Dell beat IBM to the PR punch, but does it really have the technology jobs to beat Big Blue in the server competition?
On Wednesday, Dell made a splash with a massive introduction of servers, workstations, storage arrays, and yes, even services. The message to corporate IT buyers was that yes, Dell understood their needs and could supply a variety of sophisticated hardware and software for the modern data center.
Has Michael Dell finally figured things out? Is this is the start of a dramatic assault on what has been the near-exclusive preserve of Hewlett-Packard and IBM? I wish him the best, but it's hard to get too excited. The company has been down this same road for the better part of the last two decades with limited results.
I remember listening to a couple of representatives from Dell expatiate on how their brand new enterprise services team would put a severe hurt on Big Blue. The pitch boiled down to one line: "we can offer service and support for so much less than IBM can charge." That was in the late 1990s.
Turns out that when it came to supporting multimillion dollar installations of sophisticated equipment, the calculations surrounding total cost of ownership were a lot more complicated. In the years since then, IBM's Global Services has enjoyed a remarkable run. Perhaps the recession will open more doors for Dell, which wants to appeal to a more cost-conscious subset of IT buyers. But this isn't going to be a cake walk.
In fact, next week IBM will debut its own server redesign based on Intel's Xeon 5500 Series. The new line is being touted by IBM for its ability to help reduce management costs and overall energy use. Take it with a requisite grain of salt, but IBM is positioning the announcement as its most comprehensive x86 upgrade in years. The highlights:
• Systems with 92 percent energy efficiency
• Blades that offer twice as many transactions per minute at 1,333 GHz
• Yearly energy savings up to $100 per server
On the software side, the announcement will include tweaks to the company's Director management suite for helping customers deal with virtualized environments.
In coming weeks, the analysts and test labs will sort out fact from fiction in the claims made by Dell, IBM, and the other computer makers lining up to make announcements surrounding Intel's next big chip proclamation. But I was intrigued by a comment by Tom Bradicich. He's an IBM fellow and distinguished engineer at the company who often winds up doing face time on customer calls.
"I met with a customer recently who had a 5 percent utilization rate," he told me over the phone, adding that this phenomenon was widespread in IT and had contributed to data center sprawl. At the same time, he noted that it's also a reason for the concomitant increase in costs and energy use.
"Price performance is appealing, but the idea that you need more servers, and so then you go out and buy more servers, is a failing concept," according to Bradicich. "If we can up the utilization rate, which is a high end concept (from the mainframe era), then we can lower the number of parts you buy. We want to sell you less."
Counter-intuitive, but it fits with an increasingly common theme at IBM, which wants to accentuate the myriad parts of its company as a way of "out-geeking" the competition in customers' eyes. That's what it's done with HP. And that's what it will play up in its competition with Dell. Who can fault CEO Sam Palmisano for flaunting what he has at his disposal? By playing up its size and tech chops, IBM figures it has a convincing story to help fend off forays by rivals eager to sell into the data center market.
To be continued...
What with a deepening recession and concern about the health of financial system, the best-case expectations for technology spending ranged between the bleak and the desperate.
So what do we get? A counter-intuitive start to the earnings season.
(Credit:
IBM)
The sub-text to IBM's post-earnings conference call on Monday easily could have been: "We're in a recession and ain't life grand?" (We'll have to wait until next month for Hewlett Packard to report its December quarter, but barring a shocker, HP may sing a similar tune.)
Not because these are salad days for the hardware businesses-just the opposite. That's why it's so interesting. In fact, the tech spending slowdown is hurting demand for computers and servers. IBM's computer hardware revenue (the Systems and Technology business) felt the pain as much as anyone, declining by 20 percent in the fourth quarter of last year.
But consider this: IBM's two global services branches notched a record pre-tax profit with a 14.5 percent margin, up four points from the prior year while the company's software revenue grew 3 percent. So what if IBM's sales team floundered in the quarter. Big Blue's higher margin mix compensated for any decline as gross profits rose to 47.9 percent from 44.9 percent.
Sam Palmisano, who has capably run the company since 2003, is winning plaudits from investors nervous about where things may be heading. But the major thanks goes to Palmisano's predecessor. Don't forget it was Lou Gerstner, who steered IBM into the very high-margin businesses that are now acting as bulwarks against the recession.
