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By Robert Faletra

Dell's Battle Has Just Begun

September 23, 2013

Now comes the hard part for Michael Dell. With the yearlong battle behind him to take Dell private, the company founder now faces the biggest business challenge of his lifetime. The iconic entrepreneur, who is one of only a handful of the original gang that founded this industry and, as such, earned the ability to be universally recognized by his first name, now has to turn a battleship and redirect it toward growth.

While I certainly would not bet against him, it's not an easy task to turn around a company that is steeped in selling products used in on-premise infrastructure into one that can play in the new world of cloud deployments. So what are the challenges Michael must stare down, and what are his chances of success?

First and foremost, while he has done a remarkable job building out a viable indirect channel, it's not one that is as robust and ingrained in the company's strategy as it needs to be. Sure there is a partner program and a recruitment initiative, but the company needs a better go-to-market strategy with those partners. It needs a process and an understanding throughout its ranks that going to market with partners is different than selling to them as part of an infrastructure sale—a subtle but significant difference. From my perspective, it's something for which Michael has brought in the right channel talent to execute on, but he is going to have to stay close and be clear about what he wants accomplished.

Secondly, the company needs to shift away from a perception that it's a hardware-only supplier and convince the world it's a full-solutions play—not an easy task for a brand that defined low-cost infrastructure hardware. Dell has also historically, and to this day, used price as its strategy. Unfortunately, this strategy no longer works.

Dell's journey to a solutions sale rather than a hardware sale positioning will be made easier as a result of going private. Investments will need to be made and costs will need to be cut, and those are best done without having to take into account how the public market will react. It's why Michael has told stockholders the company needs to transform itself quickly.

All this is happening at a point in time when the PC market is undergoing a major upheaval. Research firm IDC is predicting tablet sales worldwide will outpace PCs in the fourth quarter. While PCs will outpace tablets for the year, it's an onerous sign that tablets are rapidly eating the PC market.

While it's easy to argue Dell could be squeezed, it still has a number of fundamental advantages in the market. One of those is Michael himself, who is a relentless competitor and is anything but the type of executive to sit in the ivory tower and manage from behind the desk. He's completely engaged and touches down at levels that one would never expect. He's not afraid to pick up the phone and call a journalist that he believes needs to understand his position—something that was routine in the early days of the industry but is unheard of today.

In the end, I think Michael will pull it off because he knows what needs to be done. Three to five years from now, the company will be considering another public offering with a position that looks nothing like its legacy of being a low-cost PC supplier to small and medium business.

Robert Faletra, CEO of UBM Tech Channel, writes a monthly column on CRN.com. You can contact him via email at robert.faletra@ubm.com.

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The Perennial Channel Question: Why Should I Do Business With You?

August 19, 2013

Why should I do business with you is a question solution providers have been asking suppliers for many years. The reverse also has often been the case. But the times they are a changin', as Bob Dylan said. In the future, partners need to think more about what they bring to the table. I address this because as we move more toward managed services, off-premises private cloud and, ultimately, to public cloud, the criteria vendors will use to choose channel partners will change.

The vendor community traditionally has looked for partners that have a host of characteristics, including customer base that fits its target market, technical expertise, certifications, dedicated engineers, and so on. The old world largely centered around technical capabilities, and the ability to build out and deliver the technology. While those criteria remain important for the time being and, to some degree, will so for the future, it's not enough. The checklist many vendors will be using to evaluate partnerships in the coming months will include things that historically have been less of a consideration, or not a consideration at all.

[Related: XChange 2013 Coverage]

Like everything in this industry, it will take time. Being forewarned is being forearmed as they say. An example of this is that in the past, vendors were concerned about the financial health of a partner largely to the degree that it could meet its payment obligations. This hasn't been a major issue, however, because the credit in the system either comes through distribution or the partner's ability to manage receivables vs. payables or, for that matter, sells its receivables to manage cash flow.

Moving forward, however, suppliers will be looking for channel partners that have the wherewithal to invest in and build out in different ways than in the past. Historically, when a vendor announced it was in recruitment mode, it typically meant signing up any partner that had a business. Then many of those new partners wouldn't perform, and before long there was a need to purge many of them and find better ones.

The problem this created for vendors was they had to build a corresponding infrastructure to support the partners they recruited, and with nonperforming partners eating up resources, nobody won, including the performing partners. It also created animosity toward the channel inside the vendor organization by executives who questioned the investment being made for the return that was delivered. It's a self-generated problem because had the supplier done a better job of finding the right partners, the return would have been higher. Instead, bonuses were set for individuals inside of the organization to recruit a certain number of partners. The end result was not all of them were good. This practice was OK when every vendor took this approach, but it's not going to work well now when some breakout suppliers understand and look for other assets. A good example is some of the innovative recruitment changes SAP has made. As SAP's Kevin Gilroy explained in a recent CRN interview, taking a different look at this results in a higher success rate for all those involved.

