One of the many hilarious scenes in Monty Python and the Holy Grail is the "Bridge of Death" sequence. This week's news that Dell plans to acquire Quest Software makes one think of a slight twist to this scene:

Bridgekeeper:   "What ... is your name?"
Traveler:           "John Swainson of Dell."
Bridgekeeper:   "What ... is your quest?"
Traveler:           "Hey! That's not a bad idea!"

We suspect Dell's process was more methodical than that!

This acquisition was not a surprise, of course. All along, it has been obvious that Dell needed stronger assets in software as it continues on its quest to avoid the Gorge of Eternal Peril that is spanned by the Bridge of Death. When the company announced that John Swainson was joining to lead the newly formed software group, astute industry watchers knew the next steps would include an ambitious acquisition. We predicted such an acquisition would be one of Swainson's first moves, and after only four months on the job, indeed it was.

The choice of Quest is an interesting one. On one hand, Quest has a rich portfolio of products. On the other hand, they are not as tightly integrated as one would expect, nor is the portfolio as rich as some other contenders.  Quest business units are fairly autonomous since the distinct products are sold as point solutions rather than an integrated portfolio. That approach sold well up to this point, but as a larger player, Dell will need to consolidate this portfolio and add to it. Such an initiative will not be easy. Quest’s business is stronger than many expect, earning $881.5M over its last four reported quarters. One could argue that BMC Software, CA, or Symantec would have been a better choice, but consider the following:

• Both BMC and CA come with robust mainframe software businesses. This is definitely not an area of focus for Dell. It would have to spin off the mainframe (and likely other) assets to clean up the portfolio. Dell cannot afford the time and energy to do this.
• Dell could have waited -- and even accelerated -- the takeover attempt of BMC by private equity firm Elliott Associates, LP. By doing so, they could have purchased the desired assets from Elliott after Elliott did the split of BMC. This is not a viable option because it is uncertain whether Elliott will succeed (Forrester believes it will) or when (at least 12 to 24 months). In doing the split for potential suitors, Elliott will also be likely to command a premium price for the assets it may sell. In short, Dell cannot afford the time or money for this scenario.
• Symantec is very strong in security, data protection, and a small bit of management and automation, but it lacks a significant number of capabilities Dell needs to enable truly converged infrastructure and cloud automation.
• The pricing of the Quest deal is cheaper in terms of raw cost. It is paying $2.4B, whereas BMC would probably cost at least $8B and CA, $14B. The value (i.e., “bang for the buck”) Dell gets for its investment is also proportionally higher because it can align each product family quickly and easily.
• Insight Venture Partners, a private equity firm, has also been bidding for Quest. Dell had to make this move to outbid Insight soon, or Insight would have succeeded with its bid, making any subsequent purchase of Quest assets more expensive. In such a scenario, much of the Quest talent would likely have escaped, hollowing out the value of any later purchase.

Either BMC or CA would have been a good acquisition, but Quest makes more sense. Another option would be to buy many smaller best-of-breed companies and assemble that into a broader portfolio. Such a strategy is very risky as the integration challenges are even worse -- much worse.

Breaking the Quest family into its listed businesses, you can assess the impact of each:

• Database management. This has been a mainstay of Quest’s business from the beginning. Dell claims this family will be the core of its Big Data strategy. Such a claim is a stretch because structured databases -- and the management of them -- are important, but there is much more around business intelligence, unstructured information, and advanced analytics that will still be missing from the Dell portfolio. If Dell wants to be a serious Big Data player, it will need more than Quest, though Quest is a decent start. Expect more, smaller acquisitions to enrich the Big Data story.

• Data protection and continuity. Quest brings some serious backup and continuity assets to the table from several acquisitions (Vizioncore and BakBone being the two most recent) and internally developed products spanning the virtual and physical worlds along with application/database-specific tools for continuity. Combine this with Dell’s recent focus on backup and continuity marked by new product offerings and acquisitions, and you have the makings of a new enterprise backup and recovery player ready to take on the likes of CommVault, EMC, HP, IBM, and Symantec. For I&O professionals, this is good news: more choice and more providers vying for your business. However, since the new Dell data protection portfolio now combines the assets of half a dozen different companies, don’t hold your breath for their comprehensive enterprise offering; it will almost certainly take years to coalesce.

• Performance monitoring. This is one of the crown jewels at Quest. It accounts for nearly half of its revenue, and its tools under the Foglight brand are popular -- and more importantly, well-liked. As Dell strives to build its presence in cloud and service automation, applications will be key. Naturally, it will need more than the Quest tools, but the sense part of sense and adapt for automation needs good monitoring and analytics. Quest brings a formidable set of technologies to fulfill this need. This application-centric perspective will prove to be a critical battleground for management software vendors trying to graduate into the echelons of cloud service automation.

  There is a “Part II” to this business unit and that part is virtualization. Some of Quest's more notable acquisitions, including VKernel and Vizioncore, fit here. A different business unit might make sense for these components, but that is Dell’s concern now. This business is a double-edged sword for Dell. On one hand, it gives it some badly-needed technology to compete in the broader converged infrastructure world. In this fully-packaged workload-centric market, its software assets will be critical to the seamless packaging. On the downside, this puts Dell in direct competition with its partners VMware and Microsoft. Both partners are undeniably building powerful automation stories of their own, arguably positioning to totally dominate their own platforms. Competition with VMware and Microsoft is inevitable, however. All vendors are being pulled into the same comprehensive set of capabilities. More -- even bigger -- M&A activity is likely in the near future as these dynamics play out.

