Dell And The Channel: One Year Later

This is a story of a man, the larger-than-life ruler who amassed great wealth and countless enemies while forging a formidable empire crafted in his own name. It is also a story of the many thousands who fought back, defending their ground, saying his way was not the better way. Lastly, it is a story of change, a sweeping transformation so dramatic that many still do not believe it is really happening.

But it is happening. On a steamy Texas afternoon last May, two dozen solution providers sat fidgeting in an Austin hotel conference room. They had assembled from far and wide, called together for a single purpose. Around a series of tables, they formed a big "U" and waited for the door to open. And that's when Michael Dell walked into the room. With the first wisps of gray and the first wrinkles creeping into his well-known countenance, the man grabbed a chair and sat among them. He looked around at 48 staring, wary eyes and said, "OK, ask me anything you want." It took several seconds for the words to sink in, but they did, and the conversation began.

It's now been nine months since Dell Inc. launched its PartnerDirect initiative. In that time, the Round Rock, Texas-based vendor has signed up more than 11,500 registered solution providers and is adding 250 to 300 each week, according to Greg Davis, vice president and general manager of Dell's Americas Channel Group. The vendor is on a $12 billion run rate for revenue through the channel, said Michael Dell at the end of this year's first fiscal quarter.

The company is also piloting an account registration program, believed to be the first for a major vendor.

As was evident in the conference room that day, Dell's gains are causing even longtime haters to evaluate the longtime direct vendor for the first time, and it's forcing competitors like Hewlett-Packard and IBM to begin to draw up their counterattacks.

"I am surprised at how quickly they've grown the number of reseller partners they do business with and how much revenue they're getting from the channel," said Brian Alexander, managing director of equity research at Raymond James & Associates. "They haven't had to deal with the largest resellers out there," he said. "They're getting that good growth from the lower end of the market."

Indeed, much of Dell's channel growth has come without any help from billion-dollar solution providers like CDW, Insight and Softchoice, companies that vendors like HP and IBM rely on for huge chunks of revenue.

Clearly, something's changed. The winds no longer blow so cold across the Texas prairie. Dell is winning over the channel.

VARs 'Pleasantly Surprised'
The official purpose of Dell's first advisory council meeting in Austin, according to Chris Bates, director of strategy for Americas Channel Group, was to gather feedback about its PartnerDirect channel program from a variety of different partners. Unstated, but perhaps equally as important, was to show the channel that Michael Dell breathes the same air they do.

For those solution providers who attended that meeting, it was an awakening. What they had expected—the barriers, the arguments, the excuses—melted away in a one-hour Q&A session with Michael Dell. Not every question was answered, but several solution providers walked out with lots to ponder. Could they really partner with Dell? Really?

The partners on hand told Dell they liked the vendor's certification structure and managed services initiative, but they want Dell to leave room so they can add value to customers. Other solution providers there said they were impressed not so much with what Michael Dell and other executives said, but what they asked.

"I was very skeptical," said Mike Collins, president of Mike Collins & Associates, a Chattanooga, Tenn.-based solution provider. But in the meetings, Collins said, he became "pleasantly surprised."

Many of the VARs noticed that there were as many Dell employees as partners in the room. Michael Dell said he wanted people from many departments, including the direct sales side, to learn more about the channel. Many of them jotted down notes as VARs spoke.

"It was more about them listening to us," said another attendee, Tim Hebert, president and CEO of Atrion Networking, a Warwick, R.I.-based solution provider. "They did a brief introduction, opened up with a presentation, and then after the first slide, it turned into a discussion."

Hebert said he hasn't seen this level of interest in VAR issues from a vendor in 20 years. "I've seen so many manufacturers make channel programs in a vacuum of what it's really like from a reseller standpoint," he said.

Clearly, Dell executives weren't taking notes just to sharpen their penmanship skills. A channel strategy has become a crucial component for Dell's future growth because the company's customer base was growing stagnant and solution providers bring an ocean of potential new accounts.

"They have to go through resellers," Hebert said.

Next: The Challenges