Dell Technologies CEO Michael Dell On Channel Sales Growth, The Benefits Of Being Privately Held And The Security Market's 'Dirty Little Secret'
Dell On Driving Explosive Channel Sales Growth
Dell Technologies CEO Michael Dell says the company's channel business, including VMware, grew at a double-digit clip in the first half and is now a $43 billion business with 70 percent of partners earning more than last year.
"Our server business grew 22 percent in first half of this year through the channel," said Dell in a fireside chat with The Channel Company CEO Robert Faletra at the 2017 Best of Breed (BoB) Conference in Atlanta. "We are No. 1 in servers and storage, backup, virtualization, SDN [software-defined networking], converged and hyper-converged."
Dell Financial Services – which is helping partners provide public cloud consumption economics for customers – is up 97 percent over last year, said Dell. He said those partners selling Dell Financial Services are growing at 1.5 times the rate of those partners not engaging with the company's finance unit.
The Dell innovation offensive, meanwhile, aimed at "automating and modernizing" customer data centers, is beating public cloud, said Dell. "When you do that for the predictable part of the workload, which is 85 percent to 90 plus-percent, it is incredibly efficient and lower cost than the public cloud," he said. "Sure, there is a public cloud and it is growing, but when you automate and optimize, the on-premise systems can do extremely well."
Talk about your progress in the channel over the first half of your fiscal year.
This is a good opportunity for me to thank the channel partners. We really appreciate them, and during the first half of this year, we've had double-digit growth through our partners. When you include VMware, our channel program is $43 billion in scope. Our server business grew 22 percent in first half of this year through the channel. We are No. 1 in servers and storage, backup, virtualization, SDN [software-defined networking], and converged and hyper-converged. So, if we are No. 1 in servers and growing at 22 percent, did the whole industry grow 22 percent? I don't think so. That means we are gaining share.
We have 80 percent of our partners now selling both servers and storage. Our Dell Financial Services through the channel grew 97 percent year over year as we added EMC and VMware to the program, and our partners that used Dell Financial Services are selling one-and-a-half times compared to the partners not using Dell Financial Services.
How are you driving growth as more customers opt for Opex consumption-based cloud solutions?
We've seen 97 percent growth in Dell Financial Services, so what is happening is we are changing the business to be more of a consumption business. The cloud is not a place -- it's a way of doing IT. When you take our infrastructure products, along with the VMware,software-defined, you created a cloud. Customers are deploying workloads on-premise, in SaaS, and in public cloud and managed services -- it’s a multi-cloud world and you need technologies that can address that. We are incredibly well-prepared and this is why hyper-converged is growing really fast. VMware has had four to five quarters straight of accelerated growth.
Are partners participating in these high-growth markets?
They certainly are participating. Seventy percent of partners have earned greater payouts than last year. What is growing faster than the public cloud? It's hyper-converged, converged, VMware NSX. I think if you are just doing what you were doing five years ago, you've got a problem. But if you look at the places where the portfolio is evolving rapidly, it's this whole cross-cloud architecture and multi-cloud world. There's also consolidation going on. Twenty-two percent growth in servers through the channel -- that's a sign of consolidation and I think you'll see that. We've seen it in the client space where we've had 19 quarters in a row gaining share.
Why do you feel like you can do better as a private company?
One of the big differences is you have a controlling shareholder. It allows us to make investments with a longer-term timeline so if you look at things we are doing in research and development, and in sales capacity and in growing our footprint, we aren't sitting around saying we need a particular earnings per share in a particular quarter. We are looking at the business in a much longer time frame. What I've seen in public companies is whether or not they want to, they get routed to a particular performance and what ends up happening is you don’t take on risk. That leaves you missing opportunities. We are in a different situation.
Would you have done the EMC deal if you were a public company?
It would have been really hard. We actually took a serious look in 2008-2009. We would had to have two sets of shareholders voting for a transaction, and it's hard to do. Public boards maybe don’t want to take on all the risk and there are certainly a lot of examples here. If you go back and look at those 19 quarters in a row, and dial back the clock, there were competitors saying we were going to have problems, and we didn't have those problems. We are crushing it.
Will we see any tweaks in the company's structure over the next six to 12 months?
We will always tweak a few things here and there, but [the structure] is generally working. We paid off about $10 billion in debt in the last year, and we have no plans to go public.
