Peace Offering

The new CDW SolutionsEdge program, which the company bills as a pilot, calls for the enlisting by year's end of 10 to 15 solution providers with annual sales approaching $20 million. CDW will take over their product business and the solution providers, in turn, will act as CDW's field-service providers and be paid an agent fee for product sales to their accounts.

The program represents an olive branch extended to solution providers that have been competing with CDW. It's also an about-face by the Vernon Hills, Ill.-based solution provider, which has a heavy focus on direct mail and the Internet. While CDW has had an agent program for its government business for several years, this is the first time it will bring the agent model to the SMB market. The $5 billion company, considered by many solution providers to be their most feared competitor for product business, is now on a mission to enlist them as allies. CDW Chairman and CEO John Edwardson calls the plan "a new adventure" but admits he did a lot of soul-searching before proceeding with the strategy. "Where does CDW fit?" he said. "Are we an advocate for all other solution providers? Are we a competitor, or are we a little bit of both?"

Edwardson says partnering with solution providers is a marriage of convenience and an opportunity for both parties. While CDW partners with service providers DecisionOne and Unisys on very large accounts, he said, "We do not want to get into the field-services business with our own people."

CDW bills the plan as simply a symbiotic relationship between itself and a growing number of solution providers that want to exit the low-margin product business. The partnership gives CDW a local service organization in small and midsize businesses, which could give it a leg up over competitors such as PC Mall, PC Connection and Dell. In turn, it frees up working capital for solution providers that may have millions of dollars locked up in their product business.

Said Norm Lillis, CDW's vice president of sales, new markets and small business and the executive heading up CDW SolutionsEdge: "Services is a whole different ball game, and we are not good at that. We are good at product fulfillment. We have no problem telling [solution providers] that if you have the services business, our intent is not to compete with you."

Edwardson says many solution providers are eager to get out of the hardware business.

"We don't have any idea if it will work or won't work, but the concept is that there are a lot of people that have a lot of working capital tied up in inventory and accounts receivable for hardware," said Edwardson. "We will become the product partner. They will continue to do the services work."

Solution providers now negotiating with CDW to forge agent relationships have bought into the concept. "Our biggest margin comes from our services work and selling our brainpower, as opposed to shipping heavy things around the country," said Poco Sloss, president of Bellwether Technology, a solution provider in New Orleans. "In some sense, CDW is a competitor of ours. People like to look at the price and if they can get a better price or quicker delivery, they go somewhere else. But if I can have CDW as another arrow in my quiver, it's a potential way to better serve our customers."

The new program propels CDW into the eye of the competitive storm raging between Dell, Round Rock, Texas, and Palo Alto, Calif.-based Hewlett-Packard, CDW's largest vendor partner. Once a pricing battle between the two PC giants, the fight now is over logistics and speed to market.

Some solution providers say HP Direct has stumbled badly in its logistics in recent months, causing some of them to shift business to traditional enemy Dell. Ironically, some solution providers say that HP could be the biggest beneficiary of CDW's agent program. As more business shifts from HP Direct to CDW, HP can ride CDW's logistical prowess and rely less on its own distribution engine.

Some solution providers also sense the market is about to undergo dramatic change and they want to be on the cusp of that change. "We are moving to CDW because of their distribution capability," said Ray Munson, chairman of ISG, a solution provider in Holland, Mich., that is negotiating an agent deal with CDW. "The model is changing--similar to how it changed back when Dell changed the model to a direct-ship method."

The ripple effect of the agent program is sure to blur the lines between CDW and distributors and make CDW a strong multivendor alternative to Dell and HP Direct. "Right now we are doing Hewlett-Packard's agent program, but HP doesn't cover everything that we need to procure for our customers," said Sloss.

Still, Edwardson was quick to say that CDW's agent program plans do not cast the company as a distributor. "We do not want to become a distributor," he said. "Our biggest vendors that we represent--and HP is No. 1--have a clear delineation between what a distributor does and what a reseller does."

The difference, says Edwardson, is that CDW sells to end users and distributors sell to solution providers, a fact that will not change with CDW SolutionsEdge.

"As long as we are taking the credit risk and shipping direct to the [end-user] customer, we are playing by [vendors'] rules, which they think are very important regarding what the reseller should do and what the distributor should do."

Nevertheless, while CDW is not getting into the distribution business, the agent program could well cast CDW as a more formidable competitor to distributors as solution providers shift hardware business to the company.

"Our intent is to shift everything we can to CDW," said ISG's Munson. He said he now sources product from Ingram Micro, Tech Data and HP Direct. "We had to look at how it was impacting us financially to carry that product, what the effective cost is to carry that product, and how effectively are you really distributing that product," he said. "If you've got someone like CDW who definitely has the model in place, it's a win-win for everyone."

Edwardson pointed out that CDW is the largest U.S. customer of Tech Data, Clearwater, Fla.; Ingram Micro, Santa Ana, Calif.; and Synnex, Fremont, Calif. He noted that CDW purchases slightly more than 50 percent of its products directly from vendors, a number he predicts will not change dramatically with the new agent plan. But he acknowledged distributors' concerns.

"I don't know how they [distributors] will view it," he said. "One of the things I will be doing is talking to all three of them over the next couple of weeks."

But Edwardson says that CDW's vendor partners have all blessed the deal. "What really got them interested is they think it will be very competitive against Dell," he said, noting that CDW ships 90 percent of its sales on the same day the product is sold. Because of this, he says CDW can deliver a better solution to the customer faster than Dell.

"We acknowledge that Dell is offering the best Dell solution; we say that we can offer them the best industry solution," he said. "Choice is really the No. 1 way we compete."

Frank Vitagliano, IBM's vice president of global distribution channels, calls CDW's program a natural extension of the company's business model, which he says is different from that of distributors. "Unlike distributors, CDW sells multivendor products to end users, while [distributors] go to market through VARs," he said. "The idea is good, but it all depends on CDW's success in attracting solution provider partners."

Some solution providers speculate that HP may have encouraged CDW to move more aggressively into the agent business as a way to provide a logistical multivendor counterpoint to Dell and shift more business away from distributors.

But John Thompson, HP's new vice president and general manager of the Solution Partners Organization, Americas, denied that. "HP has not encouraged [CDW and its competitors] to do that," he said. "[The agent program] is clearly part of their strategy. We do see the market as dynamic. Where the value is provided and how products, solutions and services are delivered to customers evolves over time."

One hurdle that CDW acknowledges it must overcome is being able to win the trust of solution providers--that is, proving it won't try to wrestle away their accounts. "Our viewpoint is that they have the relationship and we've probably already tried to get in there and we can't," said Lillis. "They are looking at who can they trust. We need to [convince them] that we are not going to swoop in on them and take the business."

Added Edwardson: "Clearly, if we violate that [trust] this is a very tight industry and we wouldn't get any more partners."