Is The Dell Channel Born Again?

Does Michael Dell have a newfound openness about partnering with the channel?

That's the question solution providers are mulling after the Dell founder and CEO sent a memo to employees last Friday insisting that the "direct model is not a religion."

"We will continue to improve our business model and go beyond it to give our customers what they need," Dell said in the memo. He noted that the Round Rock, Texas, company's new Global Operations organization is "partnering with the regions and product group to pursue new manufacturing and distribution models to address the unique needs of customers in all our markets."

Some solution providers said they see the Dell memo as a subtle but significant sign that the computer hardware giant might be more amenable to doing business with more VAR partners or even entering a distribution deal with a big-box retailer like Best Buy.

One solution provider, who has built up a significant Dell business over the last eight years, said the memo signals a "huge" shift for the PC maker, which has always had channel partnerships but never trumpeted them. While it would be going too far to say Dell has gotten channel religion, the company is definitely interested in reaching out to VARs that can help it penetrate accounts not interested in buying direct from Dell, said the veteran solution provider executive, who requested anonymity.

"We all know Dell has pretty much hit the wall in taking the direct model as far as they can. They have built an efficient system, but they don't have enough feet on the street and business capacity. So they are losing market share. I think they realize that," the executive said. "I believe Dell feels there are select VARs and resellers out there in the channel that can help them go to the next level. This is not going to be for everybody. They are sending a message that they are a customer-driven company, and they will do business whatever way customers want them to. If the customer wants to work with resellers to buy Dell product, then Dell is open to that. That is a huge change."

The solution provider said that for some channel segments, there could be a "tremendous upside" in partnering with Dell, especially in markets such as the federal government, education and health care.

Tyler Dikman, president and CEO of CoolTronics, a Tampa, Fla.-based solution provider that has resold Dell systems for years, said the Dell memo could indicate that the company may want to tap into new channels to sell IT solutions, whether that means a new, low-priced desktop aimed at retailers or a more complex VoIP solution that VARs could bring to market.

Dikman said he's open to partnering with Dell more deeply if it brings the right model to the channel -- not something like the white-box program that the company implemented several years ago.

"That program was doomed from the start. It was a joke," he said. "If Dell takes anything from that program, it should be a lesson learned to never do it again. Those systems were more expensive than other white boxes or Dell-branded versions of the same products. Dell provided the channel with no support and relatively few options at that time."

Commenting on the memo, Dell spokesman Dwayne Cox pointed to significant changes in the upper ranks of Dell's senior management, including the appointment earlier this year of Michael Cannon, the former CEO of Solectron, as the top logistics executive and Ron Garriques, who formerly ran the handset business at Motorola, to take over Dell's consumer operations. Cox said the company is working to get "fresh executive focus to gain other outside perspectives."

"We literally haven't determined a lot of specificity within the business," Cox said. As far as whether Dell is looking at a bona fide, two-tier distribution system, "it would be premature to say that," he said.

"We're looking at different alternatives," Cox said. "Those may vary depending on what the market is, where the customers are, what the customers want and so on."

Next: Partner with Dell? No way, some VARs say.

Still, some VARs said they're dead-set against partnering with Dell, even if the company has had a change in heart about working more closely with the channel.

"That is bull," said Jay Tipton, vice president of Technology Specialists, a Fort Wayne, Ind.-based solution provider. "They are starting to realize they need the channel, and the channel is rejecting them. I wouldn't be too surprised if they started buying some VARs and pushed them to sell Dell."

Technology Specialists is winning more deals against Dell than ever before because of the computer giant's service problems, Tipton said, adding that Dell's low-price strategy has played itself out.

"You can offer the lowest prices without all the training and services. It doesn't mean you are better. Dell is hurting for sales, and Wall Street is getting on their case. I could care less."

David Chang, president of Agama Systems, a Houston-based system builder, said he's not sure what the memo indicates about Dell's intentions.

"Based on the last 20 years, maybe it's smoke again," Chang said. "They've put out trial balloons, but they've never committed to the channel at all."

Dell's challenges in building a channel sales effort would include rules of engagement and pricing, he added. "Dell is not going to give up the direct channel at all, so how are they going to price [indirect sales]? Will there be no room to give the reseller any margin to promote the product?"

Dell's comments in the memo paralleled remarks the company has been making since last September, when executives spelled out their plan for "Dell 2.0," a strategy that called for new supplier and partner relationships and a new approach to reaching customers.

After Michael Dell replaced Kevin Rollins as CEO on Jan. 31, he issued a memo to employees days later that reiterated much of that strategy but said it was a mistake for the company to pare its consumer sales efforts.

But the messages have, at times, been mixed. Last month, Dell confirmed to CRN that it had decided to pull the plug on plans for a retail store in a New York-area mall, after touting that plan just months earlier. And over the past several months, sources have told CRN that Dell has threatened some VARs with removal from its authorization list, while other VARs have told CRN they have received eye-popping discounts from Dell to win certain accounts in competitive engagements.

"They seem confused," said one channel source, who regularly competes against Dell in commercial and government bids in North America.