CDW's Edwardson Outlines Agent Strategy

CDW late Friday said it launched a new program called SolutionsEdge to recruit VARs as sales agents. CDW Chairman and CEO John Edwardson and Norm Lillis, vice president of sales, new markets and small business, spoke to CRN about the new plan.

CRN: What is the thinking behind CDW's plan to start an agent program for small-business solution providers?

EDWARDSON: What we are about to do is embark on a new adventure within CDW that we think has a lot of opportunity. Where does CDW fit? Is it just another VAR? Is it just a bigger VAR? What role do we play? Are we an advocate for all the other solution providers? Are we a competitor, or are we a little bit of both? One of the things that has been very interesting, when [CRN] does surveys, we show up as a distributor, which is not what we want to be. We do not want to become a distributor. Our biggest vendors that we represent--and HP is No. 1--have a very clear delineation between what a distributor does and what a reseller does. But we have had a lot of interest among VARs who have come to us or who have gone to their customers and said, 'Look, we don't make any money in the product business. Where we do make money is in the services business. Here is what you need. Call up CDW and order it and it will be here tomorrow or the next day and we'll come and do the installation and get it up and running.' One of the things that we do not want to do is to get into the field-services business with our own people. We have partnered with DecisionOne; we have partnered with Unisys. That business is getting bigger and better, but we think there are a lot of other new opportunities to build the business.

We are not in the business of buying companies with $20 million or $30 million or $50 million in [annual] revenue. Our average daily revenue now is $24 million or $25 million. It doesn't make any sense to go out and purchase a company to grow our revenue by one more day. But one of the things that we find very interesting is there are many people in business that know they do better on the services than on the products and [we want to explore] how can we partner with them. There are also a significant number of people who have been in the business for 20 or 30 years who are looking for a new home for the business and maybe they want to slow down a little bit. The concept is one, we don't want to be a distributor. Two, we don't want to put our own people in the field. We enjoy working with other companies, and we only work with the biggest companies at this point in terms of the services work. In the government arena, we have been partnering with minority- and women-owned firms and that has been working very well.

What we are going to do is a pilot program. 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. And there are a few people who would like to take some money out of their business. Maybe it would be easier to sell the business if it were a services-only business and the buyer didn't need to come up with a lot of working capital to invest in the business. The concept is that we will become the product partner. They will continue to do the services work. They will continue if they want to have their salespeople calling on the customers, but we will take the credit risk. We will ship directly to the end user. We will bill the end user. That way, we are not in the distribution business. We relieve them of working capital [expense]. They don't have to have any money invested or a significant reduction invested in inventory, and they get out of accounts receivable not related to the service business. What we are going to do over the next couple of months is to look at VARs or solution providers--we will look at the bigger ones, probably those with $20 million or more in revenue--and put a group of 10 or 15 together and [work with] them as we have been doing in the government program. And figure out how to make it work and build it even more.

We think it builds on the strengths of the partner. They are very good at what they do, being the on-site partner doing the services work that is critical to make sure that the technology is delivering what it is supposed to. We believe that it leverages on what we do well, which is competitive prices, quick delivery and a focus on the things that have made CDW successful. And we think it will be good for the health of the channel. We think it is a good way to continue to let each of us do what we do best.

CRN: What's the incentive for the solution provider to partner with CDW? Are they going to get anything back from you for pushing the product sales your way?

EDWARDSON: The incentive for them would be that we have looked at many balance sheets, and some of these guys can pull millions out of their businesses from inventory and accounts receivable and put that money to better use or get a return on their investment, and that is significant. And second, there will be an agent fee. So we will be working with them. While the fee will be different based on what they want to continue to do, if they don't want to be involved in the hardware relationship and just have the services, it will be different than if they want their salesperson to be the point person and daily contact person.

CRN: How is your program different than agent programs offered by your vendor partners, notably Hewlett-Packard?