What are some of the smaller acquisitions you've made that have surprised you in terms of their success?
We talk a lot about Dell EMC and VMware because those are the big ones, but Pivotal is growing 100 percent per year and that is super interesting. It has hundreds of customers today with the Pivotal Container Service, along with VMware, and that opportunity will go wide open. SecureWorks is doing quite well,and they are starting to do more and more with the channel. Then we have another business called Boomi, which is cloud data integration and workflow. In multi-cloud world you can't find a customer that doesn’t need Boomi. There are some partners that have spun up businesses only around Boomi. That is a business that I think will likely grow quite a lot.
What impact would tax reform that would allow companies to bring cash back home at a discounted tax rate have on the market?
We hope there will be tax reform. We think that will be good for us and good for the economy as well. I think there is a general trend towards consolidation that will continue and I think bringing that capital -- not just for the tech sector but for all sectors -- back into the U.S. economy would serve as a stimulator for growth, which will drive technology demand because every company has figured out that if it wants to do anything, it has to do it digitally, and that will drive demand for all of us.
Talk about how you have aligned Dell EMC, VMware and the other Dell Technologies companies.
We've created this idea to strategically align businesses. The basic idea is that there is an enormous amount that Dell EMC does with VMware and also with Pivotal, SecureWorks, RSA and Virtustream that they should be strategically aligned and that is essentially what we have done. When we started the integration planning over two years ago, there were some conflicts that existed in the prior structure.
The first thing we did is say, how do we resolve those, and then let's talk about growth and how we get the sales teams and technology aligned, and let's go in as a family. Our customers have some version of the following opportunity. There's the digital transformation, the workforce transformation and security transformation and across the Dell tech family we have a unique and unparalleled portfolio of capabilities to address those problems, opportunities and challenges that the customers have. And as we elevate the discussion to that level, we are winning big.
Why are containers changing the enterprise computing landscape?
Containers are really the modern way to build cloud-native applications. The container abstraction allows for the applications to reside on all sorts of various infrastructure, whether it is on premise or in many different clouds. The challenge when you go to deploy the containers is that the containers themselves don't really have any management or security framework around them. So you have got all sorts of companies springing up to try to solve that problem.
If you go to Google, for example, who has more containers than anybody, and you say what do you do with your containers to manage them, they'll say we put them in virtual machines. For 80-plus percent of the industry, it is VMware virtual machines. So the Pivotal Container Service comes together with the Pivotal Bosh [an open-source project for distributed cloud services].
What is the Google connection with Pivotal Bosh And VMware NSX?
Inside Google, in addition to Kubernetes there is something called Borg [large-scale cluster management]. The Borg doesn't leave Google. It is the way all the servers work together. If you take Borg and add one letter replacing the R and G with S and H you get Bosh. Bosh was developed at Pivotal by the same guys who developed the Borg. So we take the Pivotal Bosh technology, the VMware NSX technology and the Google Kubernetes technology and that forms the Pivotal Container Services.
So for all of the 600,000-plus VMware customers in the world, now you can easily deploy containers in a way that works seamlessly within your vSphere environment.
Do containers slow VMware's growth at some point?
I think that is a misperception. First of all, the number of containers you have will be way, way more than the number of VMs because these containers sometimes exist for a nanosecond and then they go away. But you will put your containers in VMs. As a practical matter if you take a look at a modern enterprise customer that is deploying a lot of containers they are doing it inside virtual machines today, inside vSphere today. Now we are going to make that much, much easier.
What I see in actual fact is it is not the virtual machine versus the container. It is the virtual machine and the container.
How do partners get on board with containers and make some money?
If I was a VMware partner, the first thing I would do is spin up my NSX practice because NSX is the fastest-growing thing at VMware. NSX is network virtualization. In the last 10 to 15 years we had software defining the data center with server virtualization; the next 10 years is about software defining the network, particularly in the multicloud world.
I would spin up NSX. If you have customers that have developers, they are going to need a container platform. PKS [Pivotal Container Service] is an easy way to do that within the vSphere environment. It is also the most secure and seamless way to do it. We think it will quickly become the industry standard just like vSphere was.
How fast is the NSX software-defined networking business growing?
Within VMware, NSX is a $1 billion-plus software-defined networking business. It is definitely the fastest-growing business [at VMware]. The idea here is you can dramatically simplify the hardware, go to open networking and then put all the networking functions in software. This allows you to automate tremendously, to take costs out, make the whole thing more efficient.
