Can You Trust Dell?

By the time Tyler Dikman graduated from high school in 2002, the 17-year- old from Tampa, Fla., had demonstrated a knack for making a buck servicing the PCs of friends and neighbors. Along the way, he developed a strong affinity for Dell and its namesake founder and CEO Michael Dell. Eventually,

Dikman built a $2 million-a-year business around recommending, installing and troubleshooting PCs made by the Round Rock, Texas, company.

And what did he get for the long days and nights shuttling back and forth on his scooter servicing customers on behalf of Dell? A surprise phone call from someone at the company's headquarters. The individual, whom Dikman had never spoken with before, demanded that he stop referring to himself as an "authorized Dell reseller" and "Dell partner." He cannot do that, he was told, before being directed to remove all references from his company's Cooltronics Web site--or else.

The request shocked the youngster, who was asked to join the company's small and amorphous VAR program three years ago. Says Dikman, "Dell has been a great business for us, and they have really supported us. But they don't like the term 'partner' or 'authorized reseller,' and they don't like to work with other companies unless they absolutely cannot avoid it."

Dikman is doubtlessly not alone. Today, literally hundreds, if not thousands, of solution providers large and small have built a business around doing nothing but Dell. They help sell the company's systems, and help service and integrate them, too. They have demonstrated remarkable loyalty and have given the company lavish praise in our own Annual Report Card studies, which measure partner satisfaction with vendor's products, programs and pricing. Despite all this, there is growing unease among the channel, which is beginning to wonder if Dell really wants partners. On one hand, it has invited hundreds to partner with it through vehicles like the one it created with the ASCII Group of solution providers, or the one it built for white-box providers, which paves the way for systems builders to offer unbranded Dell systems to their customers. At least 100 systems builders have taken part in that program. One member, The PC Doctor, a system builder based in Tallahassee, Fla., found it so fruitful that it ditched its own system-builder operations in favor of reselling Dell's white-box line full time. "They're probably the best vendor we've seen come into the channel in years for price, quality, support--basically everything," says Edwin Collins, vice president of sales at the company.

But then there's the flip side. Pressing demands like the one Dikman received have left partners feeling vulnerable. So has the company's growing interest in providing services itself, not to mention its changing policies, confusing programs and conflicting messages. At the end of the day, more in the channel are beginning to wonder if they can really trust Dell. That probably includes you.

Dell And the Channel
When most people think Dell, they usually think about its vaunted direct-sales approach. That includes experts such as Merrill Lynch analyst Steve Milunovich, who recently wrote in an industry report that "Dell's direct model provides an information advantage that is underestimated." Ask virtually anyone in the business, and they'll tell you Dell's two most formidable weapons are its ultra-efficient supply chain and its enormously popular brand.

But that's not Dell's whole story. Although it rarely acknowledges it, the computer giant has a growing channel (several Dell executives, including Michael Dell, declined to be interviewed for this article). Estimates vary on how much of Dell's business is actually generated by the channel. According to a recent survey by IDC of nearly 1,000 small U.S. businesses, 7.6 percent of respondents purchased Dell PCs through VARs in 2002.

Thanks largely to its momentum in the market, the company has attracted hundreds of solution providers over the past few years. That includes more than a few companies that were once sworn enemies of Dell. Last August, for example, Alan Weinberger, chairman and CEO of ASCII, the nation's largest group of independent VARs and solution providers, voiced his disapproval of Dell's attempt to sell unbranded boxes through VARs known as the Solution Provider Direct Program. At the time, Weinberger said Dell simply wasn't good for the channel. But just seven months afterwards, Dell and the ASCII Group reached an historic agreement that called for members of ASCII to sell Dell systems. Almost 400 ASCII VARs, along with Weinberger himself, came around on their once-hated adversary and struck a partnership with Dell that gives ASCII members special pricing on Dell systems. Oddly, the landmark deal got little promotion from either side; Dell didn't make an official announcement, and ASCII doesn't have Dell listed as a vendor partner on its Web site. Nevertheless, the watershed pact showed just how far Dell had come in the hearts and minds of some in the channel.