Ultimately, partners need to do exactly what we've been advocating for several years now: Invest in marketing capabilities, new sales structures, and push an understanding throughout the organization that there is a new sales and delivery model.

If you do those, you not only will remain relevant but become a highly sought-after partner, and that means margin.

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Amazon Cloud: Is It Good For The Channel?

July 02, 2013

Over the past few weeks, Amazon and its cloud services have been in the press. As reported, IBM and Amazon are battling it out over a $600 million federal government contract. At the same time, Hewlett-Packard outmaneuvered Amazon in winning a piece of cloud business from Workday, a startup that Amazon CEO Jeff Bezos is ironically heavily invested in but which apparently decided HP is a better supplier for at least part of its needs.

While you have to marvel at the fact that Amazon has leveraged its enormous infrastructure to build a cloud offering that's a serious competitor to IBM and HP, you also have to wonder if this is good for the channel.

First off, I'm not sure Amazon even knows there's a channel. It certainly has little to no expertise in building and managing high-tech sales channels, and while it has been looking for a channel chief for months, it has yet to bring on any well-known channel executives.

We are very big believers in the cloud model and talk all the time about how the partner community has great potential to use this new model to drive recurring revenue and drive their own company valuations much higher as a result. But we are also realistic that cloud services are just that, services. Services inherently mean an ability to be serviced, and Amazon likes to do so in a remote fashion. Heck, give it credit for being successfully impersonal and taking the human interaction out of commodity product sales.

But that's not what we are talking about here. If a book I ordered shows up a day late, it's not a big deal. But we are talking about a service that if it goes down, it takes down the customer's business with it. Amazon has had its share of services outages, and that's when the real service comes in. Can I get answers when there are disruptions? Can I be confident this is not going to be a recurring problem? How do I ensure that there are redundancies built in that allow me to keep my business up and running? Let's face it. Cloud doesn't mean set it and forget it. It requires constant massaging.

So without a meaningful channel or the kind of expertise in-house to build one, what can we expect from Amazon moving forward? Or, more importantly, does it make sense for solution providers to resell the Amazon cloud?

Considering Amazon as a supplier should be no different than choosing any other vendor. There are many important questions you have to ask in order to make the decision to put the livelihood of your customers' business on the Amazon cloud. Here are just a few.

1. Can I get immediate access to someone at Amazon to resolve problems for customers?
2. Is Amazon committed long term to building, growing and servicing cloud solutions through the indirect sales channel?
3. Is there a channel chief inside Amazon with the clout necessary to make things happen?
4. Has Amazon built a well thought out and resourced channel program and infrastructure?
5. What is Bezos' knowledge and commitment to the solution provider channel for this part of the Amazon business?
6. Can I make money selling and servicing the Amazon cloud while offering real value for my customers?
7. Do I feel comfortable that Amazon will be a worthwhile strategic supplier for the long term? If you don't get the right answers for these, then you may want to look toward others the way that Workday apparently did.

Robert Faletra, CEO of UBM Tech Channel, writes a monthly column on CRN.com. You can contact him via email at robert.faletra@ubm.com.

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HP's Whitman: The Right Attitude For Driving Channel Growth

May 27, 2013

A few weeks back I had a private lunch with HP CEO Meg Whitman and Chief Communications Officer Henry Gomez. The agenda was simply to talk about the channel and HP's position.

The discussion was off the record so I'm not going to reveal details here, but I will mention attitude and, in my opinion, attitude is everything in channel growth and management. HP is arguably the most important vendor to the solution provider channel. Its brand is well-regarded and its product line so vast that it's always a consideration when building a solution. More partners have strategically aligned themselves to HP than any other vendor.

But it's no secret that HP has had its difficulties over the past few years and, in particular, was set adrift by Leo Apotheker. But that was then and this is now, and I feel Whitman has the right attitude.

So what do I mean by the right attitude? First and foremost, she's focused on the channel for the right reason. She understands its importance to HP's success.

When a CEO of an organization believes the channel is important to the future of the company, things happen. They don't just happen in the executive suite, they happen throughout the organization. Everyone inside an organization wants to please the captain, and Whitman has made it clear she wants the HP channel fixed. That type of attitude sets direction. It gives employees a sense of purpose and it helps everyone inside the organization understand how to make the right decision.

