CRN Exclusive: 30 Tough Questions For Michael Dell

Dell On Dell

Michael Dell is fired up. As CEO of the Round Rock, Texas-based IT powerhouse, Dell, 49, told CRN he is ready to lead his company into its next chapter. As Dell heads into year two as a private company, the hard work is under way, he said.

In an exclusive interview between CRN editors and Michael Dell at his offices in Building No. 1 on Dell's campus in the heart of Texas, we heard first-hand how Dell is moving fast to embrace the channel and take the IT fight to Cisco, Hewlett-Packard and Lenovo's front doors.

What follows is how Dell says he is going to change the IT game with the same spirit that inspired a younger Dell 30 years ago to pioneer the direct PC sales model.

What has surprised you over the past year or two as you emphasize the channel more and transition from a public to a private company?

I'd say, not really a whole lot. I mean, it's sort of been a continuation of momentum and progress. We understand that it takes time to build relationships and trust.

The good news is we have been doing this for a while now. We are seven years in to building the Dell channel. We have had two pretty great channel milestones in the past year or so. We have had a number of big guys seriously commit to us. It started out when they would do some business with us. And when they would, they'd say, 'We weren't on the website. Don't tell anybody." They didn't want anyone to know. They were afraid the bogeyman would come out and get them. Now it's like, 'OK, whatever.'

What has surprised you about the channel as you emphasize it more in your business? It's clearly not a side game.

It's a love affair. (laughing) It's all in full bloom.

I'm getting appreciation notes and love notes. All of them unsolicited. You know before it was like, 'OK, thanks. Seems to be working well.' Now it's, 'We love you guys. It's so great. It's fantastic.'

They are all in.

Do you credit your channel gains to executing better with the channel?


Who is the fastest-growing big company in the channel right now? What's the fastest-growing large end-to-end IT company in the world right now? There is Dell and Oracle, IBM, HP and Cisco. We are growing faster than all of them.

Do you see the channel overtaking the direct side of the house at some point in the not-too-distant future if it's growing that fast? Is it a slow march to take over direct?

The channel absolutely could overtake direct. I mean, we have countries where that's the case now.

But 'slow' is not a word I would associate with Dell. It's not slow.

What kind of investments are we going to see channel technology-wise in 2014 and 2015?

Let me start on the product side. We have picked up the pace of new product introductions and are rolling out a lot improvements to existing product lines. We have our new 13G version of PowerEdge coming out very soon.

We are also investing heavily in data center.

We are big believers in lots of different descriptions for converged infrastructure, such as network functions virtualization or software-defined networking. We see software-defined everything as a big new opportunity.

Think about today's data center where you have a proliferation of appliances. There are appliances for network, for authentication, security, encryption, routing and whatever. Those appliances are increasingly becoming applications that run on a virtual machine. And the anchor tenant for where those virtual machines run is a server.

Partners are starting to make significant bets with primary vendors. Partners have to invest so much in selling up and down the stack. Why should partners do more business with Dell than with Cisco, HP or Lenovo?

In North America, the strength of our brand and the appeal isn't in question.

While we have had enormous progress, we are definitely not overdistributed -- as so many of these other guys you are talking about are. We don't want to get overdistributed.

I think we have a history of innovating, and we'll continue to do that across servers and clients. And we are absolutely committed to those business.

I don't want to sound relaxed about it, but the results speak for themselves. With the results we are achieving, we don't need to be too hyperbolic about it. What we are doing is working. Partners are giving us great feedback.

How has being a private company helped Dell in the past year?

You know, one of the great things about being a private company is that we get to think about the business differently.

When you are a public company, what happens is decisions are impacted -- sometimes in small ways and sometimes large ways. People think about how's this or that going to affect the next time we report earnings results in 58 or 89 days. That could be good thing, but generally it adds up to not so great. What you get is a lot of short-term-minded activity.

So now we have the real privilege of thinking about our business over a longer period of time. As we have done that, we have been growing faster. Our cash flow is very strong. We're investing in all of our businesses.

Cisco is 80 percent channel and HP is 75 percent. Dell is about 33 percent channel. Does Dell's direct and channel mix give you an advantage with the partners out there because you have what you call an 'omnichannel' approach?