You can also make the whole thing more secure because you can create a network that persists just from the amount of time it takes for a transaction to occur and you can encrypt it. Let's say you and I are going to have a transaction -- it could exist for only one one thousandth of a second. If somebody inside our organization is an insider threat and wants to attack that network two one thousands of a second later, it is not even there. This is becoming the de facto way to securely move data around anywhere.
All the networking and security companies are latching on to network virtualization as the way to architect the future. VMware and Dell EMC are in a great position to go drive this.
How has the VMware business performed under Dell?
If we start with the VMware business, it has had accelerated growth for the last several quarters and as you will hear from [VMware CEO] Pat [Gelsinger] later tomorrow, it is doing extremely well. What we have learned at Dell EMC is the more we do with VMware the better it gets. We did outline this plan for $1 billion of revenue synergies over three years. The good news from our perspective is we are going to do the three-year plan in two years. It is going quite fast. There is a deep technical integration.
We are doing this all the while keeping the VMware ecosystem completely open, which we said we would do from the beginning and we continue to do. That is all working well from our perspective.
Talk about channel conflict with the Dell direct sales force and VMware and how you have responded to that?
We focus on deal registration. We take 160,000 [deal] registrations a quarter. We would like to do them all perfectly. It is possible to not do some perfectly. When we find things that are not working well, we go and correct them. We have a zero-tolerance policy for mischevious behavior when it comes to our deal registration. We continue to refine the program and get smarter about it. The goal here is for our channel partners to do really well, and the majority of our channel partners are growing and 70 percent of them are earning more with us.
Do you think you get to 70 percent to 80 percent of sales going through the channel at some point?
VMware is more than that. It depends on the line of business, but there is no upper limit. We are focused on net new. We are focused on new LOBs [lines of business]. Fortunately, the cross-selling is working. I think there is still more to do there. We are going to be very focused on services attach and selling more services. Certainly for those partners that haven't started the cross-sell journey, there is lots of additional opportunity there. And then we are going to innovate aggressively in terms of new products and new solutions plus NSX, PKS, Boomi, Dell Financial Services. There are tons of opportunities here for partners.
What do you think is going to happen with brick-and-mortar retail?
I would differentiate between retailers selling their own product versus retailers that are not selling their own product. That is a difference. I think you are already starting to see that at the retail level.
Talk about the Internet of Things opportunity and what you are doing there?
We are making several product announcements and creating a new division within the company to drive IoT and bring it all together.
We are bringing together all our capabilities across Pivotal, VMware, Isilon, Dell EMC. We are building gateways for edge computing. We think there is going to be a great boom here.
What we see is the cost of making things intelligent is approaching zero dollars. So the number of connected intelligent nodes is expanding tremendously and that is creating an incredible amount of data. If you look at AI [artificial intelligence], machine intelligence, machine learning, deep neural networks, the fuel for those engines is the data. This requires all kinds of new capabilities. We believe there will be a boom in edge computing. Also, not everything will go to the center of a big cloud. If your cloud is zooming down the highway at 80 mph and it is self-driving, you don’t want it to go back to the cloud to determine if the object running in front of you is a small child or a deer or a shadow. Intelligence has to be embedded.
How will the Internet of Things phenomenon drive compute growth for partners?
The explosion of the edge will generate way, way more data than anybody has ever imagined. All these devices, as you go from a couple of billion connected devices to one hundred billion or a trillion you are going to generate incredible quantities of data.
We are seeing a boom in edge computing that is driven first by embedded intelligence. When we look at the companies that make things, they are putting in sensors that is going to require all kinds of computing, AI, machine learning close to those edge devices.
What are you seeing with artificial intelligence going forward?
Artificial intelligence isn't new. It has been around for several decades, but it is getting way, way better with the combination of the advances in computing power, which includes specialized processors like GPUs and neural processors, next-generation processors beyond CPUs and GPUs, increases in bandwidth with the fifth-generation cellular network, high speed, low latency, the improvements in computer science. In the moment, you can create a better product, a better service, a better experience and we are just at the beginning of that. We are seeing an explosion in the number of projects that are going inside companies where they are using artificial general intelligence in a specific area.
Talk about the on-premise data center opportunity versus public cloud.
