Michael Dell is a man on a mission, striving to transform Dell for the new age of converged data centers, cloud computing and mobility. And yes, he is placing a huge bet on Windows 8. During an exclusive interview with The VAR Guy, Dell outlined the path forward for his company – and the opportunities ahead for PartnerDirect channel partners. Yes, Dell has an $8 billion services business. But that’s just 1 percent of the IT services market, Dell asserts, leaving plenty of opportunity for partners to cash in. Here's how.

The interview occurred Oct. 25 in New York. The VAR Guy polished his interview notes during the darkness and recovery from Hurricane Sandy. Major portions of the conversation are below. Plus, check out Dell's cloud services and managed services coverage on sister sites Talkin’ Cloud (published here) and MSPmentor (coming soon).

Now... the interview. Note: All hyperlinks added by The VAR Guy (post interview) for easy reader reference.

The VAR Guy: Dell is undergoing a transformation: Hardware, software, services, cloud. How far into the transformation are you?

Dell: I think we’re pretty far along. As I think of the major areas that are important to us we have a significant presence in really all of them. There isn’t an area where we would like to have a big presence where we’re completely absent. With the Quest Software acquisition we’ve added tremendously in terms of our systems management and security portfolio.

Let me lay out the whole thing out for you.

Dell exits his seat and heads to a white board, grabs a marker and jots down the strategy.

Dell on the Client: We start with the client business. We still believe the client is important. If you want to access the Internet you need the client. It’s changing with tablets, smartphones and virtual clients. But the client is still important, certainly with Windows 8 as well. We’re excited about what’s going on. With Dell tablets with Windows 8 that’s an exciting place. There are 400 million PCs sold per year. Walk around the city here [he refers to our Manhattan meeting location] you’ll find the client is still important to how business gets done. It’s not going away.

Dell in the Data Center: It’s our ESG business. Obviously we have leadership in x86 servers. Having acquired Force10 in networking, Compellent and EqualLogic in storage… we’re moving into converged infrastructure and helping customers build private clouds. That’s a big focus for our data center offering.

Dell Software: We focus on a couple of key areas. Systems management to automate and reasonably manage all the disparate systems out there. Think about the portfolio we have with KACE and AppAssure for Backup and Recovery, Quest in systems management and some organic development around helping customers manage systems; that’s big for us.

The other thing we hear a lot about from about every customer is IT security. Today, Dell sees 32 billion security events per day through the combination of SecureWorks and SonicWall. We’re helping customers manage network security with all the threats out there, we’re protecting $10s of trillions in assets every day. And now with Quest we have a world-class identity and access management platform. That’s a problem every customer in the world has. How do you federate systems together? Who has access to what? When the regulators show up you’ve got to prove compliance.

By the way, for partners those types of systems require a lot of implementation.

The VAR Guy: Where else are your partners plugging in?

Don’t forget about AppAsure with MSPs. Partners like eFolder that are building businesses around AppAssure, and partners are building businesses around PacketTrap. Those are significant MSP plays.

(Editor’s note: eFolder specializes in backup and disaster recovery for VARs and MSPs; PacketTrap offers remote monitoring and business management software for MSPs.)

The VAR Guy: But you also have services. Is there room for partners?

Dell: We’re going vertical in such areas as financial services, health care, education, energy. We are building a significant services capability. But we cant’ do it all ourselves. In the services market we’re just $8 billion out of an $800 billion IT services market. So we’re 1 percent of the market.

But we do have some growing, expanding capability. We need to manage and protect all of our infrastructure. We have 114 million devices that are mission critical to customers -- like workstations and servers running the stock exchange. We have 656 locations worldwide where we have spare parts for 4-hour service. It’s unprecedented coverage.

Dell returns to the white board and writes some more.

Infrastructure and the Cloud: Then we have infrastructure and cloud services. For customers who want us to run it for them. With InSite One we have a secure archive where we’re serving more than 5 billion medical images. Nine out of 10 of the largest health care systems in the world use us; we’re the overwhelming leader there. Then we have apps, and in the BPO space we’re modernizing applications and helping customers efficiently manage the sprawl of apps to consolidate them.

The VAR Guy: So let’s bring this back to partners and the channel. What’s the upshot?

Dell: You put it all together and it’s a different Dell than the one we had five years ago. We have 115,000 partners in PartnerDirect. But we want to go bigger and deeper with our certified partners.

Every time we’ve acquired a new company -- and there have been a few -- we’ve added those partner programs. I think [Dell Channel Chief] Greg Davis has done a pretty masterful job of navigating that.

We had a partner summit [in late October]. I met with Greg and 70 partners in Austin (Texas). When I’m out traveling I’m meeting with partners regularly. It’s a significant part of our business on the order of 25 to 50 percent of our commercial business depending on country. Some countries it’s 100 percent. We see it growing. As we expend into new markets it tends to be partner driven and partner centric.

The VAR Guy: How do you make sure that each time you make an acquisition it becomes part of a greater whole, with a consistent approach to partnering?

Dell: You need an overarching strategy that makes sense. We’re not acquiring things for the sake of acquiring them. We have a comprehensive business strategy. As you think about what you need in terms of data center, software and services capability, sometimes you do it organically and sometimes through acquisition.

