CDW's Two-Track Mind

On one hand, CDW is putting the finishing touches on a geographic realignment of its sales force, the biggest initiative in company history, according to CEO John Edwardson, designed to better serve customers at a local level. On the other hand, CDW has said it wants to partner with VARs in local accounts.

These seemingly contradictory paths have left many in the channel wondering if the company isn’t still trying to figure out what it wants to be when it grows up.

For years, CDW enjoyed unprecedented growth. Wall Street got used to seeing the company outpace distributors quarter after quarter. Although CDW could top $7 billion in sales this year, revenue growth is slowing. Yet, earlier this year, Edwardson sent a letter to shareholders stating that he expects CDW to be a $10 billion company by 2008, a bold statement given the company’s recent performance.

One logical way to get there is by providing services, which fall outside the company’s traditional business. CDW also could grow by acquisition—it certainly has enough cash on hand to pick up a $1 billion company, according to one analyst. Either way, Edwardson’s next steps will have a dramatic impact on the company’s future—and SMB solution providers. CDW has identified 53,000 medium- and large-size customers and placed them within a new sales force structure of five geographic regions in the United States and 32 smaller districts within those regions. With more field sales and technical resources deployed around the country, CDW is counting on solidifying customer relationships at the local level, where solution providers have a strong foothold.

“This will allow us to focus on providing more service offerings around the box, including core services that are simple and scalable: configuration, break/fix and warranties,” Edwardson said last week during CDW’s quarterly earnings call. “It also allows us to provide adjacent services such as installation and migration. Our approach is to design and create solid partner networks and a straightforward go-to-market strategy.”

The trouble is, many of those VARs that CDW might want to partner with also compete with CDW for those same end-user customers. And several channel executives outside the company said developing those VAR partnerships will be a Sisyphean task because many solution providers still don’t trust CDW not to poach their accounts.

“They’ve called and wanted to partner on some clients we’re doing large amounts with,” said Jay Tipton, president of Technology Specialists, Fort Wayne, Ind. “I told them, ‘I'm trying to get you kicked out, why would I want to partner with you?’ ”

Some channel observers question the entire approach. “I don’t know that a partnership strategy will be a winning strategy because many potential partners view CDW as a competitor, particularly if they see them moving into a regionalized sales structure,” said Brian Alexander, senior vice president, equity research, technology distribution, at Raymond James and Associates.

Therein lies the rub. During its earnings call, CDW did not detail any updates to its partner strategy or how changes might be implemented, but Edwardson did emphasize that its services offerings would include a significant partner engagement model to fulfill services. “We’re trying to stay close to what we sell, [to] support hardware,” said Edwardson. “Our configuration and imaging capabilities have increased significantly. With our geographic realignment, we can more effectively work with service partners around the country.”

However, CDW’s partnering history doesn’t provide much evidence for working effectively with solution providers. It’s been a year and a half since CDW unveiled SolutionEdge, a partnership program with solution providers about which CDW has been so tight-lipped it’s difficult to tell whether or not it’s been at all successful. After its initial buzz around a pilot with 10 to 15 solution providers, the company has provided scant details in terms of how many partners it has, how many it wants, or how much business the relationships have generated.

One solution provider that participated in the pilot phase of SolutionEdge gave up on the program a long time ago. “We did not do much with it because the agent fees were not enough to get us excited. We do a lot through the [Hewlett-Packard] agent program and it was not enough to even consider flipping from HP,” said Steven Ellis, vice president of New Orleans-based Bellwether Technology.

Bellwether also never saw any services opportunities come down from CDW. “We never got that far. Basically, when we saw the commission schedule we decided not to proceed further,” he said.

Norm Lillis, vice president of sales at CDW, said the program has been successful and CDW is now talking about partnerships with national service provider networks such as OnForce, Coast Solutions Group and even Ingram Micro Service Network.