IBM had lost millions selling personal computers and PC operating systems. But between 1993 and 2002, Gerstner reshaped the company. He pointed IBM in a different direction, directing the company to invest billions building up its services and high-end software offerings.
By late 2004, the CEO baton had been passed to Palmisano, who was in a position to sell the PC business to Lenovo. Gerstner's emphasis on high-margin businesses was a shrewd choice that looks even better in light of subsequent history. These days the PC business is imploding. The lousy numbers recently turned in by bellwethers Intel and Seagate, only hint at how grim it has become in PC land.
Watching Mark Hurd operate at HP, I'm reminded a lot of Gerstner. NCR's former No.1 has a similar sensibility and he understands that commodity companies don't have a bright future. Paying nearly $14 billion last year to buy Electronic Data Systems was his master stroke. But it was part of the same strategy that included paying big bucks to buy application management software, Mercury Interactive, as well as Marc Andreessen's a data center automation software maker, Opsware.
The odd man out these days? It might be Michael Dell.
Michael Dell gets a lot of the credit for pioneering the direct sale of PCs to the public. The reality is that there is a legion of now long-forgotten mail order entrepreneurs who came along earlier. He just did it better than all the rest.
So it was with more than usual interest that I read a piece published by InternetNews.com earlier this week in which Dell's eponymous company claimed that sales alerts on Twitter had resulted in about $1 million in sales.
Before anyone sneers that a million bucks to a multibillion dollar company is relative chump change, who can afford to get blase in an economy where every technology company is super-anxious about making its numbers.
Fact is that while Twitter is still figuring out what it wants to be when it's all grown up, this may be a turning point. I'm hedging here because I can't pretend to know whether Twitter will make it as an independent company, or wind up as a cool feature in a bigger software maker's product line. (And anyone who says they do know is just full of it.)
Twitter this: There's a sale!
(Credit: Dell)Regardless, the Dell experiment is important because it suggests that Twitter can be a lot more than a boy toy for the cool kids. Indeed, the technology's potential role as a supplementary sales channel has not gone unnoticed by some of Dell's rivals.
"It's not rocket science, but give them credit for jumping on it," said an executive with another PC maker. "Everyone can do the same thing--and they likely will."
Sour grapes aside, that's an accurate reading. What Dell accomplished isn't difficult to replicate. The company exploited Twitter's broadcast appeal to spread the word about periodic online specials. Call it another form of direct marketing, albeit with a Web 2.0 twist. But at its core, Dell simply tapped another channel to communicate with potential sales leads.
"We did it as an experiment," said Dell's Bob Pearson, who heads up communities and conversation for the company. "We wanted to see whether people would sign up." By that measure, it was a success. Pearson said that about 65 Twitter groups had formed in the last half year. "It showed us that there are a certain number people who want alerts about certain types of products."
Thinking about the future of online advertising, this much is clear: Customers want to share ideas and in online world people are likely to respect what their peers tell them. If you buy into the argument that the Web reflects reality, then it's better to be part of the conversation than a bystander.
Companies are salivating over the sales potential of social networks. With Dell racking up $1 million in sales from Twitter, this is long past the proof of concept stage. Imitation being the highest form of flattery and all that. But Twitter is just a delivery vehicle. The bigger question is whether the suits restrain their basic instincts and not turn into spam-happy pains in the neck.
To be continued.
Dell plans to preload computers with more subscription-based functions. The idea: give IT another, presumably less expensive way to access a myriad of systems management functions through the "cloud."
The details are still being worked over but the idea would involve a range of high-end services delivered through the cloud, like remote infrastructure management, or the ability to monitor and proactively deal with malfunctioning assets on a computer network.
(Credit:
Dell)
"We think that we've sorted through most of those issues. It will work in some customer segments and not in others," said Stephen Schuckenbrock, Dell's chief information officer and head of of its Global Services business. He added that Dell will roll out its announcements over the next three to four months.