• User workspace management. The consumerization of IT -- and especially client virtualization and BYOC -- is white hot right now. Dell’s strong position in the business PC market presents a superb opportunity to expand this Quest business and strengthen Dell as a better choice for business clients. These same trends have been eroding Dell’s business. Rather than fight the inevitable competition for the client hardware, Dell needs to offer capabilities that will allow customers to support the clients of their choice, including mobile devices and even (gasp!) Apple computers. Dell can use its software to make its clients more attractive as long as it understands and embraces this movement that will include non-Dell client devices. The greater Dell will benefit as a trusted business partner rather than just one of many low-cost hardware purveyors.

• Windows server management. Quest has maintained a surprisingly strong business in managing Microsoft environments, particularly Windows servers. Microsoft is crushing everyone else in the Windows server management market, especially when considering the power of the recently announced System Center 2012 release. This move helps Dell solidify a partnership with Microsoft.  Microsoft often delivers about 90% of what a customer needs and then looks to partners to help complete the solution. Quest Software is one of the partners known for delivering complementary solutions across many of Microsoft's core products for migration, management, reporting, availability, etc. They do this for Windows Server, Exchange, SharePoint, and System Center. Outside of Citrix, you would be hard-pressed to find another vendor that delivered that many complementary solutions.

  In addition to Quest being profitable, Dell gains strategic momentum with Microsoft. Dell has the opportunity to build differentiated appliances for Microsoft's core platforms with their own software to deliver customers more complete solutions.  In addition, Quest delivers software and services that help migrate customers to Microsoft platforms, including Office 365. Dell now owns these tools and migration experts, and gives them a leg up in playing a role in lucrative service engagements to bring customers to Office 365.  It remains to be seen how this impacts the many Microsoft partners who use Quest's tools for migrations, including Microsoft themselves.

• Identity and access management. This is an area that is important to security, of course, but also to the broader areas of management. Trustworthy identity management governs trustworthy execution of any process. Any vendor trying to play in this broader market must either own solid identity and access management or at least foster a very strong relationship with a relevant partner. Quest has a robust, Windows-friendly IAM suite that will help to flesh out Dell’s new breadth. Quest’s Defender line of hardware and software tokens present an interesting adjunct, giving Dell a strong authentication footprint

What seems to be missing in many of these business units is Quest’s virtualization automation portfolio. It is actually buried within the performance monitoring unit -- arguably the wrong place. Dell will need to reconcile some of this with its technology acquired with Scalent. A combination of these assets will require some surgical integration and packaging. Much of this complexity should be hidden from customers, but expect some volatility as Quest gets assimilated.

Overall, Forrester believes this acquisition is a positive move for Dell, albeit one that still carries risk:

Risks: The real competition for Dell is Fujitsu, HP, IBM, and Oracle, not BMC, CA, and the rest of the management businesses. The battle for full technology solutions will be bloody, and Dell’s competition is formidable, already enjoying a lead in converged infrastructure. While Quest will help Dell compete more on the bigger IT provider battlefield, it is not enough yet. To many, this appears to be a strategy to broaden the portfolio in a way that enhances revenue without significant growth potential.

This acquisition is a bold move that will boost morale among its employees and customers; however, the euphoria will be short-lived if Dell takes too long to assimilate Quest. This is a process that will be inherently slow and painful for many insiders -- they always are. Dell must act quickly and use the Quest assets -- both products and people -- as a catapult for additional acquisitions and, yes, organic development. Dell is in a brutally cutthroat market. If it does not capitalize on Quest to quickly build momentum against its major rivals, Dell will suffer the fate of the Black Knight -- clearly vanquished but still fighting the lost battle.

Rewards: The products being acquired are popular, and Dell can grow them even more. It does have a lot of work to do to incorporate these products into its broader software-enabled strategy. It also needs much more to combat initiatives that combine business applications and converged infrastructure. That said, this acquisition is a big deal that bodes well for the future of Dell. Combined with the assets already within the portfolio, Dell will now surpass $1B in software revenue. On the announcement call, Swainson claimed it will be a $1.2B software firm after the acquisition. This is a big step away from a commodity business, toward higher margins and more importantly, more value for its customers.

Dell’s go-to-market ability is far stronger than Quest’s. With this added muscle, Dell can expand handily on Quest’s revenue stream and build at least a sales story that now includes some good software assets. Retrofitting hardware-centric sales and marketing machinery is not easy, however. This machinery, though impressive, must be re-educated to sell the new Dell value proposition.

This acquisition offers value to Dell's services arm also. Most services firms now see the value of Software-Based Services as a means to improve margins and deliver more real benefit to their customers. Dell can use Quest's software and its already prominent software-based services to bolster its existing services (built largely on the Perot acquisition). These services are strong in the aforementioned Microsoft domain, but also in database, application performance, virtualization, and many other areas.

We believe this Quest acquisition will help Dell traverse the Bridge of Death, although the bridge is shaky. Can it avoid plunging into the Gorge of Eternal Peril and continue its quest for the Holy Grail? The answer depends on how well Dell will build on these products to more effectively compete against the biggest technology juggernauts. This war has been lopsided in favor of the juggernauts, but there is hope for Dell. Quest is one of many injections of energy that it needs. The pressure is on Michael Dell and John Swainson. Let’s hope they don’t need the Holy Hand Grenade of Antioch!

Forrester analysts Vanessa Alvarez, Dave Bartoletti, Rachel Dines, Jean-Pierre Garbani, Dave Johnson, Eve Maler, Stephen Mann, Eveline Oehrlich, John Rakowski, James Staten, and Chris Voce all contributed to this analysis.