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Dell: A Willing Partner?

Has Dell finally figured out how to build stronger relationships with the channel while still maintaining its posture as a direct vendor? That’s the question solution providers are asking as the Round Rock, Texas, vendor quietly steps up overtures to them in an apparent effort to mine additional revenue through expanded channel alliances.

In March, some large Dell solution providers say they were alerted to what the vendor termed a “new” Dell Americas Channel Group that would target up to 20 national resellers to go after commercial business, in a plan similar to Dell’s existing one for the public-sector market. Communicating with select solution providers, Dell executives even hinted at putting together a partner conference in Austin, Texas, for the newly minted channel initiative, they said. And earlier this month, some solution providers say they attended presentations in which Dell channel executives promised to police conflicts with Dell’s direct sales force for solution providers that bring them new business.

However, Dell still appears loath to publicly launch a major channel initiative, not after building its business and reputation with a strictly direct marketing campaign. In fact, following the company’s quarterly earnings call last week in which Dell met lowered expectations, reporting $949 million in operating income on $14.2 billion in sales, CEO Kevin Rollins made no mention of any expansion of its existing channel business. Asked whether the company would entertain the idea of two-tier distribution in “emerging geographies,” Rollins immediately shot down the idea. “We’re the direct company,” he said.

Instead, during the call, Dell outlined new growth initiatives that included plans to end its longstanding, Intel-only strategy in the server space and offer servers running Opteron chips from Advanced Micro Devices by the end of the year. In addition, Dell executives said that they will get more aggressive on prices to ignite growth. And the vendor vowed to spend $100 million and hire up to 2,000 new people to shore up its customer support issues that are frustrating customers and costing the vendor business.

Also last week, when asked about channel initiatives a Dell spokesman told CRN: “It would be important to imply there is no major organization formed that is Americas Channel Group. There has been no major reorg that has created this.” But he noted the vendor has long had a solutions group working with “third parties,” and has also had longstanding relationships with resellers. The spokesman said Dell executives briefed about 20 “customers” at the recent Interop conference but declined to provide additional details.

Yet, despite its understandable reticence on the subject, it should be no surprise that a renewed interest in the channel might come now, as Dell’s direct model faces serious obstacles that are forcing it to seek new avenues of growth. A source familiar with Dell’s ambitions, who spoke on condition of anonymity, said Dell is also planning to execute on a new business strategy that encompasses IT services, managed services and consumer electronics before mid-June.

While some solution providers expressed interest in a Dell partnering message, many say the move is an indication that the PC-centric product company is struggling to find its niche in the new world of technology built around relationships and solutions.

“The heart of their message is that they acknowledge there is a segment of the market that they can’t reach because the channel owns it,” said Oli Thordarson CEO of Alvaka Networks, a solution provider in Huntington Beach, Calif., who attended a Dell channel briefing earlier this month. “If they want to get better penetration in that SMB market segment, the only way to make it happen is to partner with solution providers.”

Solution providers that also attended the briefing said Dell executives told them it has more than 50 dedicated channel reps that receive compensation on channel sales. What’s more, they said, when solution providers run into a conflict with Dell direct in a commercial account, Dell channel people have the power to protect them by calling off the direct sales effort. Other solution providers that have been briefed say the vendor promised they would get the same product pricing as Dell direct.

“These are the first steps that a company takes when they acquire channel religion,” said Thordarson. “They invest in people and they are aligning themselves with the interests of the VARs they are signing up.” ‘PUSHED TO THE LIMIT’
The analyst community, too, is beginning to question Dell’s business model. Some analysts who follow the company say it could benefit from working with the channel to broaden its reach.

“I think that would help them,” said Martin Kariithi, an analyst with Technology Business Research, a Hampton, N.H.-based industry research firm. “Will they do it? I do not know. At this point, they have really pushed their model to the limits. They are probably not gaining any more from the direct model now.”

Over the years, Dell has hounded many solution providers in an attempt to become their go-to hardware fulfillment partner, offering significant discounts in exchange for exclusivity, said Tim Yario, president of Column Technologies, a $30 million Chicago solution provider that offers managed services and specializes in deployments of products and services from BMC Software. Dell has also offered to provide staff augmentation services and other diverse offerings, he said.

“They have reached out to us, but we didn’t want to pursue a relationship with Dell,” said Yario, who explained that one of the reasons for Column Technologies’ resistance was the computer maker’s mind-set. Dell excels as a volume transaction engine, he said, but the downside of such expertise is that it creates the feeling that Dell is only looking for new ways to sell, and not new ways to sincerely provide service. “If Dell wants to change itself, it should begin here,” he said.

Other solution providers suspect Dell’s renewed interest in the channel may be nothing more than a mercenary venture designed to quickly fix earnings and revenue shortfalls. Joel Wonicker-Cook, director of sales at Vertical IT Solutions, a Tampa, Fla., solution provider and Dell reseller, said no representatives from Dell have contacted him—although he can detect a sense of urgency from the company. “It was very well known to us that last week was end of quarter,” Wonicker-Cook said earlier this month. “They were definitely doing the ‘hurry up’ offense.”

Said one Dell public-sector VAR who asked not to be identified: “Things must not be good on their direct side because they are suddenly very nice to me. They are suddenly giving us MDF in the form of free products as an incentive to hit numbers. They have never, ever, given us MDF. It’s unheard of.”

But because of the years of being the object of Dell’s public disdain while it quietly maintained opportunistic partnerships with the channel, solution providers remain mixed over whether Dell has the understanding or resolve to craft a sustainable channel initiative.

“Having me on their good side is worth a whole lot more than having a single individual or single small business on their side,” said Tyler Dikman, CEO of CoolTronics, a Tampa-based solution provider. “If they spent the same amount of money on me as they spent on 10 [direct] customers, even though I do the buying of about 500 customers, then they would be in my better graces.”

Dikman used to be exclusively Dell but has now switched much of his business to vendors such as Lenovo, even though his product margins are better with Dell. “Lenovo bends over backward to get my business,” he said. “With Dell, I’ve had about 10 different reps in the past six months.”

Some solution providers say that Dell’s brand and clout give it a better-than-even chance of growing its channel business, if it can simply get the little things right. But its long history of hiding its channel intent may conspire against success.

“We are a Dell solution provider but we are not allowed to put the Dell logo on our advertising,” said Scott Gordon, president of SBBS Software and Consulting, a Glenview, Ill., solution provider. “If they put a solution provider marketing program in place with co-op marketing, allowed us to use fliers with their clip art and gave us a dedicated solution provider support line, that would totally help us.”

Some solution providers say Dell is quietly becoming their fastest-growing and most profitable line even though it lacks a formalized and consistent channel strategy. “I’d much rather partner with Dell because when I take them into a deal, I’m the only partner involved and they will keep other people from bidding,” said a Dell public-sector solution provider who asked not to be identified.

Others say Dell has burned too many bridges. “It’s too little, too late,” said Rick Chernick, CEO of Camera Corner Connecting Point, a Green Bay, Wis., SMB solution provider. Chernick says he’s sticking with Hewlett-Packard, Lenovo and IBM, which have a long history of working with the channel. Chernick noted that he was authorized as a Dell warranty service provider until last year when the vendor demanded solution providers pay fees totaling thousands of dollars for the privilege of servicing Dell systems. “They can’t dabble in this and pretend that they are channel-friendly,” he said.

DAN NEEL and EDWARD F. MOLTZEN contributed to this story

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