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Oracle VARs Cry Foul Over Dell

Some Oracle VARs claim that Dell is poaching their deals by undercutting Oracle software prices to move Dell hardware.

Hewlett-Packard partners recently said they have lost deals at the eleventh hour to CDW because the direct marketer cut pricing on HP wares to below their cost. Since that time, several Oracle partners have told CRN they are seeing similar behavior by CDW and, especially, Dell.

One Oracle partner in the Midwest characterized it this way: "Oracle+Dell=HP + CDW."

Oracle partners said the scenario is basically the same. An established Oracle VAR is nearing the final rounds of negotiation on a deal that includes hardware and software, but at the last minute, Dell comes in and cuts the price of the software component to below the VAR's cost to win the hardware component of the deal.

In late April, Tim Gotham, president of Minneapolis-based Premier Design Systems said he lost two deals in the past three weeks because Dell was selling Oracle software below his cost. "Both deals were priced by Dell at 3.33 percent below our cost," he said.

Both of the deals included the Oracle database and application server plus IBM servers. Dell responded with its own hardware and the same Oracle software.

Oracle is aware of the issue, which it said tends to ebb and flow, and the Redwood Shores, Calif., company said it's doing what it can to protect solution providers.

Still, if "Oracle is a line item in a bigger deal, it becomes very hard for us to manage that," said Judson Althoff, vice president of platform and distribution alliances at Oracle.

Altoff said neither Dell nor CDW gets Oracle rebate money, and both get the same discount as other partners. Dell and CDW also must source their Oracle software through distribution, he added.

And as of two years ago, Oracle put the clamps on market development funds (MDF), Altoff noted. "It used to be a carte blanche. We don't any longer just cut a check for $250,000 in marketing funds at the beginning of a quarter. We now do a line-item check on those marketing programs, and we negotiate all that. And we get a lot of pushback on it," he said.

Partners say that's all well and good, yet the conflicts keep happening -- and the pace seems to have accelerated. Althoff said such complaints tend to pick up in Oracle's fourth quarter, which ends in June.

VARs need Oracle margins and product sales, Gotham said, "especially when the only reason [the customer] was buying Oracle in the first place was because we sold them the applications that run on Oracle. Now we lost that piece of the deal to Dell."

He said when he called his distributor about it, "they throw up their hands when Dell gets involved, because even they cannot match the pricing Dell gives to these prospects."

Another Oracle partner said he sees similar conflicts with Dell and CDW.

"I have been directly impacted by both. Dell actually sold a deal under their cost to get the hardware [sale]. CDW cut their margin with a non-value-add partner, and we lost a $2.4 million deal to them in the third quarter," said Scott Jenkins, CEO of The EBS Group, Lenexa, Kan.

CDW and Dell are able to sell an array of Oracle products, including middleware and the database SKUs ranging from the Standard Edition (SE) One up through the Enterprise Edition. "That's a problem for value VARs like us. Customers do a price check, and they see they can buy it cheaper at CDW than with us. And if we want to keep the deal, we have to match or beat CDW," Jenkins said.

"Arguably, this is OK at the SE/SE1 level but not for VARs who invest six, nine or 12 months in an enterprise sales cycle, only to see it cannibalized by CDW, Dell or Tech Data in the finale," he said, adding that he wished Oracle would segment its distribution tier by product types to alleviate some of the conflict. SE is the Oracle Standard Edition, and SE1 is the relatively inexpensive Oracle Standard Edition One database.

Another VAR specializing in ERP and accounting solutions said he experiences the same situation repeatedly with CDW.

"We have nearly stopped selling HP gear, or any hardware for that matter since we keep doing a lot of configuration work and at the last minute CDW swoops in and steals the deal," he said, adding that he also notices similar "underpricing" with Microsoft volume goods in Enterprise Agreement situations.

A CDW spokesman repeated the company's stance that it does not "discuss the proprietary details of our business relationships with individual companies." He also reiterated earlier comments by Harry J. Harczak Jr., CDW's executive vice president, that the Vernon Hills, Ill., company "does not pass market development funds on in our pricing to customers."

A Dell spokesman said only that the company is focused on delivering solutions for customer and is also focused on Oracle.

Ironically, the complaints come at a time when Dell, a perennial foe for many VARs, is trying to mend fences with some segments of the channel.

Many VARs view CDW and Dell as the antithesis of a value-added channel and say those companies get unfair volume-based advantages when it comes to product pricing.

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