We have heard time and time again from channel partners that as we have invested with them, they've invested in us.

Dell can leverage its inside sales with the channel. The direct side of Dell can leverage an existing presence with specific accounts or an account it has had a longtime relationship with selling PCs. Dell knows these customers and is selling into new product areas with these customers.

Now, as Dell has learned what a partner's skills are we can increase the line of business by bringing in a channel partner. Maybe there is a great channel partner out there that is really good at data center or security. So Dell aligns with them. Sometimes partners bring Dell in.

That's happening on a minute-by-minute basis and bringing tens of millions of dollars of new business to us. So that's not an idea or a dream. This is going on right now.

Are there areas where you are telling partners,'We are going to be there. We are going to be the strongest supplier out there of this specific technology. If you want to make some money, let's go down this particular path together?'

The big ones are pretty obvious. It's the server and it's the client [PC]. Those are still enormous businesses. We are investing in them.

Closely attached to the server is storage. We have had great growth on Compellent. The SC4020 array is super-hot right now. Storage is extremely well positioned to grow.

On the networking front, we are all in. With the whole software-defined networking [segment], we are very differentiated from other guys. We are seeing strong growth in that space.

On the security side, we have very strong capabilities, including networking security, encryption and detection. That's a fast-growing area, along with backup and protection. Of course, when you talk about the channel there isn't just one area.

How do you see Dell evolving? Partners we talk to say they are selling more services and getting more traction when it comes to recurring revenue. How do you stay relevant with those guys?

You have to build new solutions that enable them to stand up whatever services they are providing, whether it’s a managed service provider or an infrastructure partner. The dynamic evolution of the industry absolutely continues and we need to keep pace with that.

I do think this change in the data center, to software-defined, is going at a pretty fast pace. There could be a lot of dislocation there, in terms of companies that are particularly focused on one slice of the data center or one appliance area. When those things become virtual machines that run in a more converged type of stack, whether it's an on-premise cloud, they run the risk of dislocation.

What is the commitment to partners in terms of investing to grow the Dell channel?

It's big. It's really big.

The investment in the channel is tied to the growth. Right now growth is very strong. Our focus is on training and how do we get more certified partners selling more deeply and across more product lines. How do we link more partners with our direct inside teams? How do we get them to utilize more of the resources we have in terms of tools such as Dell Financial Services?

Look, we still have a lot of opportunities for partners. We have partners that maybe don't know all the things that Dell has to offer their customers. How do we get in front of those partners? [Vice President of Global Chanel Alliances] Cheryl Cook [pictured] and her team do a large number of events. I go to a pretty large number of events. Probably every two weeks I'm at a partner event of some kind somewhere around the world.

Is the channel a hot area at Dell these days? Is it an area Dell employees want to work in because it has a lot of momentum?

Yeah, I think so. What I would tell you is that we don't want a distinction between channel and non-channel anymore. Three or four years ago we had the channel part of the company and the non-channel part of the company. Now we just have the company.

It's not as much of, 'You are channel people and you are not channel people.' It's like we are all Dell people. Now go make it happen. And you know -- like I said -- it's all a big love affair with the channel.

We haven't talked to a partner in the past six months that hasn't said their Dell business isn't up. Some of them say they did more the first five months of the year than they did all of last year. You think that will continue?

Partners are happy. They are sending us champagne -- seriously.

When you get past all the, 'What are they doing? What are you doing? What are the margins? And all the blah, blah, blah,' the most important question is, 'What's the product? How good is the gear? And how good is the stuff?'

Our stuff is really good. Beyond channel program improvements and whatever else we are doing to grow our channel business, the ultimate test is how good are your products and services.

You have got to have good underlying product. And we have invested heavily in the products.

What is your pitch to get partners to move more of their business to Dell?

There are some big guys that go broad with us. And then there are all the specialized guys that just focused on a few things like identity management.

Say you are storage-focused VAR, and you say, 'Hey, it looks like this software-defined storage thing might take off. So what do I do?' If you go to Dell, we have the SAN pretty well covered. But we also have servers that are completely designed for software-defined storage. And then we have closely designed software stacks to embrace those servers.

So now, you are ready to go with software-defined storage and need networking, we've got that too. Need security? We've got that too.