M&A has been key. How do you make an acquisition successful? The first think you do is acquire a business that is close to the things you’re doing and the spaces you’re in, and you change the sales motion from selling one thing separately to one or more things together. We see that with converged infrastructure.

The VAR Guy: How so?

Dell: Last year it was “here’s the rack of storage, here’s the rack of switching, here’s the rack of servers. And let’s hook them all together.” Now we have blade architecture where you have the Storage Area Network right in the blade. That’s deep integration. None of our competitors have done that.

With Force10 we built the switch right into the blade. Next year you’ll see essentially all of the elements in the data center – compute, storage, networking- -- all in one rack chassis.

The VAR Guy: Are you heading toward software defined data centers as you integrate all the hardware? Does Quest put you on that path?

Dell: Quest gives us a lot of capability in managing across all those resources. Certainly we’re working a lot organically in changing it from managing ports and switches to managing users, workloads and and quality of service. We’re freeing up a lot of energy in IT organizations to work on bigger problems. A year ago if you spoke about that you were talking about different buyers – the server guys, the storage guys, the networking guys. I think CIOs are figuring out there’s a really big opportunity here and it’s not worth it to manage it the old way.

We’re seeing a landslide of interest in things like our Applied Infrastructure, which brings it all together.

The VAR Guy: I know you made some Applied Infrastructure vision statements recently. How is the roll out and reception going?

Dell: Very good. Our position in x86 servers has never been stronger. If you think about this most recent generation we were several months ahead of the other guys with the industry-leading features… with memory capacity, performance, and a range of capabilities.

In terms of share we’re gaining share; other guys with two or three letters in their name are losing share. We feel super great about the enterprise portfolio.

The VAR Guy: What about ARM processors on the server? Any opportunities there?

Dell: This is an ARM machine (he points to a new Dell tablet running Windows RT). And every smart phone and tablet that you see, except the new x86 tablets, are all ARM. The volume of ARM processors is about 10x that of x86. They tend to be in lower-value things but ARM is certainly a viable processor architecture. We’ve created some really interesting platforms for the LAMP stack. We’ve built a server business, which is kind of the de-facto arms merchant of choice for the large cloud providers around the world. We have leading share there.

That has taught us a lot about what the future of networking looks like in a hyper-dense world – with lots of east-west traffic instead of north-south traffic. It shows what a distributed core network really looks like. A lot of those customers are using application environments where ARM will be interesting over time. We’re all about how do we innovate on behalf of our customers?

The VAR Guy: Do you see ARM having a place in Dell’s own cloud, or is Dell Cloud an x86 cloud?

Dell: To the extent there’s demand for that, it’s a relatively easy thing to do. The most immediately thing for Dell Cloud Services is helping customers extend their own environments with things like bursting. For those who have "spikey" workloads but want a secure environment like their on-premises environment, that’s our focus.

The VAR Guy: Quest Software has been a leader in migrating Exchange customer to the cloud. Quest has been a leader in virtualization and migrations. Could Quest be the lever that lifts Dell customers into the cloud?

Dell: There’s another real gem in the Dell portfolio for the cloud and that’s Dell Boomi. The two big problems customers have when they go to the cloud is security and data integration. Those are big issues of focus for us. With security it’s identity and access management (from Quest), network security and more.

How do you manage a dynamic environment in terms of new threats everyday? Also, cloud is great but how do I integrate old applications with new cloud applications, or how do I integrate multiple cloud applications together? That’s what Boomi does.

The VAR Guy: How is Boomi performing for Dell? Do partners understand the opportunity?

Dell: We actually post the data everyday on the Boomi site. A year ago, there were a little under 300,000 integration events per day. Today we’re up to over 1 million per day. So that’s how it’s going. (Dell laughs with confidence). It’s going really well. Large and small organizations are using Boomi every single day to make everything work together. How do airlines communicate with the OneWorld airline alliance? Boomi is an incredibly powerful tool for that.

The VAR Guy: Let’s shift to Dell Software. I know it’s part of a bigger strategy involving a long-term march to $5 billion in software revenues. When did you realize John Swainson (president of Dell Software) was the guy to lead that march?

Dell: I’ve know him for a long time. I got to know him when he was the CEO of CA. Our industry isn’t that hard to figure out. You’ve got hardware, software, services. We mastered hardware. We’re known as hardware guys. Software, I’ll admit, that’s somewhat new for Dell. We’ve got a lot of talented software people and I’m really pleased to have John leading our software business. He has really delivered a lot to Dell.

When we saw the Quest asset become available it turbo-charged our software capabilities. We have close to $1.5 billion software business. Plus don’t forget things like SonicWall, KACE, Boomi, AppAsure. This is a great set of assets born in the microprocessor age. It’s innovation without legacy; we’re helping customers move to agile infrastructures. It’s fantastic to have John leading that.

Oh, and That's Not All

After the big-picture discussion (above), Dell dove into the Windows 8 opportunity for partners, and Dell's strategy for Microsoft's new touch-centric operating system. The VAR Guy will publish that portion of the interview soon.