Seeking Solution Strategies

Seeking to plug holes in both their enterprise and small-business strategies, Dell, Gateway and CDW are scrambling to line up solution provider partners to augment product sales. The move signals an acknowledgment by all three that solutions-selling, not just low prices, is a necessary ingredient for success in this demanding IT sales environment.

These new channel overtures come as Dell Chairman and CEO Michael Dell and Gateway Chairman, President and CEO Ted Waitt are moving their companies up the food chain with their enterprise server and storage solutions. But the services gap extends to the small- and midsize-business market as well. Both vendors have new initiatives targeted at solution providers active in small and midsize businesses. And John Edwardson, chairman and CEO of CDW, which has long been adept at aggressively marketing products to corporate and government accounts, is recruiting SMB solution providers to sell CDW-provided equipment into federal government accounts.

At the heart of Dell's and Gateway's renewed interest in the channel, solution providers said, is what the vendors perceive as a gap in their ability to offer consulting and integration services on a consistent basis. "Customers today are looking for one single source for product and service needs; Dell doesn't offer that," said Dino Farfante, president of Insight Enterprises, Tempe, Ariz.

While Dell executives declined to comment on the specifics of their solution provider alliances, Linda Hargrove-York, Dell's worldwide vice president of marketing, said, "If customers request a specific partner to do the service, we will do it."

When asked late last month about new efforts to recruit VARs as Dell services partners, she said, "I know for sure there were discussions under way."

Dell's partnering overtures are garnering serious attention from solution providers.

At last week's XChange 2003 in Orlando, Fla., sponsored by CRN parent company CMP Media, Dell representatives used private sessions to make recruiting pitches to VARs. The Round Rock, Texas-based company told solution providers that during the past 18 months it has increased its channel field sales staff to about 70 from 25.

Dell representatives refused to speak to reporters about the company's channel plans. But solution providers who met with Dell said the vendor offered no channel program, unprofitable services opportunities and little incentive to work with the company.

In terms of services, Dell offers solution providers parts warranties on its white boxes but has no plans to allow them to service branded systems, solution providers said. When John Rice, channel manager at Phoenix-based solution provider Howard Computer, asked about services opportunities on branded equipment, he said the Dell representatives told him he could provide the break/fix himself, but Dell wouldn't pay him and he would have to charge the client, even if the system was still under warranty.

"It doesn't make any sense," Rice said. "They're not offering anything from what I can tell. It's like they want to be half pregnant."

The majority of questions during the meetings with Dell concerned services opportunities, solution providers said. Dell reps said the channel could resell service packs with about a $100 markup but offered little else, they added.

"We thought we'd get more services from them, but we didn't," said Ever De Guzman, president of VAR DemonTech, Chicago. "Dell was trying to portray a better image of themselves in the channel. It seems like they're making a concerted effort. We'll just have to wait and see how it turns out."

Some solution providers welcome the opportunity to work with an industry powerhouse, despite the company's direct tradition.

Mike Howard, director of purchasing at integrator and software developer Horizon Datacom Solutions, Columbus, Ohio, is working with Dell to embed Horizon's new Microsoft-based sales and account management application in Dell's business systems.

"They have courted us more aggressively than any other vendor," said Howard, who resells Dell systems. Dell is seeking solution providers that add value to SMB solutions, he said. "The margins [on Dell products] aren't great, but the products are great. The partnerships can create a win-win where the customer gets the best software and hardware in a combined solution."

On the enterprise front, Dell seems to be more aggressive and, so far, more successful in partnering with solution providers.

In another channel recruitment plan that solution providers are dubbing "a stealth action," Dell managers are cold-calling select VARs with enterprise skills in larger metropolitan areas. If a deal can be worked out between Dell and the VAR, Dell "sends in the troops," as one VAR said, to train the VAR's technicians and salespeople. Dell and the VAR win the business, and the VAR is paid 7 percent to 12 percent of the Dell product sale, depending on the product mix.

One solution provider who recently signed a contract with Dell said the vendor seems to be targeting former Dell accounts that were lost to solution providers that had alliances with IBM or Hewlett-Packard. And with IBM and HP targeting certain accounts as direct, some VARs are becoming more receptive to Dell's overtures.