There are plenty of servers going into private, on-premise and co-lo[cation] data centers.
As we have said many times before at Dell EMC and VMware, we are automating and modernizing the data center to make it more efficient. When you do that for the predictable part of the workload, which is 85 [percent] to 90-plus percent, it is incredibly efficient and lower cost than the public cloud.
Now we also have consumption economics. We are not saying there won't be a public cloud. Sure, there is a public cloud and it is growing, but when you automate and optimize the on premise sysetms can do extremely well.
What is the secret to solving the security problem?
We are doing a great deal there. The answer to your question is that having more security companies is actually not the answer. There is a bit of a dirty little secret in the industry. There are way too many companies claiming to solve the security problem. I think the answer will be much more around how do you build security into the infrastructure. We are certainly doing a lot there. There is a role for certain things that kind of go around the security infrastructure. We have a point of view about that with things we do within RSA and SecureWorks. Certainly at Dell EMC we have created systems where you can air-gap your core database and protect it in an architectural sense.
Talk about AppDefense and how that fits into Dell's vision of secure computing.
We are also doing things to protect the virtual machine with [VMware] AppDefense. The idea here is if there are billions of attacks and you have to protect against any virtual attack, that is a pretty hard problem to solve. But if you know the known good state of what a virtual machine is supposed to do and nothing else, you can encapsulate that virtual machine to only do those things and, by the way, you can put containers in it too.
Let's say you have a got a virtual machine with containers and it is only supposed to communicate inside an organization and all of a sudden it starts talking outside the internet, you can just stop it. Recent attacks like Wannacry are easily preventable with that kind of architecture.
Talk about the breadth and depth of the Dell Technologies security portfolio.
In terms of our infrastructure security, we have a great set of capabilities. For those customers that have a more sophisticated problem and want to build their own security operations center, RSA is world-class at that. Nobody is better at that. For customers that don't want to do that but they want a level of threat intelligence and protection on a managed services basis, SecureWorks is best in the world at that. We are at the top of the Gartner Magic Quadrant. The things we are doing to protect the virtual machine, the data center, the client with our Dell Protection Suite, we have a complete set of offerings there.
How big is an expense is health care for Dell with 147,000 employees?
It’s a lot. We self-insure. We spend time on how do we help our team members be healthy and how do we make sure they have the information that helps them to be healthy. We certainly do a lot in terms of on-site workout facilities, information and resources. We have a whole Well at Dell program and we provide discounts. If you don't smoke, you get a discount on your healthcare. If your blood pressure and BMI [body mass index] is below a certain level, you also get a discount on your healt hcare. We also have 'know your numbers' campaigns where team members can understand what is going on with their health. But it is expensive.
Do you have a strategy for your family foundation like you do for the company?
We do. It's been about 20 years since we set this up. Really, the focus has been on children and urban poverty. We have taken a very data-driven approach to achieving results. That has led us down some interesting paths. When you focus on children, you focus on education and health care, and we found as we got into some of the larger school districts that they were not delivering the results that any of us would be proud of and we really didn't have good data to understand what was going on.
If you went from one school to the next and you said, 'Hey, what's going on with attendance or achievement?' they would have totally different ways of measuring it and you couldn't really track the progress. We ended up creating a normative standard for measuring results and outcomes that is now called EdFi, which has now been given to the open-source community and is used in about 35 out of 50 states, and several countries have now adopted it as their own standard for measuring outcomes.
What's the difference between your family foundation and the company's foundation?
The company foundation tends to focus on enabling access to technology and looking for ways for technology to make a positive difference in the world. For example, with the Translation Genomics [Research Institute] in Arizona, we have for about five to six years now worked with them to provide high-performance computing power. So, targeted therapies to be developed around the most difficult cancers to be solved. For example, neuroblastoma in children is especially lethal and we've been able to reduce the time to creating a targeted therapy from months to days and hours, and we are investing now in new companies that are creating breakthroughs in terms of how fast genomics can be processes, which I think is going to revolutionize health care.
What is your message to partners on the state of the channel right now at Dell Technologies?
I just want to say a huge thanks to all the partners for coming along with us on this wonderful journey. It has been a fantastic first half of the year with tremendous growth from our partners. We really appreciate the engagement. We have asked you to cross-sell, attach more services, use Dell Financial Services, and we are making great progress.