Dan nailed the problem, what you really want is a CONCAVE HULL not a CONVEX HULL. As Dan suggested, a picture here would help. This is stolen from: http://ubicomp.algoritmi.uminho.pt/local/concavehull.html. This is what a convex hull would do to a typical XYZ point cloud: Whereas this is what you really want (a concave hull): I don't know of any solution with ArcGIS to do this. However, the same guys who made the figures above have made a web application that does this called Concave Hull Online. Unfortunately, the application requires that your input file is just a list of x,y points (doesn't take shape files or geodatabases), and then the output is just an ordered list. However, it does create a proper concave hull. Seems like a good think to suggest to ESRI for future releases or for one of us to actually write a script for... As whuber said (I think, though I don't understand entirely how he/she explained it), the idea described by the original poster is not well defined. The "concave hull" depicted in your second graph is one of many possibilities. There must also be a tolerance for how smooth or concave the shape should be or something describing how far apart points should be. The second "footprint" picture could also be zigzagged and still meet the requirements described in the original post. I had a similar problem with too many little nearby polygons that i need to buffer but the buffer goes super slow (an entire weekend in background processing on a 3ghz xeon wasn't enough...). The suggestion to use the aggregate polygon tool was perfect for me.
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