Jerry Koutavas, vice president of business development at ASCII, says the group was opposed to the idea initially, but relented after learning that more and more individual members were interested in moving forward with Dell. Dell won't say how much its VAR ranks have increased this year or even how many solution providers are in the Dell Reseller Program, but the company is clearly aware that the ASCII alliance represents a tidal change in the channel's sentiment toward it.

"ASCII is important because they help shape industry opinion," says Mark Thompson, director of SMB marketing at Dell. "We've always had a small portion of our revenue go through the channel. Now, folks aren't making religious decisions about us and are looking at Dell from an objective, price-performance standpoint."

When deciding whether to affiliate with Dell, many VARs seem to be going by the adage that "if you can't beat 'em, join 'em." At first blush, that makes a lot of sense. After all, the computer-maker is arguably the hottest brand in the IT industry right now. For example, Dell shipped nearly 6 million computers in the first quarter this year, which, according to IDC and Gartner market share studies, was 500,000 units more than the No. 2 PC company, HP. In addition, Merrill Lynch found that among 75 U.S. and 25 European CIOs, 48 percent said Dell was their Intel-based server platform of choice, beating HP. More than a few solution providers have recognized the growing affinity for the Dell brand and want a piece of the action.

One of those is Anthony Harbour, owner of Harbour and Associates, an ASCII member based in Richmond, Va. Harbour has sold Dell products for several years, but the company has been a thorn in its side. What bothers Harbour most about Dell is its practice of undercutting him by offering lower prices on its Web site and in direct-marketing promotions like one recent initiative to offer discounted Dell PowerEdge systems with Microsoft's Small Business Server 2000 software. Harbour says he gets no margins on most Dell product sales--and often loses money on systems sales--but makes more than enough revenue on integration services. "What hurts us the most is the direct-sales marketing and commercials," Harbour says. "Customers want desktops and servers as cheaply as they see on TV, and they think they can get that price for a solution. They can't."

Despite this, he sticks with Dell. "You can't blind yourself to the vendor options out there," he sums. Perhaps, but he's not the only one who has found working with the company to be an eye-opening experience.

"Dell treats the channel like dirt," says one ASCII Group member, Michael Rueben, owner of L.A. Computer Works. "They'll walk all over VARs and take your customers, and if you partner with them, they'll never offer discounts that will match their direct prices."

Despite its harsh opinions, L.A. Computer Works has been reselling Dell products for five years. Reuben doesn't hide his hard feelings about Dell or the superb opportunities he believes the company represents. "The bottom line is that being able to sell Dell helps me make sales and close deals," Reuben adds. "Certainly, there are a lot of ASCII members that will never touch Dell, but it can be a plus for a lot of VARs."

Being a Dell Solution Provider
Just what does it mean to be a Dell solution provider, if one can even call himself or herself that? Aside from a handful of authorized federal-government VARs, VARs cannot refer to themselves as official Dell partners or authorized resellers, according to Dell's policy.

The company's sterling supply-chain reputation aside, partnering with Dell can be a challenge. Pricing, of course, is a huge obstacle. But there are plenty of other issues, too. Getting basic support for many partners has been nothing short of an exercise in futility. Many solution providers say Dell's channel support is inadequate and paint a picture of an ultra-competitive and chaotic sales force with a revolving door of channel representatives. Scott Gordon, president of SBBS Software & Consulting in Wilmette, Ill., once was a big fan of Dell. Like Dikman, Gordon's hardware business was 100 percent Dell. But something happened in May that sent his partnership into a nosedive: One recent Monday morning he was greeted with all new Dell sales representatives. Suddenly the system that had served him with near perfection for three years turned to disarray. "They had some sort of massive shuffle internally, and it has been downhill ever since. They switched out reps with people who we didn't know and who couldn't get our orders right," Gordon says. "The company's logistics became a nightmare."