Some of this is old wine in new bottles as cloud computing has become a buzzword, covering everything from the delivery of computer services to the hosting of applications off premises. Dell already includes remote data protection services for its new E-series of notebooks. So it is that whenever a lost or stolen laptop gets attached to a network, the system will identify the unit and automatically delete any data on the hard drive.
What's new is that Dell is expanding the scope of its systems management software ambitions. Without oversimplifying, the idea resembles the approach Dell took in the 1980s and 1990s, when it focused on squeezing costs out of its supply line. The upshot was to accelerate the commoditization of PC hardware by helping to drive down prices.
Dell CIO: Stephen Schuckenbrock
(Credit: Dell)Dell's timing in reaching into that same playbook is propitious. With the economy on all fours, the magic words IT wants to hear aren't so much "cloud computing" as "this will save you money."
Schuckenbrock, who formerly worked at EDS as a co-CIO, noted that customers increasingly are frustrated with cost and that when you look at how CIO's and IT organizations spend their money, "a disproportionate amount gets spent on keeping the doors open and running their applications." Of the annual $1.2 trillion that gets sunk into new computing infrastructure in this country--or used to get spent before the current recession-cum-depression--about $800 billion goes just to make sure the hardware runs properly.
In theory, remote infrastructure management and software as a service for systems management should allow Dell (as well as its rivals) to squeeze the associated labor costs. To the degree Dell can help reduce that sort of expense, its push into cloud computing may resonate.
"We're keeping our eye on how the industry evolving," he said. "I've seen estimates that say 25 (percent) to 35 percent of computer consumption could come through the cloud in next 3 or 4 years...You have to look at what it costs to deliver a service in the same way that you looked at what it cost to deliver a PC in terms of configurability, flexibility, or access to industry standard components."
In the last year, Dell has been on a buying spree, acquiring software companies like Message One, Silverback Technologies, and Everdream to build out the technical chops it will need for any future push into cloud computing. In the future, Schuckenbrock indicated that Dell would offer modular components that customers can pick and choose what they want in their computing environments
But as Dell builds out the software stack to compete against the likes of IBM and HP, can it help customers optimize for cloud computing in ways the competition can't?
Schuckenbrock's argument is that traditional outsourcers will have a difficult time taking large revenue streams with long-term contracts and converting to modular services that you can turn on when you want, and turn off when you want. That's because the incentive structures are very different. Thus Dell's idea is to build in the functionality as part of the hardware itself.
"If it came preloaded with all the services inside and all you had to do is go online and click, then you're automatically enabled," he said.
An interesting approach in theory. Let's see whether Dell can make it happen-again-in practice.
Look on the bright side: If you work in Silicon Valley, you may not have that tough a time finding time to meet up with friends and acquaintances during the holiday season.
In another sign of the slowdown in the technology industry, employees at Hewlett-Packard Co. and Micron have been instructed to take more time off during the holidays.
In HP's case, the company is ordering employees to take an extra three days off around the annual Christmas holiday week.
"Shutting down during a period when many employees traditionally take vacation helps HP achieve operational savings and allows employees to enjoy more time with their families," the company said in a statement.
Meanwhile, the Idaho Statesman is reporting that Micron is asking employees to take up to 12 days of time off in December and January as a cost-cutting measure to help the company. A spokesman for the company was not immediately available for comment.
Earlier this month, Dell asked employees to take off up to five days over the next three months without pay.
Despite the early kinks attending MobileMe, what's not to like about the concept? I'll include Live Mesh in the category, though Microsoft still remains in beta with the product. Synchronizing e-mail, calendars, and contacts--it's a fine idea. Unfortunately, nobody has figured it out to anyone's full satisfaction yet.
Maybe that will soon change as more companies with the means and the motivation offer cloud-based storage to consumers. One recurring rumor has Google planning an upcoming consumer service with "infinite storage" called GDrive. Take rumors for what they are worth, but given Google's (growing) cloud-centric history, it's not unreasonable to expect an announcement along those lines.
Meanwhile, another name with the bonafides is thinking about trying its hand.
Dell.
I recently caught up with Praveen Asthana, who directs storage operations at Dell. While cloud-based storage so far has had an uneven reception in the market, he says the initial consumer reluctance to store valuable digital files "out there" is receding.