What's the call to action to the partners that are not playing with Dell? You have got Cisco, IBM and Lenovo coming at you hard now.

What's this IBM company you are talking about? When was the last time you saw an IBM product? Enough said.

Those are fine companies; there are a lot of people who sell those products and they are expensive and they are probably overdistributed. So we are providing innovation and providing value and growth.

So of all the national solution providers that you do business with right now, you don't do business with the biggest one right now -- CDW. Why?

It's their choice, not ours. You are going to have to ask them why they don't want to do business with Dell.

CRN: Do you want to do business with them?

Absolutely. You know, in fact we do some business with them. I mean, you know, as we acquired one, two, five, 40 different companies we have ended up on their line card. It is, again, their choice. Better question for them.

You have stated Dell is not going to build a public cloud. But when we talk to Dell partners, more of them are telling us they are spending less on hardware and spending more in cloud. What does that mean for Dell?

There has always been a fairly dynamic evolution of the industry for the 30 years I've been doing this. If you look at what any partner does within the various parts of the industry, it keeps changing pretty dramatically. Right? And now is no different.

We are selling tons of infrastructure to all kinds of partners that are building what you would think of as cloud. Cloud is a popular topic these days.

As you look at the billions being invested in the public cloud by your competitors, what's the impact of the cloud on Dell? Aren't you leaving money on the table?

Here is the way I think of it. If this was 1920, we'd be talking about electricity. 'What are you going to do about electricity? It's going to be big. What's your plan as vice president of electricity? Are you going to have an electricity division? We need to be all over it. Electricity is going to be big.'

Fast forward to 1995, the Internet. 'What are you going to do about the Internet? What's your Internet strategy? What's your plan as the vice president of the Internet? Do you have an Internet division?"

Where is electricity now? It's everywhere. Where is the Internet now? It's everywhere now. That's what the cloud is.

Dell has all these partners of all shapes and sizes. Each one of them is trying to figure out how they provide something valuable to customers. They are evolving in different ways.

We sell more servers in North America than anybody and we see where they go. A lot of them go to direct customers, some go to service provider -- be it small, medium, or large. Those companies represent a large and growing mix of partner types with huge upside opportunities for Dell to sell solutions to.

How much of Dell's recent success can be attributed to the channel?

Of course it's because of the channel. Everything is because of the channel. (laughter) It's like the cloud and electricity. (laughter)

The channel is growing faster than direct.

What I'm seeing is strong growth and adoption from the channel partners. Our channel business is growing at double-digit growth rates.

What is Dell's strategy for tackling converged infrastructure?

It's not that hard to figure out where this is headed.

Look at storage. The appliance in a software-defined storage solution is in the server along with disk drives. With software-defined networking, the appliance resides in the server. With networking, there are a lot of network ports. There is software-defined authentication. There is WAN compression. Every part of the data center is moving to software-defined.

Does this suggest a de-emphasis of your PC business as you try to build your converged appliance and data center push?

We have a lot of investment in virtual clients. We have invested heavily in our software portfolio, helping customers automate their security system management and data management.

We are unabashed supporters and believers in the client PC business. We think it's OK to hug your PC. We love the PC. We don't think the PC is dead. We are still selling PCs. We still invest in PCs; we love PCs.

If other guys don't want to sell PCs, we are happy to sell them. Thank you very much. We sell a lot of PCs and that's great.

Now the PC is changing. We have a virtual PC, we have tablet, we have convertibles. The business is great.

What are the innovations Dell is bringing to the table that trump HP and Cisco? What's the competitive positioning of the 13G and the products you've got coming against the competition?

If you look at the trajectory of the 8G, 9G, 10G, 11, 12, 13 -- each turn of the crank gets better and better. We are gaining more and more share. I can only guess how our competitors are updating their next generation of hardware.

We talked about products. From a customer's viewpoint, I think we are becoming an omnichannel company. We are figuring out how to align our resources. We are now doing 35 percent plus of our commercial business with channel partners. That number is growing fast.

I think we are extremely well represented in the biggest product categories that matter -- data center, security, client and systems management. Partners are responding really well.

Speed is a theme we've been hearing a lot about in terms of the pace in which you are able to move now as a private company. Can you talk about what that speed means to you and what you hope it translates into for Dell?