SBBS' orders were late or simply didn't arrive, Gordon says. When orders did arrive, they were sent to a nearby post office instead of the business address. The solution provider's account information was also misplaced while product pricing was changed on the fly. Through it all, no one at Dell could give Gordon an answer or an explanation. He contacted numerous reps and managers at Dell, none of whom communicated with one another because of the cutthroat sales competition at the company. And when Gordon demanded to speak to the person in charge of VAR operations, no one at Dell could say who the person in charge of the VAR program was. "It was like pulling teeth. They don't have anybody heading up their channel business," Gordon says. "If HP came to me today with a better deal, I'd switch in a heartbeat."

Other solution providers have had similar experiences. Native Systems, a systems integrator and ASCII member based in Boulder, Colo., has been servicing and rebuilding Dell products for more than a decade. But Native Systems president Roger Grady says he won't enroll in the ASCII-Dell program because of the poor service he has received from the company. "There was a time when we could actually call and get parts from Dell, but not in the past few years," Grady says. "More than half the time, we call and get the runaround [see "Anatomy of a Dell Service Call," page 40] due to incompetent employees and outsourced contractors."

Many solution providers say the quality of the company's vaunted supply chain and heralded customer-service operation has declined noticeably of late. Some feel the company's obsessive cost-cutting on the supply chain and customer-service end is sacrificing quality. They question whether Dell can continue to outsource to the low-cost fulfillment houses.

Cooltronics' Dikman says he cannot pinpoint where the problem originates, but worries it's ruining what otherwise could be a fruitful relationship. His company, which makes more on Dell integration services and peripherals than it does on PCs, launched a program late last year that offers Dell products, services and support to students on various college campuses. Inventive? Not according to Dell, which hassled the solution provider because it didn't want him selling to education clients. Dikman tried to persuade the PC maker that he wasn't selling to educational institutions but to individual students instead. Nonetheless, the computer-maker persisted.

"I still think Dell is a great company," Dikman says, "but I've been working on this college-campus program for months, and for a company like us that does millions of dollars with them, you'd think they'd try harder to accommodate us."

Ironically, Dell itself is nonchalant about such issues. "Obviously, issues will come up from time to time, but the fact is we don't do a lot of traditional channel-program offerings," Thompson says. "If a VAR needs a lot of hand-holding, then that's not the kind of company we'd like to do business with."

If Dell sounds cocky, it shouldn't come as a surprise. For all the grief solution providers are experiencing, VARs who consider dropping Dell, such as Gordon, appear to be in the minority. As difficult as it has become to work with Dell, many VARs are displaying a remarkably high threshold for pain because of the significant opportunities around Dell. That's probably because they have been able to find a way to make the Dell system work for them. To avoid warranty and pricing issues, for example, many VARs simply spec out orders and then refer their customers to Dell direct, where they can negotiate their own prices. They then follow the purchase up with their own integration services in place of Dell's support. L.A. Computer Works' Reuben says Dell started selling desktops and servers direct to his largest client, a mortgage company. Reuben didn't care because he knew he could still offer the customer better services. "Dell will direct sell hardware against us, and that's fine," he says. "They'll try to sell services, too, but they can't do the application and heavy integration work."

Other VARs have learned how to take advantage of Dell's all-powerful marketing and ultra-competitive sales force to negotiate better prices that can at least approach what Dell offers direct. "It's easy now to beat the ASCII pricing once you get acquainted with an aggressive Dell rep," says Thomas Doyle, owner of Hoosier Accountant, an ASCII VAR based in Washington, Ind.

Still, others have come up with even more creative ways to work with Dell. One ASCII member who wishes to remain anonymous says he plans to enroll in the Dell program, but has no intention of selling Dell products. "I'll join just to be able to put up a banner that says I'm a Dell reseller," he says. "I get the benefits of their advertising and brands, but when customers come in, I'll offer them other choices."

For reasons real and imagined, the Dell channel grows. As it does, the type and scope of partnerships evolve. Alliances with fellow powerhouses EMC and Cisco are illustrating that while Dell may not become a true channel company anytime soon, it's acting as a channel unto itself. With unmatched distribution ability and brand power, Dell is becoming something this industry has never seen before and few understand. That may include Dell itself.

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