"What convinces me about this is that people now are comfortable putting their photos onto the cloud," he told me. "When you read about someone's house catching on fire, what's the first thing they try and save? It's the photos and the memories."
Of course, Dell knows that it is not guaranteed to succeed where others have failed. If it were that easy, Xdrive would have turned into a money machine for AOL. Instead, the company is looking to dump the service only three years after acquiring it.
At this point, Dell is not offering more details other than to acknowledge that the idea is under consideration. Also, it is not clear whether the company would go it alone or in collaboration with another company. But Asthana still believes the change in consumer behavior is for real and that it suggests a shift that will involve the entire user food chain. "I think it will start with consumers," he says, "and then go right up to small and medium business, and then corporations."
Perhaps. After its acquisition of EqualLogic last year, Dell now sells a broad iSCSI disk array product portfolio. The thinking is that Dell would be able to successfully extend its expertise as a supplier of storage hardware into storage services. It's obviously more complicated than that, but Asthana's boss is no stranger to applying managerial lessons learned in one area to another.
Michael Dell has proved himself to be one of the savviest operators in techdom. He built a multibillion dollar business by figuring out how to sell commodity PCs, servers, and service quicker than most. Each time it stumbled, the company learned from its mistakes and moved on. Consumer-based cloud storage no doubt would be a stretch, but didn't they say the same thing at other points in Dell's history?
If the scenario comes true, it would make for one heck of a scorecard with Dell conceivably facing off against the likes of Google and Microsoft (as well Apple).But with more people participating in digital photography and digital music--and all the attendant storage demands that follow--there's ample room for companies that can get it right. Besides, Michael Dell knows how to pick his fights.
Updated at 5:20 p.m. with comment from JetBlue
"The filthy, lying, money-grubbing whores we call...the airline industry."
(Credit:
CNET News)
Now that's a headline.
Bill Baker, a technology publicist from Connecticut, was not about to mince words after JetBlue left him stranded by canceling his return flight from Portland, Ore.
"I wrote that when I was especially angry," said Baker, still seething one week later when we spoke. "I'm still pretty postal about it."
Here's the Reader's Digest version of what happened.
On July 23, Baker's red-eye to New York was twice delayed from its original midnight departure time. Then around 5 in the morning, JetBlue told waiting passengers that it had to cancel the flight because there was no crew to fly the plane. That announcement set off the invariable scramble at the service desk, where JetBlue offered either to refund the $229 return leg of Baker's trip--along with a $100 voucher--or put him on the next available flight to New York three days later. To add insult to injury, Baker would have to go out on a midnight flight.
But the story gets worse. While JetBlue said it was not responsible for finding sleeping accommodations, all the hotels Baker called were booked solid. JetBlue also informed Baker it was not going to book him on a different plane because it does not have inter-line agreements with other airlines.
The ending to this novella was pre-ordained: The only way out of town was going to be on Baker's tab--and so he paid $977 to fly back via Detroit on Northwest and Delta.
I was less intrigued by JetBlue's tin ear than by what happened next. We're long past the era when companies could cavalierly screw over their customers without risking public humiliation, and Baker knew what to do next. See, there's this thing called the Internet...
After getting nowhere fast with the customer complaint department on his demand for a full refund--"I got a reply back saying basically, "You're out of luck"--Baker put the entire blow-by-blow on his blog.
Turns out that JetBlue was also interested in what he had to say. Three days after going public, Baker heard back from JetBlue, which had been tracking his blog posts.
JetBlue offered him another $60 plus flight certificates worth $229. But no salted peanuts.
"I was completely up front with them the entire time when I spoke with JetBlue," Baker said. "I told them that I'm going to make some noise about this... I've been in business for 10 years and If I screw up, I tell my client--if I expect to retain their business. I understand that you can't be responsible for the weather, and I understand delays. But I told them it sounds as if (JetBlue) is selling a product that it can't support.
JetBlue still hasn't returned my calls to provide their side of the story (Note: JetBlue did get back to me after I posted this story. Their comment is below). But the incident reminded me of the lengthy hassle BuzzMachine blogger Jeff Jarvis encountered a few years ago after he attempted to get Dell to fix his malfunctioning computer. Jarvis was getting nowhere fast with the company's customer service division, so out of frustration he published an open letter to Michael Dell with this devastating opening: "The bottom line is that a low-price coupon may have gotten me to buy a Dell, but your product was a lemon, and your customer service was appalling."