It's actually pretty simple. We sort of look at it and say, how fast is the overall industry growing? Are we growing faster? Check. How fast are the key competitors growing? How fast are we growing? Check. I don't want to make it overly complicated.

We do want to go even faster. We want to gain share, be a better partner, and expand into adjacent areas. You can make it more complicated than it really is, but it's really pretty straightforward.

How has going private helped you move faster in the market and within Dell as a company?

We started by asking ourselves, 'How do you simplify decision-making? How do you make approvals go easier? How do you minimize conflicts and overlaps and make it easier for people to get stuff done so they are not wasting time?'

There is also a lot of uncluttering of internal processes that has made us faster and has streamlined the company.

It goes back to what I was saying earlier about public companies; we aren't thinking in those terms. We aren't worried about, "Oh boy, I've got to report the results in however many days." That's all gone. So for my time, that's 20 percent of my time just freed up and other people's as well. We simplified a lot of the reporting and other stuff to make it less complicated.

Now we have more time to focus on our partners. It's stuff like that just makes you feel like you are moving fast.

You are a pioneer. You started out making PCs in a dorm room. You pioneered the direct sales model for PCs. Where do you see Dell going from here? Where is the vision for Dell today?

We obviously believe in providing customers with choice. There isn't just one product, and there isn't just one way to buy it. Clearly, the channel is the prominent way that people like to buy things. We're all in with the channel.

How does it evolve? Like I said earlier. Product companies and companies that are involved in the channel have to evolve to provide value. As the industry shifts to service provider models, product models, Software-as-a-Service model -- whatever it might be -- we focus on the ultimate set of solutions that customers need to get things done.

We are investing to build those solutions and making sure we have access to go get in front of those customers. That's increasing with our channel partners.

Dell has always maintained an open strategy, allowing anybody's software to run on your hardware. Can you talk about the importance of keeping the Dell stack an open environment?

Look at what we have done in networking. That's absolutely the case. We've been early to embrace software-defined with Cumulus and Big Switch and some other unannounced partnerships.

And then if you look our footprint with software-defined storage, we have relationships with Microsoft Storage Spaces. Then there are VSANs we do business with, companies such as Nexenta and Nutanix. In our OEM business, we provide appliances to Pure Storage and a big, long list of others. We are the go-to guys, so we continue to invest in that business.

Talk about what Dell is doing in software-defined data center that is bringing more value per customer. Talk about the Dell proposition vs. Cisco.

I think if you look at the long-term trajectory of the industry -- you know, comparing open vs. closed -- it's pretty hard to bet against open over time.

Can closed win for short periods of time or do very well for even medium periods of time? No question.

If you think about, take networking, and ask yourself, 'What's a networking switch?' It's a special-purpose processor and an ASIC and it has all these ports. Well, can I put that ASIC in a server and run the processor load in the x86 server. By combining the two together, you can do things more efficiently.

If I used to have one virtual machine and now I have 10 and 50, 100, maybe it makes sense to combine switch and server together. The gross margins in switching are rather high with the company you mentioned.

What becomes the big opportunity in the software-defined space by doing more business with Dell?

I think there is a great opportunity for our customers to save. And Dell is just the sort of company that will attack that aggressively. We have the IP and we have 6,000 patents and we're going after the space aggressively. We are No. 2 now in 40-Gig ports. You look at products like the Z9500, where we are absolutely [the technical leader] at the top of the market with 40-Gig switches, and Cisco has nothing like it. We are technically out front.

You have been doing this for a long time. Do you think it's more exciting now in the market than it has ever been?

There is no question that our scale and commitment to the channel has never been greater. I do think with all the changes at Dell and the explosion in devices and the shifts taking place in enterprise IT, [there are] huge, new opportunities. I'm very excited about being a private company and aggressively going after those opportunities.

What's the Dell value? You bought a lot of different companies. What is the unifying sales proposition going to market against the Ciscos and EMCs of the world?

I think this. This is a big technical term but it's kind of Network Function Virtualization. That's where you have software-defined everything. And in that world, the server is the anchor tenant. And that's a great world for us. And it's pretty hard to argue that's not the overall trend in the industry.