Dell to Push ‘Managed Services’ for Computers

As investors focus on Hewlett-Packard’s $13.9 billion bid for Electronic Data Systems, H-P’s longtime rival Dell Inc. continues its quiet push into another part of the service market.

H-P and Dell have long pursued different strategies for selling computers and other electronics. Dell pioneered direct sales. H-P, which recently passed Dell to become the world’s largest computer seller, focused on retail.

But their service strategies diverge even more.

Rather than adding 140,000 employees to manually service the computers at large companies, Dell has built a system that will automate routine computer maintenance for small companies.

Now Dell is pitching its "managed services" to the independent consultants who already sell millions of Dell computers each year.

Such consultants buy the computers and keep them running at nearly every business that’s too small to keep computer experts on staff.

If they buy Dell’s argument that they’ll profit by reselling Dell’s managed services, Dell keeps its computer sales and picks up an army to market its new product.

If, on the other hand, consultants fear that the new technology will automate them out of the repair business, Dell may struggle to sell its new services — and see its partners start selling H-P computers to their customers.

"The way things are now, those consultants recommend Dell because they have friendly and profitable relationships with the company," said Kevin Winters, president of the Addison-based consulting firm OffSite CIO Inc.

"But if they think Dell wants to steal their service business, those relationships will go sour, they’ll stop recommending Dell computers, and Dell will lose a ton of revenue."

Most companies, large or small, still use a lot of manpower to keep their computers healthy, their software current and their e-mail archived.

But Dell thinks it can change all that.

Pinging for problems

Dell’s system can "ping" customer computers to check for problems and then do whatever needs doing: patch management, virus protection, online backup, data recovery, asset tracking, software license management, e-mail continuity, data encryption.

Starting this summer, Dell plans to begin selling managed services, a la carte, directly to businesses with fewer than 500 employees. The company expects to automate about 85 percent of routine computer work and send much of what remains over the Internet to large, efficient service centers. Such a plan would surely antagonize independent consultants if not for one safeguard — Dell will not market its new services to any business that’s currently served by one of its partners.

"We don’t compete with our partners," said Mike Menegay, who is leading Dell’s effort. "If a partner registers a relationship with us, we won’t go out and try to sell that customer directly. We will, however, allow partners to sell our managed services to those customers."

Reselling service

The program, Mr. Menegay explains, should work much like computer sales. Dell partners will make discounted purchases and resell the services to end users at Dell’s typical rates.

"Each side will help the other," Mr. Menegay said. "We provide very small companies the ability to sell cutting-edge services that cost hundreds of millions of dollars to develop. They provide us with millions of customer relationships and feet on the ground in every community in the country."

Service providers have always been happy to sell computers — from Dell or any other big manufacturer — because today’s computer sales bring tomorrow’s service calls. Selling services seems entirely different to skeptics.

Dell argues that its managed services will enable partners to offset any automated work by landing new accounts and doing more business with existing customers. Some vendors, however, say Dell’s managed services may automate a lot of jobs.

"It seems logical that guys who spend most of their time fixing computers would suffer if Dell can stop computers from breaking, but you never really know if something’s going to help or hurt you until it plays out," said Lance Wiseman, a partner at Viyu Network Solutions in Richardson.

Brian Alexander, an analyst at Raymond James, said Dell will eventually persuade most of its partners to sell its managed services. "If you’re already making a profit reselling Dell computers, it’s not too big a leap to see how you could make money reselling Dell services," he said.

That said, Mr. Alexander and other analysts worry that Dell’s focus on small business could limit the size of its service business. There are millions of small businesses, but they collectively spend less on technology than the relatively small number of large companies that H-P and EDS will serve.

Dell responds to such concerns by noting that small and medium companies are only the initial target for its managed services. It hopes to land larger customers — which tend to be more risk-averse — after it proves the system’s value with smaller firms.

Time will tell

Dell recognizes that it has taken a far less conventional path than H-P but contends that time will vindicate its decisions. As Lynn Tyson, Dell’s vice president for investor relations, blogged in response to the EDS acquisition:

"Dell is bringing to market a fundamentally different services offering than that which has been offered for the last decade or so. As a result, we are also delivering a very different value from ‘outsourcing’ and pure play consulting. We believe our approach will prevent many of the issues that challenge businesses of all sizes."