LILLIS: One of the biggest differences between this program and the others out there is that we have experience with these customers. We are already in there doing business with them. There are solution providers that we compete with, but there are others where two is better than one. When we put our strength, which is fulfillment, and their strength, which is service, along with both of us having experience with the end user, that's a huge difference between HP or Cisco or Dell.

EDWARDSON: One of the things that we are convinced that we can do is move more quickly than any of the OEMs, particularly when it comes to credit. We have 400,000 small-business customers, and I don't think that there is any way that the big OEMs can do the work you need to do with the small business as quickly or as well as we can do it.

CRN: Are any of the vendors shipping products overnight?

EDWARDSON: No. That's another thing. Over 90 percent of what we sell today is shipped before we go to bed at night. So the quick delivery is clearly something that we do better than any of the OEMs.

CRN: Have you talked to the OEMs about this concept?

EDWARDSON: Yes. They are all very supportive at this point as long as we play by the rules. What really got them interested is they think it will be very competitive with Dell. They think we will be able to move quickly and help them gain more market share or hold market share when competing with Dell. As long as we are taking the credit risk and shipping direct to the customer, we are playing by their rules, which they think are very important regarding what the reseller should do and what the distributor should do.

CRN: My understanding is that the reason CDW or PC Connection weren't actively trying to sell to solution providers was that the contract with the vendors prohibited you from actually doing that?

EDWARDSON: True. But not true with every vendor. There are some fairly big vendors who say it's an open market and you can sell to whomever you want. But our biggest vendors, and HP is clearly there, they want that delineation between what we do and what Tech Data and Ingram do.

CRN So the difference here is that in the case of the distributors, they extend credit to the solution providers, you will extend credit to the end user?

EDWARDSON: True.

CRN: Will you have to rewrite your vendor contracts as a result of this new program?

EDWARDSON: No. Every major vendor that we do business with has been aware of this for months. We've been thinking about this and have been working on this for three months. Now we are coming up with a list and trying to figure out the most likely prospects.

CRN: CDW is feared as a competitor by a lot of these solution providers. How do you get around this? What is my comfort level [as a solution provider] that once you get this relationship with my customer that I've helped you acquire that you don't go in and get this service business?

LILLIS: There has been a lot of change in the channel where [VARs] have tried to focus on their core business, which is their services business. Product is sort of a necessary evil. What we've found in talking with them is that they are open and willing to partnering. They take on a trusted adviser role and because they are a trusted adviser, no one else can get in. Our intent is to not go in and take service from them. Quite frankly, we've partnered with some of the biggest [service providers] out there and services is a whole different ball game and we are not good at that. We are good at product fulfillment. That's been our mantra. When we go in and talk with these people, we have no problem telling them that if you have services business, our intent is not to compete with you.

EDWARDSON: And clearly if we violate that, this industry is a very tight industry and we wouldn't get any more partners. To do this the way it needs to be done, that's just one of the things that we have to do.

CRN: You do have relationships with Unisys and DecisionOne, so will there be a contract with your agents to ensure that your current service providers don't get involved in the VARs' accounts?

EDWARDSON: There will be a contract. In general, where we have used Unisys and DecisionOne it has not been with your typical SMB customer. It's been with Fortune 1000 and up companies. But clearly there will be solution providers that have great relationships with bigger companies, and we want them to continue to do what they do well and we want to help them by doing what we do well.

CRN: Do you have any projections as to how much incremental revenue you anticipate gaining from this new agent program?

