Michael Dell Says Channel Business At $9B And Growing

Dell has a bigger channel than most people realize, and it's one that is growing.

That's the word from Michael Dell, chairman and CEO of the company that bears his name, who took the stage in front of a packed crowd of IT users at the Gartner Symposium/ITxpo 2007 conference, held this week in Orlando, Fla.

Dell, who shared the stage with two Gartner analysts, also said that services and virtualization were increasing in importance to his company.

Dell, responding to a question from one of the analysts, said his company's channel business is surprisingly strong. In fact, he mentioned the total -- $9 billion -- at least four times during his session.

"It might be a bit of a surprise to you folks, and it probably will be because we haven't talked about it much, but we actually did a little work recently to go around the company to try to determine how big the channel and partner business is at Dell," he said. "And it turns out it's about $9 billion. That's a pretty sizeable business already. And, as you've probably seen, we've taken some steps to grow that. We think there are opportunities to grow that."

Dell is defining and growing a global partner program to give customers multiple route to buying its products, and is making a "fairly dramatic" move to expand its channel partners in the U.S. and overseas over the next several quarters, Dell said.

(The company separately announced Wednesday the launch of new bundle that includes desktops, servers, networking and service, but will only sell it directly rather than through the channel).

One interesting thing about the fact that $9 billion of Dell's total revenue of $60 billion comes from the channel is that channel partners and Dell have figured out how to extend the benefits of the vendor's supply chain into the channel.

"Certainly a number of VARs and partners rely heavily on the capabilities that we have, because their value goes way beyond some things that we would do," he said. "But to be clear, it is $9 billion out of $60 billion, to put it in context."

Despite the growth of Dell's channel, Dell said he does not want to suggest his company can be all things to all people. "There is a lot of opportunity for us to work with channel partners out there who want to take advantage of the capability that we have", he said. "It's already $9 billion today. We think we have more that can grow. But are all potential channel partners going to be happy with our strategy? Probably not. But that's OK."

Dell said his company has been quick to embrace virtualization, and in fact is the largest seller of VMware in the world. The company does a large number of virtualization assessments and deployments, a business that came about from its long-term partnership with EMC. "In fact, we're designing servers and storage optimized for virtualization," he said.

Dell is moving fast with virtualization. "And the reason is, any time you have a technology that can be utilized to take costs out, to improve power efficiency, to make it easier to manage, customers are going to migrate to that," he said. "That's not slowing us down."

And that is not slowing down server sales yet, either, Dell said.

"In terms of what we're actually seeing, I think you can find individual customers where the workload is going way up or way down in terms of numbers of servers. However, let's step back. If you go on the Internet, how much do you go on in a day? How much do you consume in capacity of the Internet? It's a whole lot more than it was five years ago. There's more things available because there's more bandwidth. Every day, 500,000 new users come on the Internet for the very first time. So you have this massive explosion of new users, small and medium businesses and consumers, all over the world. They're just eating huge numbers of new servers, huge amounts of storage."

Another major initiative for Dell is IT simplification. Dell used his session to introduce the first iteration of his company's new flexible computing strategy. The first part of that strategy, called On-Demand Desktop Streaming, is a solution for virtualizing desktop PCs using Dell hardware and the Citrix Provisioning Server for Desktops Software.

Dell said the technology works by taking the disk out of the client and sticking it in the SAN in a centralized data center in order to centralize management, patches, and security. "We don't see this as a solution for all customers," he said. "It's why we call it flexible computing. There are many different types of solutions. This is the first step in the way to help customers simplify their environment and take costs out."

Dell also introduced the company's new IT self assessment, an on-line application for helping customers assess their current IT infrastructure and look for opportunities to simplify it. "And if they're interested, we have a service to come in an do more of a detailed planning to help customers get there," he said.

Next:Dell says simplification is key to services

Dell also said his company is moving in the direction of adding more solutions and services to help customers simplify their IT.

Dell's services strategy is focused on supporting Dell products, because talking to a customer about a portfolio of products is no longer interesting, Dell said.

"But it's not as if we're going into all services," he said. "We're going into the services in the infrastructure area. Already, services for us is about a $6 billion business. So when you think about the client lifecycle, infrastructure services, how to simplify the infrastructure, how to make IT a service, how to implement managed services, how to do the next generation support, we have been doing some acquisitions of tools and technology to help us accelerate our progress as we move down that path."

Dell said a company cannot look at the same profit and loss percentages for software and services as it does for hardware. "So as we move up the stack, certainly we have a different P&L mindset and a different matrix to measure our progress."

Dell also said he is seeing Linux adoption on the server side growing quickly. "We continue to see more Linux moving into the critical type of applications," he said. "And Unix-to-Linux migrations are continuing. I don't see that slowing down. Linux is on a long gestation cycle, adding all the capabilities of a robust operating system."

While Dell has offered Linux as an option to scientific and technical users for eight or nine years, it is harder to estimate demand on the consumer side, Dell said.

"We created a pretty interesting site at Dell called Idea Storm where a customer goes on and puts in an idea, and then other customers vote on the idea," he said. "One customer suggested we should buy Cuba. That was pretty interesting. They had pictures, and wrote why it was a good idea. But not all the ideas are whacky. And actually, about 40 percent of the ideas are related to the enterprise. One of the top ideas was, hey, we want Linux on Dell client products. Usually when you develop a new product, it takes you a while to do it, maybe nine months, 12 months. We did it in two months. We picked Ubuntu."

The great thing about Dell's model is that it can respond quickly to changing customers' needs, Dell said. "As we're building computers, we don't know if (the customer is) going to get Ubuntu or Windows," he said. "The computers don't care. So if a lot of customers want Windows, we can do that. They want Windows Vista, Windows XP, and a lot want Windows XP, we can do that."

The real big opportunity is around simplifying, Dell said.

"Our competitors live on the honey train of complexity," he said. "Their business basically thrives on all of the complexity of all these different architectures. You have hardware companies selling hardware, software companies selling software, integration companies selling labor. I think the opportunity is to say, how do we de-complex the IT environment to create a standardized environment to drive costs down. It's hard to do across everything. But there are some key simple steps that we as a company, and our customers, can take to do it."