Dell’s Software Divestiture Raises Questions for Its Channel Partners

Earlier this week, Dell announced that it has sold its Dell Software Group to the private equity firm Francisco Partners and hedge fund firm Elliott Management Corp. for $2 billion. The sale includes the Quest database software, network security company SonicWall, and cloud management unit Enstratius. The move appears to be in preparation for Dell’s pending acquisition of storage giant EMC, and it represents a shift in strategy away from software and more on hardware.

For Dell’s channel partners who resell its software, the sale undoubtedly raises questions. Hardware resellers, too, have reason to wonder about how Dell’s still-undefined post-acquisition strategy might affect them.

Even though it’s too early to answer those questions, we can frame them so the channel better understands the potential impact on them.

• What kinds of changes will the new owner make regarding the channel? Private equity firms buy companies to raise their value so they can sell them for a profit later. That often means cutting operating expenses and dropping unprofitable products. It’s unlikely that the new owner will make radical structural changes in the way Dell’s software products are marketed, sold and supported, but they might review the resources that go into supporting the channel. They might also take a look at the commissions paid.

• How will the split of Dell’s hardware and software affect resellers who offer both? Clearly, there will be additional overhead working with two partners rather than one. Any synergy or incentives to bundle the hardware with the software might be lost or diminished as well.

• Will development of Dell’s software continue at the same pace? Again, private equity firms are focused on creating value to flip the company at a profit. R&D is expensive and a potential target for cuts, but the new owner will want to maintain the market value of the products themselves. It’s safe to assume that regular updates will continue, but don’t expect major new version releases.

• How does Dell’s post-EMC-acquisition strategy affect its channel? Dell will pay $67 billion to acquire EMC. The scale of the combined company and the new markets that EMC opens up will require Dell to rethink everything. It’s already resulted in the sale of the software group. Will there be other changes to Dell’s product line? For example, Dell’s printer business is a small, low-margin part of its overall revenue. It’s conceivable that Dell might decide to that selling third-party printers frees resources for other more profitable areas.

• What opportunities await Dell’s channel after the EMC acquisition is finalized? EMC is the market leader in storage and has its own robust channel. That said, it would make sense to train qualified Dell partners on EMC products, and vice-versa. This could create channel conflict, but that might be a necessary evil as Dell seeks to optimize and consolidate the two channels.