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Issue Date: February 2008

AnalystWatch: Dell to buy MessageOne

February 2008
Tim Stammers, Ovum analyst

Dell has announced plans to buy online e-mail archiving and management services supplier MessageOne for around $155m cash. Founded in 1998 and funded with $33m of venture capital, MessageOne claims to have doubled its revenue in each of the last five years. The privately held company will not reveal its revenues, but says that it is profitable.

This move reflects Dell's long-standing ambitions to expand its services business, and underlines the current IT industry confidence there will be strong growth in demand for online services. However, while MessageOne claims to have been growing very fast and will make a very useful addition to Dell's service portfolio, the PC and server giant will face very strong competition in the online services market.
Dell has its eye on the e-mail services, which bring in the largest part of MessageOne's revenues. MessageOne says that the 1000-plus companies that use its e-mail services range from small to very large companies who in some cases connect more than 100 000 e-mail inboxes to the services.
MessageOne's e-mail offerings will form an important plank in a raft of online services that Dell has already been assembling.
The aim is obvious: to exploit what Dell and many other suppliers are betting will be a strong increase in demand for online services soon, especially among small and medium-sized businesses.
For Dell, which is struggling to maintain its market share in an ever competitive commodity hardware market, the prospect of carving a slice of a new market is obviously appealing.
Given the critical nature of e-mail to any business, it is clear why Dell wants to add e-mail archiving and continuity services.
It could have simply OEM'ed MessageOne's services, but it clearly preferred to buy the company outright and ensure control of a key part of its service portfolio.
Dell is not the first large IT supplier to buy into online services.
IBM has just bought online backup provider Arsenal Digital, and EMC three months ago acquired Mozy online backup service supplier Berkeley Data Systems. Elsewhere archiving giant Iron Mountain has been anticipating the move from a paper and tape-based world to a digital universe with a series of purchases of online service players, beginning with those of LiveVault and Connected in 2004 and 2005.
Other suppliers playing for the online market include Symantec and Hewlett-Packard. Symantec is set to launch a home-grown online backup service before the end of next month, and HP already offers a choice of online backup services, one based on Asigra's software, and the other OEMed from Iron Mountain.
This is stiff competition that Dell says it will outplay through its experience of 'building to order'. The implication is that since Dell has built its multibillion dollar business around a build-to-order model, it is on home territory offering customisable online services.
That is a slick marketing line, but the reality is that the business of providing online services is quite different to that of assembling and direct-selling commodity hardware. Dell is very likely aware of this, but it is at least highlighting the fact that one of the keys to success in the online market will be to provide services that are friendly and easy to use, from the point of view of both customers and channel resellers.
Picking on the largest players, Dell says that HP and IBM do not have a hugely successful track record of selling to the small and mid-sized customers that are likely to be the bulk of the online services market.
But IBM and HP leave the SMB market to their reseller channels, and both have reseller channels that are much larger than Dell's.
That may be more than enough to make life very difficult for Dell, which has huge brand recognition among SMBs, but little reputation as a services supplier.
Source: Computergram

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