Can EMC Manage Conflicts Between Dell And The Channel Long-Term?

CEO Joe Tucci, speaking at last week's Global Technology Distribution Council, said sales through direct sales, indirect channels and Dell each account for roughly one-third of the company's CLARiiON revenue.

But he also noted that the indirect channel is growing faster than either direct sales or the OEM business through Dell.

Three years ago, EMC was on the ropes, having ridden the dot-com boom on the strength of its Symmetrix line and a legendary direct-sales force. When the slowdown came, EMC was left with an outdated product line and an expensive direct-sales approach, and found itself competing against large and small competitors coming to market with less-expensive alternatives.

Since then, EMC has dramatically broadened its product line, pushing heavily into the lower-end market. It struck a deal with Dell to OEM product and launched an aggressive channel program headed up by the hard-driving Greg Ambulos.

Part of EMC's push to drive sales through the channel was the recent signing of Tech Data to add to its distribution lineup of Avnet, Arrow and Bell Micro.

Later this month, EMC will add another product to the lower end of its line, code-named Piranha. The new SAN offering will be sold through both Dell and the indirect channel.

Tucci was clear last week that EMC believes it can deliver the product through both channels competitively. But there is a real challenge ahead. While EMC has set a hard deck for its direct-sales force at companies with revenue of $500 million and higher, the Dell alliance will never be as easy to manage from a conflict standpoint.

EMC has complete control over its own direct-sales force and can easily manage any conflict there. Ambulos and his team will have much less control in the Dell vs. channel conflict that will arise.

Just what Dell's long-term strategy is in this space is unclear. Does it look at the storage products provided by EMC merely as a way to sell more systems? Does it ultimately want to build its own EMC-class of products at lower prices?

EMC has been adamant from the beginning of its move to increase indirect sales that it would be careful not to overdistribute its product and ultimately drive down margins.

In fact, EMC channel marketing executive John Koury recently said the company would be careful not to saturate the market. "The worst thing that can happen is to have four VARs sitting at a table in Columbus, Ohio, doing a reverse auction with a customer that's killing the margins," he said.

But there is a very real chance of that type of margin erosion happening when Dell is in the picture, given its propensity to drive sales through aggressive pricing.

The channel and EMC have a great opportunity to grow the market for EMC products together. There are huge numbers of customers in the small- and midsize-business market, where the channel can have a dramatic impact.

The interesting thing is that EMC and the channel partners it wants to recruit come from the same heritage in that they go to market with a service-and-solutions model. Dell's is a price-driven model that seems to run counter to the EMC background.

This is not to say this can't be managed. But Tucci, Ambulos, Koury and the rest of the EMC team are going to face some serious conflict issues. Maybe the company's straight-shooting style will be the difference in being able to manage them.

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