Coast Solutions Group, Irvine, Calif., has been partnering with CDW for about three months now and expects the relationship to blossom, said Paul Freeman, president of Coast Solutions Group. “What they offer and what we offer is a perfect match,” Freeman said. “I think that CDW’s relationship with the channel has been in some cases a love/hate relationship. In their SolutionEdge program, they want to partner but it also can be competitive from a product standpoint. For partners that don’t care about product revenue, it’s been a good fit.”

Kevin Gilroy, named president of New York-based OnForce last week, said OnForce doesn’t do any business directly with CDW although some of the network’s service providers may work with CDW.

Several solution providers said they are still very hesitant to engage with CDW on services opportunities.

“These things always look good on paper, but logistically they’re very challenging. By walking CDW into an account, am I unintentionally eroding my margins or opening a door to a competitor?” asked David Gilden, partner and COO of Acuity Solutions, Tampa, Fla. “I’m not necessarily interested in selling commodity products, but I am interested in project control and in the products we do sell, like Symantec, Trend Micro, ISS.”

In addition, Gilden has concerns about project management. “They are a company that has a background not in delivering projects, but really in logistics and e-marketing,” he said. “What is their strategy to try to project-manage when companies doing that day in, day out have a hard enough time?”

CDW acknowledges VARs’ trepidation, Lillis said. “If I’m a company of any size, I have to watch out for my own company first. It’s all about trust,” he said. “Some partners come out guns-a-blazing with us, some only want to test the waters. I completely understand that. If we step on somebody’s toes, shame on us. That’s not a good thing. I feel comfortable picking up the phone and calling the [VAR] owner and saying, ‘Foul ball; we need to fix that.’ That has happened and we’ve worked through it.”

Martin Wolf, president and managing director of Martin Wolf Securities, helped architect SolutionEdge and said the program is viable because it makes more sense for CDW to work with 100 local VARs than fewer, larger services organizations. “The advantage is to develop relationships with specialists, say if you had someone in Las Cruces, New Mexico, who was an expert in some area. I think it would create real opportunity for many [solution providers]. The Holy Grail is to sell IT stuff to SMB. CDW has the customer relationships. All they still need is a pipeline to get other products and services to existing customers. VARs can participate in a meaningful way,” Wolf said.

Meanwhile, some solution providers wonder if CDW might become the next Ingram Micro, or a next-gen distributor that sells to end users and VARs.

Two channel executives independently told CRN CDW has talked with HP, Toshiba and Lenovo about obtaining terms and conditions more similar to distributors than direct marketers, though it’s unclear what benefits that would bring. Executives at CDW, HP and Toshiba said that is not the case. Lenovo executives could not be reached for comment.

Dave Pansen, vice president of U.S. distribution sales at HP, Palo Alto, Calif., said the vendor had not changed its terms with CDW. “No. I can assure you that as the leader of U.S. distribution, we are not engaged with CDW becoming a distributor. Period,” Pansen said.

Jerry Lumpkin, vice president of business channel sales for Irvine, Calif.-based Toshiba’s Digital Products Division, said he views CDW as a strategic solution provider rather than a distributor. “We want to work with them to grow their small/medium business customer base,” he said.

But speculation still abounds in many channel circles, enough so that several distribution executives said they spend time pondering CDW’s next move.

“Their challenge is to get to SMB on more than a transactional manner,” said one distribution executive, who asked not to be named. “They know they need VARs to get to the SMB market and become more account-oriented than transaction-oriented. The difficulties of getting there are obvious, but those guys are smart. It is something we are keeping an eye on.”

At least one CDW competitor, PC Mall, said any attempt to equally serve both end users and solution providers is a near-impossible task. Kris Rogers, executive vice president at PC Mall, Torrance, Calif., spent 19 years in distribution before moving to PC Mall six years ago. She said serving SMB customers directly and wholesale distribution are vastly different businesses. She foresees ample opportunity for both direct marketers and VARs. “This is a huge market. Look at the number of small- and medium-business clients. It is staggering.”