Michael Dell and his minions obviously grok the changing nature of communication in the Internet age, and Jarvis received a full refund from the company less than a week after going public on his blog. What with the parlous state of the U.S. airline industry, one would assume they understand that they risk far more than the cost of a refund by allowing public conversation about their practices to wind up on the wrong side of the blogosphere.
In a filing with the FCC (PDF) earlier this year, Comcast claimed that bloggers constituted a sufficient check on bad behavior. (Touching, albeit self-serving in that Comcast was desperate at the time to keep regulators at bay.) More recently, The New York Times chronicled Comcast's efforts to engage bloggers in hopes of burnishing its reputation. The cable company finished dead last in the latest American Customer Satisfaction Index.
By the way, Baker told me, he was "a huge JetBlue fanboy" before all this happened.
Obviously, no longer.
Update: After posting this story, I heard back from Bryan Baldwin, JetBlue's manager of corporate communications, who says the company plans to take "another look" at Baker's claim.
"If we see what appears to be a big customer service problem, where we might not have followed through as we would like, we'll definitely get the right people involved and doublecheck," he said.
He also says one member of JetBlue's PR team is charged specifically with "tracking blogs and online conversations" to respond in case of customer dissatisfaction.
Maybe time to make a tweak?
(Credit: JetBlue)Last I heard, Ted Waitt was kicking back somewhere in a posh part of Southern California, living the high life that came his way from starting Gateway. I wonder what he thought about the news that his old company no longer would be selling computers directly to the public.
Former Gateway CEO Ted Waitt
(Credit: CNET News)Along with Dell, Gateway was one of the two companies most responsible for popularizing the idea of buying computers over the phone. But this week's about-face only put a long-expected coda on the final chapter of this story.
Now owned by Acer, Gateway lost its way years ago. Despite frequent course corrections along the way, Gateway couldn't stop the customer exodus. In the end, last year for a relative song ($710 million.)
Dell CEO Michael Dell
(Credit: CNET News)Hard to believe that at one point in the early 1990s, Gateway and Dell were roughly neck-and-neck. But Waitt, a charismatic operator, never matched Michael Dell as a business organizer. Both CEOs made their share of miscues, but Michael Dell always could tap a deeper bench. As fate would have it, both Waitt and Dell were forced to return as CEO because their chosen successors stumbled.)
Reading through the clips from that time, I came across this observation on Dell's return from Needham analyst Charlie Wolf:
"The return of the prodigal son has many precedents in American business. Steve Jobs returned to a company in shambles in 1997 but has since turned Apple into one of the great growth stories of the decade. Mark Hurd, though not a prodigal son, also took over a company in disarray and turned HP into a formidable competitor in less than two years. At the same time, Ted Waitt, Gateway's founder, was unable to return the company to its former glory when he came back in 2001 after a year's sabbatical."
Amen to that.
More than a year after returning as CEO, though, Dell seems to be settling quite nicely into the new/old role. He's also reportedly contemplating a renewed run at the digital music player business. (Here's more context on that story.) The previous attempt was a failure but I
still can't tell whether Dell Redux is going to turn out to be a success. But he's a survivor. And for old time's sake, it's good to see folks like him still taking center stage.
What do you know? The do-gooders had a good idea: A 50 percent reduction in power consumption by computers by the year 2010.
(Credit:
CNET.News.com)
This was a central plank of the Climate Savers Computing Initiative, a nonprofit initiative which is celebrating its one-year anniversary this month. Most of the usual suspects have thrown their support behind the project. (Here's a link to the full list. These folks aren't signing on out of any woolly eyed desire to save humanity--though that's a nice idea. They're doing it to help their bottom line. (Even better!)
So it is that on Wednesday comes news that Dell has developed a server power supply which complies with the 80 Plus Gold certification. A good first step, though the bigger question of clean technology and the role it might play in helping to curb data centers' energy output remains unclear.
