies that have 1,000 people or 5,000 people. There aren't that many companies that have 100,000 people or 200,000.
Knorr: Obviously, you're not the only company to lead with services and solutions. Compared with IBM and HP, is the only difference in your target audience, or are there other differences?
Dell: I think [the market segment] is one difference. The other difference is that we don't have the legacy of an installed base of proprietary stuff, which is why we've taken this open approach. If you look at our approach in the data center to orchestration, to systems management, it's a very open approach. Dell has always been a leader in standards, and I think customers know and appreciate that. It's a great position for us to continue to carve out. It's pretty different than our competitors.
Gallant: And where does Perot fit into that mix? How do you see using Perot to address the needs of that small/midsize market versus the way services normally work with these big companies?
Dell: In the large company sector, you have companies with thousands, tens of thousands of people. That's actually where Perot did most of its business. You didn't see as many of the superbig global companies in their portfolio, though they had some. And then they had a lot of public sector, particularly health care. About half their business was health care, which is a tremendously decentralized industry.
Our approach today is very consistent with that. Our challenge with the cloud and with remote-based services is -- how do you bring these services to smaller organizations? And we've also been acquiring some interesting new capabilities there.
One of the big challenges that customers have is IT security, and the first thing [customers] do is go and buy all the various equipment from the leading security companies and put firewalls and other security hardware in place. Then they start getting attacked and wonder -- well, what do we do now? So they call on the phone, go to websites, read white papers, look here and there. But it's really, really hard to know exactly what to do when you get malware and botnets. It gets complicated. So what [Dell] SecureWorks does is solve that problem for thousands of companies, from the biggest banks in the world to thousands of credit unions and community banks -- and all sorts of big websites that transact a lot of dollars and mortgages. These companies are in the trust and assurance business. Information security is essential to them.
Dineley: I presume Perot Systems' expertise went into building those solutions for the health care market, right? The electronic medical records systems, image archiving, those kinds of things?
Dell: Yeah, absolutely. It's a foundation layer for us.
Dineley: Can you translate expertise in that vertical to provide deeper solutions in financial services or other verticals?
Dell: Yes, we're building out other verticals -- certainly banking and financial services. Insurance is the biggest one to go after and we already have a fairly significant presence there.
Gallant: I wanted to ask you more about the focus on solutions and what it means for the company. The companies you've acquired have expanded your portfolio of IP. Does it change Dell as an open company -- or as a great strategic partner -- if more and more of what you deliver is your own versus pulling together solutions from across the industry?
Dell: I think we're going to continue to pull together solutions across the industry, but there are clearly areas where we're investing more heavily in our own technology. What I'd also tell you is if you look at the way we're delivering our solutions, we're still giving customers an enormous amount of choice. With our data center solutions, yes, you can buy networking from us, and you can buy storage from us, you could buy servers from us, and you could buy orchestration from us. But if you want our orchestration and you don't want to buy any of our servers or networking or storage, you can do that, too. So we're much more open than really anyone in the industry.
Gallant: But are your strategic partners as excited about this transition as you are?
Dell: Well, we certainly don't design our deterministic future to make others in the industry happy. We decided to make customers and shareholders happy and give people at Dell a great opportunity. So "don't really care" is the simple answer. But what I'll also tell you is that...
Gallant: That's a simple answer.