Editor’s note: Krista Macomber is an analyst and Stuart Williams is director of the Software Practice at Technology Business Research.
HAMPTON, N.H. - Quest will provide the foundation for Dell’s software business and expand Dell’s end-to-end solutions capabilities in the enterprise.
In a significant step in its evolution from a product-driven computing vendor into a holistic business solution provider, Dell (Nasdaq: DELL) announced on July 2, 2012 its intent to acquire IT management software provider Quest for $2.4 billion. The deal, expected to close late in the third quarter, will prove critical to establishing Dell’s software business, increasing its ability to execute on enterprise-caliber solutions, and, ultimately, meeting evolving customer demand for holistic services and support provided by a trusted advisor.
Quest serves as the foundation for Dell’s newly formed software division. Although Dell Software might be new, it will prove significant as Dell continues building its enterprise credibility, which is critical in the transition from commodity hardware manufacturer to trusted advisor. Quest’s customer base is 100,000 strong, including penetration of 87% of the Fortune 500 companies – a proof point to the vendor’s success in delivering software solutions to enterprise customers. This experience will be augmented as a part of Dell Software under the direction of John Swainson, former CEO of CA Technologies and a 26-year IBM Software veteran.
Quest’s portfolio expands and validates Dell’s end-to-end solutions capabilities with IT management solutions that include databases, applications and virtualization, designed to save customers time and money through reduced IT complexity, and boost security. Quest also provides Dell with the go-to-market and engineering expertise needed to grow Dell’s software business – including 1,440 sales representatives, 23% of which are systems engineers, and 1,279 software engineers. Dell can leverage these teams to drive innovation and significantly enhance its sales and marketing capabilities across all of its software assets, not just Quest – bringing value to other recent acquisitions such as AppAssure.
Quest’s financial performance is a tribute to its success and will provide Dell with momentum to achieve its goal of growing software revenue from $400 million to $2 billion by 2015, announced at Dell’s June 2012 Financial Analyst meeting. Quest reported $857 million in revenue in 2011, up 12% from 2010, and gross and operating margins of 86% and 11%, respectively, for the year – with significant opportunity remaining. According to Dell, the enterprise software segments Quest addresses currently total $30 billion and are projected to grow 10% CAGR to $43 billion by 2015.
Quest brings critical enterprise software engineering and go-to-market know-how
Quest will serve as the foundation for Dell Software while accelerating Dell’s core end-to-end solutions initiatives. Quest adds a core software sales organization, enhanced engineering expertise and expansive enterprise customer base globally to Dell. At the same time, Quest opens new doors to solutions across Dell’s datacenter, end-user computing, services, security and cloud organizations.
Dell and Quest provide complementary expertise that will accelerate larger enterprise solutions momentum. Quest’s portfolio emphasis on easy-to-use software offerings targeted at solving emerging IT challenges plays to Dell’s culture and core strengths. Dell has established momentum around delivering end-to-end IT solutions that span compute, storage, networking, services and, increasingly, software.
Quest will bring 25 years of expertise in developing, selling, delivering and supporting enterprise-caliber customers to the software layer. Furthermore, both vendors have a global reach, with Quest touting 60 offices across 23 countries, and Dell bringing worldwide brand recognition around IT-layer hardware and solutions.
Quest’s systems management, security, data protection and workspace management capabilities enhance Dell’s core strengths while providing differentiation. These capabilities augment Dell’s previous acquisition activity, which includes Clerity Solutions, MAKE Technologies, AppAssure, SecureWorks, SonicWALL and KACE. Application modernization and support of both heterogeneous and next-generation virtualized environments will help Dell to better capitalize on booming opportunity in the cloud, while capabilities such as continual performance monitoring and end-to-end security – which includes end user workspace management – will enhance Dell’s overall end-to-end value proposition.
TBR believes Dell is positioned to gain over time from Quest much more than the $2.4 billion it invested in the purchase. However, building out a software division – key to enabling solutions – from scratch will result in some headwinds. As Dell continues pursuing acquisitions across the stack to generate more opportunity, it will face the challenge of integrating diverse company cultures and sales forces into a coherent portfolio, and go-to-market team capable of articulating the value of complex solutions.
TBR sees this process as taking up to five years with respect to Quest. Dell will continue increasing its focus on integration to enable business results; however, while technology integration can happen quickly, business-centric solution development takes time. Dell’s transformation is a long-term strategy. It will require continued strategic investment, re-alignment of the go-to-market approach, and re-balancing of alliances and reseller relationships to include the new services and software landscape.
(C) TBR, Inc.