EDWARDSON: No. We really don't have a clue. When we did this in the government group, we knew there was a huge need in federal, state and local government as well as higher and lower education to do a certain amount of business with women- and minority-owned vendors. Here, as we look at the market, we still believe that we are somewhere between 4 percent and 4.5 percent of the U.S. market. The market is so huge out there the question is, what are our different methods of getting the market? For the last several years, we have been very busy segmenting the market. Three and a half, four years ago we had a single approach in the corporate world. We formed CDW G about six years ago. G is now a federal group, which is divided into a department of defense group, a civilian group and a prime contractor group. We have a state and local division and an education division, which is divided into K-12 and higher education. Likewise, in the corporate group, it is now divided into three separate divisions and this is going to be a new effort in the corporate group. What we have been trying to look for are ways we can get closer to the market and get more people more attuned to different segments in the market. We view this [agent program] as a huge opportunity. I have no idea how big it is. When we have only 4 percent of the market, and we still believe that VARs are around 70 to 75 percent of the market, there's lots out there.

CRN: How does this help me compete against Dell? If I'm a solution provider, why should I do business with you instead of Dell?

EDWARDSON: There are several different reasons. When we approach competitors who are talking to Dell, we acknowledge that Dell is offering them the best Dell solution. We say that CDW can offer them the best industry solution. Choice is really the No. 1 way we compete. Second, about four years ago we began a specialty division. In that group we have nearly 160 people with lots of different certifications and system engineering specialties. All of these people are going to be available to help. Many of the solution providers are very good in certain areas. They may be a dedicated HP provider or an IBM provider. What we can bring to them is expertise in other areas. If they are competing against HP Direct, we can offer them IBM or Acer. I think it's choice, the specialists that are helping us, and it's speed.

CRN: How does your speed in product delivery compare to Dell's?

EDWARDSON: We are always quicker. One of the things that we recently built is a new image and integration center. Volume is nearly double over the last three months, and we are already talking about building more capacity. When we compete with Dell, we usually don't have to price cheaper than them. We win because our people are more knowledgeable and we do things more quickly. Most of what we do, we get out on a next-day basis.

LILLIS: If you are comparing Dell to HP Direct, my impression is that Dell is a little faster. When it comes to CDW vs. Dell we are faster. Ninety percent of the in-stock, credit-approved orders go out the next day.

EDWARDSON: We usually have $150 million or $160 million product in inventory and it is moving out the door very quickly.

CRN: While you are not getting into the distribution business, this is in some way competitive to distributors. If I'm a solution provider and I'm moving product through you now, it's not product I'm buying from Tech Data, Ingram Micro or Synnex.

EDWARDSON: Clearly in the U.S., we are the biggest customers of Ingram, Tech Data and Synnex. So we will continue to do a lot of business with them. Just a little over 50 percent of what we purchase, we purchase directly from OEMs. Still in the very high 40s [percent] we [will] buy from distributors. I don't know how they will view it. One of the things I will be doing is talking to all three of them over the next couple of weeks to let them know what we are doing. There will clearly be solution providers that will want to continue to do business the way they have been doing it through Tech Data and Ingram. And there may be others who will say, 'Look, I've been looking for a way to get out of the hardware business and I don't want to worry about accounts receivable and inventory that becomes obsolete and I'm 65 years old with $4 million in working capital that I could pull out and it sounds like something that I'd be interested in.'

CRN: Do you expect competitors such as Insight or PC Mall to follow your lead once you unleash this new model?

EDWARDSON: I don't have any idea. They do a good job of copying everything else we do.

CRN: Can you give us a range of the agent fees you will be paying?

EDWARDSON: That is something we will be testing over the next couple of weeks.

CRN: But this is not a one-time deal? Solution providers will continue to get an agent fee as long as CDW is selling product to their accounts?

LILLIS: Yes. They would continue to get them. We look at it as a partnership. They've got the relationship with the end-user customer, and we want to continue use that partnership going forward. We'll let them do what they are good at and we'll do what we're good at and together it's better.

CRN: What can you do to alleviate solution providers' fears that you might squeeze them out of their account once they bring you in?

LILLIS: Our viewpoint is that they have the relationship and we've probably already tried to get in there and we can't. But certainly, they are looking at who can they trust. But from a service perspective, that's not what we do well. We need to [convince them] that we are not going to swoop in on them and take the business.