Dell's PR moment is one small advance in the right direction. Unfortunately, data centers haven't been getting any greener. When Earth Day rolled around in April, we reported on a study which found that "three-quarters of those surveyed graded themselves a 'C' or worse for green computing, and 65 percent said they lacked precise plans for improvement."
Speak with IT managers and if you can find one reporting that their energy costs are going down, send me their number. But if technology helped get us into this mess, technology is going to pull us out of it (or at least one can hope). The timing on Dell's news was purely happenstance, but I came across two headlines recently which nicely framed the question du jour. The first referred to a report by Cambridge Energy Research Associates, predicting the following: "Response to Global Climate Change to Spur $7 trillion in Clean Energy Investment by the year 2030." The other was a prediction by Texas oilman T. Boone Pickens: World Crude Oil Production has Peaked." (In other words, there ain't a lot of this stuff left in the ground so get ready to pay a lot more--or find viable alternatives.)
Who knows which forecast comes closer to the truth? But clearly, these are extraordinary times with lots of opportunity as well as lots of confusion about where technology's future should head. I suppose all this is good news for clean tech's future, though it seems we've been talking about this "future" for the better part of several years now. What I'm anxious to know is how much longer before its impact really begins to manifest itself in ways which impact the society as well as the global economy? (Next week I'll be moderating a panel discussion on the same subject so if you have any questions or thoughts on the subject, e-mail me at charles.cooper@cnet.com.)
An unexpected bump in the head landed yours truly in the emergency ward recently, and when they wheeled me up to the CAT scan, I handed over my cell phone.
"Oh, we don't need that," the attendant told me. "We only take iPhones."
Wow, I thought. Of all places to land a scoop!
"You mean there's something about the device that interferes with the picture process?"
"No," the attendant laughed. "We're just looking for iPhones, not that other stuff."
Just around the same time, Consumer Reports announced the results of its findings that Apple had the best technical support in the computer industry. Talk about the rich getting richer.
These are obviously boom times for Apple. But fortunes are fleeting in the computer business and it wasn't so long ago that Dell was the PC maker with all the sizzle. In fact, in October 1997, Michael Dell was at a Gartner symposium, and he was asked what he would do if he owned Apple (which then was struggling). "I'd shut it down and give the money back to the shareholders," he said. (Dell was responding to a verbal pot shot from Steve Jobs, who was quoted previously saying that Dell makes "un-innovative beige boxes.")
With the benefit of 20/20 hindsight, Jobs wasn't entirely wrong. Dell's bigger problem wasn't that it was unexciting. Rather, the company got sloppy as it grew into the world's biggest PC manufacturer (nowadays, it's No. 2). Jobs had no way of knowing that Dell would fumble its once brilliant advantage over rivals when it came to price and delivery. Up until then, the fact that its machines were, well, boring, wasn't a handicap. In fact, corporate IT types actually prefer boring--as long as it's dependable and backed up by solid service. That was the key because complaints about Dell's once highly regarded online support also mounted. The company's reputation took a high-profile hit after blogger Jeff Jarvis chronicled his tech support woes on his popular personal site.
CNET News.com reporter Erica Ogg has a great take on Dell's customer service today. The company says it's worked hard to repair any lingering problems. Still, you have to wonder after reading the comments in the Talkback section responding to Erica's piece.
Of course, take the anecdotal evidence with a big grain of salt. Still, there are a lot of aggrieved customers who remain furious at the company. They can't all be flamers when you consider that in the same Consumer Reports survey, Dell finished behind Apple both in notebook support and desktop support.
But times change and today's top dog could easily become tomorrow's top dog in a blink of time. Just ask the folks who have worked at Apple or IBM or Compaq or Hewlett-Packard. When he stepped in for his second tour of duty at Apple, Steve Jobs inherited a royal mess. Back then, Michael Dell could dismiss Apple and not give it a second thought. A lot of people felt the same way. Smart product design and better management execution ultimately changed the critics' minds.
Now that he's the company founder returning to a troubled company as CEO, Dell obviously has a very personal stake in getting things right. It's hardly mission impossible. Dell has bounced back from previous stumbles so who knows? With a bit of luck, maybe the next time I get wheeled into to the radiology department, they'll be asking whether I've brought a Dell laptop with me.