"The fear used to be that if you partnered with Dell, they would eventually take the account direct," said the solution provider, who wished to remain anonymous. "But I partnered with IBM and HP, and they are now taking my accounts direct. Rather than being pushed out of the account, I'm going to partner with Dell."

As a result, he said he has brought Dell into some accounts and Dell has reciprocated by bringing him into others. The solution provider said he has been impressed with the Dell executives who have made joint customer calls with him. "They are empowered to make decisions immediately," he said. In one instance, the Dell executive negotiated the deal right on the spot, he added. "He didn't have to go back and consult with his boss."

Chris Ferry, vice president of sales for the Eastern Region at Technology Integration Group, said his company has been working with Dell for several years. The San Diego-based solution provider qualifies as a minority small business and works with Dell primarily in government accounts. "We've had a good relationship with Dell, but HP tends to be a more consistent partner," he said.

He said that Dell seems to partner with VARs in "pocketed areas where it is beneficial to them" rather than designing and executing standard channel programs.

James Kernan, CEO of Networks Plus Technology Group, a solution provider in San Diego that partners with Dell as an integration services provider, noted, "They market themselves as direct and imply that they do everything themselves, but in reality they don't. They outsource a lot of their services to companies like Networks Plus."

For its part, Gateway, as part of an overall stepped-up channel initiative, timed its new solution provider push with an introduction of a four-way server and last week's announcement that it is entering the entry-level storage subsystem market.

"Revitalizing the channel is a part of our corporate strategy," said Errett Kroeter, director of partner programs at Gateway, Poway, Calif. "The new Systems and Networking Products Division means new business for us. So we want an indirect strategy as well as a direct strategy. For these new products, customers require full solutions, and that means opportunities for partners."

Gateway is establishing a channel-neutral sales model to avoid conflict, strengthening its back-end systems and online databases to collect deeper and more accurate solution provider information, developing training programs and possibly a home networking certification, deepening ISV partnerships, and broadening its government and agent programs, Kroeter said.

The company is also coordinating tighter relationships between local solution providers and the managers of Gateway's 190 retail stores, which solution providers use as meeting and demo centers and services sales generators.

"I have a ready-made showroom, and I don't even have to vacuum," said Ted Hunter, general manager of Champion Networks, a Brunswick, Maine-based solution provider that works with Gateway's Portland, Maine, store. "The fact that I can bring clients to the store, where the solutions are already integrated, is hugely impressive. It has helped us win a handful of accounts."

Under the program, solution providers can expect to earn between 5 and 10 points on product sales and about 80 percent of services revenue that Gateway passes through them, sources said. Gateway, as in past programs, holds the inventory, ships the products and bills the customer. Regional sales managers and local store managers pass services leads through their solution provider partners.

"We have had issues in the past with pricing parity, and the [different Gateway] channels weren't communicating, so we had people competing against each other," Kroeter said when asked how the company, a pioneer in direct sales, would avoid sales conflict. "We want to take that competition out of the equation because it doesn't do any good for anybody."

Meanwhile, under the CDW-G Small Business Consortium, which CDW rolled out late last month, the Vernon Hills, Ill.-based national reseller has partnered with 12 small minority-owned or disadvantaged businesses mainly in the Washington, D.C., area to gain hardware and software sales from federal government contracts it has been excluded from in the past.

"There's a huge opportunity in the government market, and the government is taking a serious look at what really is a minority-, woman-owned or small-business subcontractor," said CDW's Edwardson. "We have more of an opportunity to grow in that area than in the corporate space."

The new program could lead to similar partnerships with solution providers serving the corporate market, Edwardson said, but was quick to add that CDW has no immediate plans to pursue the strategy.

"We are looking at a lot of different opportunities and testing those that we think can grow the quickest and generate income for the company," he said.

Still, some solution providers said vendors that recruit solution providers to provide integration and consulting services face very real challenges.

"Dell offering a regional VAR services play is a limiting approach in that they are still not able to provide a national geographic coverage for a customer," said Insight's Farfante. "With [only] local VARs, you have a disjointed feel. Many have tried to put a national VAR service network together [that way], but it doesn't give the customer the service level they need. It's not a good long-term strategy."

JOSEPH F. Kovar contributed to this story.