When it's not clear what the CEO wants in its channel, as was the case during the Carly Fiorina and Apotheker stewardships, the organization vacillates and is incapable of making the right decisions. Whitman has changed that, and I found it not only during my meeting with her and Gomez but also during a series of meetings with other business leaders at HP. More importantly, this attitude adjustment is being felt by the partner base that is seeing the change and hopefully it will continue.

What's also clear is that Whitman isn't blind to the problems. She understands she can't just say something once and expect it to happen. She clearly isn't buying everything she is being told, and she is committed to tweaking the program and execution to continually improve it. Again, to me this is the right attitude.

I don't think we in the channel can expect everything to go perfectly. I do think we can expect to see steady improvement as the new partner program rolls out, and as Whitman's attitude becomes ingrained throughout the organization we should expect that ease of doing business with HP should improve.

Thankfully, Whitman understands the challenges better than most CEOs. But her history as former CEO of eBay helps. eBay is the ultimate channel company, built on the concept of taking a fractured channel that had no way of reaching a large customer audience, then giving it a way to publicly put its wares on display. While individual sellers were important to eBay under Whitman's reign, it was those that made a living on eBay that became most important. The HP channel may be more sophisticated and complex, but Whitman is no stranger to building a large business with partners.

In the end, it's her attitude that is most important. It's what I think partners should feel very good about because the signal is this is the direction she wants to go and believes it is necessary. That attitude from a CEO is the fastest way to change an organization and that is certainly happening. So long as Whitman remains consistent and doesn't vacillate over time, the HP channel is only going to become better and more lucrative.

Robert Faletra, CEO of UBM Tech Channel, writes a monthly column on CRN.com. You can contact him via email at robert.faletra@ubm.com.

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The Cloud Model: Why The Channel's Future Is Shining Bright

March 25, 2013

Those who follow this space regularly know we spend a lot of resources on researching and understanding the channel so we're able to help solution providers and vendors alike make the best possible decisions for future growth.

We recently updated a study around the emerging cloud business model. I've personally been encouraging partners to move away from the traditional vintage model of selling one-off solutions and billing for time and materials. Fortunately, the number of partners operating in the vintage model has dropped 40 percent in three years and now makes up just 11 percent of the North American partner base.

The progressive model we have been advocating as a transition to a pure cloud or transformative model now makes up 71 percent of the partner base, having grown 15 percent since 2010.

While on-premises infrastructure deployments still make up the largest opportunity in the market, with 41 percent of sales in that environment, it has shrunk by 11 percent, while pure-cloud deployments, off-premises hosted and on-premises hosted have all increased.

Most importantly, the decision-making process is becoming democratized with many line-of-business executives increasingly making the decision. The best advice I can give partners is to step up the sales and marketing skills and understand you now need to get to know the CMO, HR director, CFO and virtually any other executive. This is a good development strategy, but it also means it is more important than ever to not only understand a customer's business but also the challenge of the particular business units within the overall business. When we look across the market, the vast majority of the growth in solution provider businesses at 8 percent is coming from the services component. Hardware is declining to the tune of 5 percent and software sales growth is a meager 1 percent.

While services is a big category, the managed services category is really where the action is. We are projecting that managed services revenue is already at 36 percent of partner sales and will grow at a 25 percent clip over the next two years, accounting for nearly half of all services revenue by 2015.

All this growth around cloud is clearly an opportunity for both the vendor and the partner community, but it is also going to follow the path of every other major trend we have ever seen in this industry. That means the margins that are being captured today are as high as they are going to be. Simply put, the mystery around cloud and managed services is already clearing. With 54 percent of partners already offering some cloud deployment and cloud revenue at 20 percent of total revenue climbing to 28 percent by 2015, we are going to see price and margin begin to decline.

As that happens, the channel will change significantly. This is just my opinion, but I believe we'll see the birth of many more billion-dollar-plus solution providers. This is already happening judging from the amount of merger and acquisition activity in the market. The large players will force smaller partners to become more specialized in order to gravitate toward higher margin areas. In the end, the size of the channel will stay relatively constant with new partners coming into the market as others merge. We saw something similar in the early 1990s.

I've never seen more opportunity and a brighter future for the partner community, but it is going to take work and a commitment to build great marketing and sales skills. In the past, the best attributes were technical skills. The future is all about sales and marketing.

Robert Faletra, CEO of UBM Tech Channel, writes a monthly column on CRN.com. You can contact him via email at robert.faletra@ubm.com.

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