Is Dell True To the Channel?

"We quickly found it was cheaper to buy white boxes from Dell than to buy parts from our distributors and assemble the systems ourselves," says Edwin Collins, vice president of sales at The PC Doctor.

By providing support and services around the Dell white boxes, Collins found that his company made better margins. Hence, The PC Doctor stopped building systems and now sells Dell's 510D white-box desktops exclusively. The new model has generated enough sales in approximately eight months to propel Collins' company through the otherwise tough economy that has claimed scores of companies like his.

"The product quality is great, and the customers absolutely love them," he adds.

Yet, despite interest and commitment from The PC Doctor, as well as a small, albeit significant, number of other solution providers, Dell has been oddly ambiguous about its most serious channel play to date. On one hand, it has been seemingly supportive of the program, but on the other, it has been tough on its participants. Consider that last month, for example, Dell finally removed the biggest point of contention of its white-box agreement,a contract clause that prohibited solution providers from telling anyone which manufacturer was behind the systems. After making the significant change, the Round Rock, Texas-based company did next to nothing to inform members of the Solution Provider Direct program that their largest obstacle had been removed.

"They changed the branding rule of the contract, but no one from Dell ever informed us," Collins recalls. "It's much easier to sell the white boxes as a Dell product because they have a great name and everyone wants to know who made their white box."

The irony is that despite the mixed signals coming from Dell, a number of solution providers are forming relationships with the company to resell both branded and unbranded products. Although Dell won't say how big the program is or how much business it does, program members say there are anywhere from 100 to 500 solution providers involved with Solution Provider Direct. VARBusiness examines whether its white-box initiative will lead to bigger and better things for the channel, or if would-be partners still believe Dell's direct-sales model has them in its sights.

Branding Battles

When the 14-page contract for Solution Provider Direct was released last summer, would-be members immediately knew that the branding provision could pose a formidable challenge. They were further disappointed when they learned that Dell's first unbranded system, the 510D model, came in a white plastic shell and not the familiar black one typically used in Dell's branded line of products.

Sean Harty, president of New Technology Solutions (NTSI), Lowell, Mass., is one Solution Provider Direct member who is puzzled as to why Dell restricted VARs from branding the white boxes in the first place. He's even more bewildered why Dell didn't officially inform members when it changed the terms of the contract. "Dell didn't want us to reference the white boxes as one of their products, so what's the point of getting involved if they're disowning it?" Harty asks. "I've heard that Dell changed the branding aspect of the contract, but they haven't told us."

Unlike Collins, Harty has found the Solution Provider Direct program to be fruitless for his company. He believes that simply allowing VARs to brand the white boxes as a Dell product won't be enough to keep his company involved. Harty also says Dell's white-box strategy has exposed a lack of channel experience and commitment at the computer-maker, citing the minimal advertising and promotions that have accompanied the program.

"Dell had a truly unique opportunity, but they don't know how to work with resellers. They started out with as little effort and investment as possible to essentially see what they could get for free," Harty says. "We're still a member at this point, but we haven't sold much because the program is pretty much useless."

Dell responds by insisting that it is committed to Solution Provider Direct, but concedes the company simply has modest goals for it. "We're not going to spend millions of dollars on this program. We're going to grow it steadily," says Mark Thompson, director of SMB marketing at Dell. "In a way, it's good that people are complaining that we're under-promoting SP Direct because we're happy with our progress so far, and it means we can shake a lot more trees and win more business in the future."

Thompson says Solution Provider Direct has had two noticeable effects since its launch. First, the program has attracted not just VARs, but also systems builders, which, like The PC Doctor, are adding premade white boxes to their offerings. Second, Thompson says, Dell has seen an increase in the number of solution providers who are reselling branded Dell products.

New Allies?

If the numbers are indeed low for Solution Provider Direct, the program and Dell's overall channel business may soon get a big boost. Dell recently formed an alliance with the unlikeliest of partners, The ASCII Group, Bethesda, Md., to promote both branded and unbranded white-box systems to the organization's 2,000-plus VAR, systems integrator and solution-provider members. The agreement, which gives ASCII members an undisclosed discount on reselling Dell systems, marks a milestone for Dell and the channel, which have never been on friendly terms.

While many ASCII members have lost business to Dell and its direct-sales model, the 19-year-old organization has apparently come around on its opinion of Dell.

"There are resellers in our group who have an interest in selling Dell products," says Jerry Koutavas, vice president at ASCII. "Initially, we were opposed to the idea of a relationship with Dell, but after talking with our members and our directors, we felt the positives outweighed the negatives."

Koutavas says it's unclear how many ASCII members will get involved with Dell, either through the white-box program or through simply reselling branded products. "We're really at the early stage of this," he says. "We're going to let our members know that the program exists and educate them on the opportunity of working with Dell."

One ASCII member sees the Dell alliance as a mixed bag. Thomas Doyle, owner of Hoosier Accountant, a VAR based in Washington, Ind., sees Dell as a divisive issue for his organization. "The Dell deal has some good points, but the reaction among members is very extreme," Doyle says. "Some hate Dell, and others are looking for any opportunity to attract customers."

Doyle says he's going to wait and see what the actual Dell discount is for ASCII members before making a decision for his company, which resells Gateway, Hewlett-Packard, IBM and Toshiba computers.

The ASCII alliance could mean a major upswing for Dell's channel sales, but, again, it's unclear if that's what the computer-maker truly wants. One ASCII member who requested anonymity speculates that Dell is guarded about the Solution Provider Direct program because it conflicts with Dell's direct-sales model and opens up opportunities for solution providers to provide services and support and compete against Dell's own maintenance services.

Dell downplayed the ASCII deal and didn't make an official announcement regarding the potentially huge alliance. Dell did, however, extend the Solution Provider Direct program by adding a new minitower system to its line of 510D white-box desktops this week.

"The program is meeting our goals, which are modest. If we weren't meeting our goals, obviously, we wouldn't be adding a new product to the program," Dell's Thompson says. "It's too early to say if this program grows into something larger. At this point, it doesn't have much of a material impact on our business."

Whether solution providers will respond to Dell's seemingly half-hearted channel play remains to be seen.