8 Ways To Beat Dell

It's a simple fact: No other company has done more damage to resellers in the past decade than Dell. Its vaunted supply chain and compelling marketing machine have made its founder, Michael Dell, one of the world's 10 richest men and its organization No. 1 in PCs worldwide. Few know that better than Roger Grady, president of Native Systems in Boulder, Colo. In October, Grady shut down his retail operation because of the business he was losing to Dell. In a letter to customers and partners on the company's Web site, Grady says his company couldn't match Dell's pricing and still provide premium value-added services and support. For Grady, Dell's penetration into his market was akin to having a Wal-Mart open next to a family-owned hardware store or pharmacy.

Too bad Grady couldn't have hung on a little longer. Though it's not yet showing up in market share, Dell is now showing signs of vulnerability. That's partly due to the creative ways solution providers are learning to beat it in the market--and partly due to Dell's own foibles. Evidence of the latter can be found in its third-quarter earnings, which came up short because of slumping sales in the United States and the United Kingdom, and a $300 million charge because of defective motherboards for OptiPlex desktops.

Evidence of the former, meantime, is turning up in many different places and in other ways. Simply put, VARs are cracking the code of beating Dell. Herein we provide a look at eight rules solution providers have used to win business from Dell and reclaim clout in segments once thought lost to the mighty PC company from Texas.

1 Match or Undercut Dell's Pricing. Cindy Shaw, vice president of research at Moors & Cabot, believes Dell's competitors have improved their supply chain and pricing to the point where the pricing gap with Dell has closed. "We believe that Dell's price advantage has largely disappeared over the past two years," Shaw recently opined. One reason: The white-box market may be closing in. Several systems builders have found success by constructing more cost-effective notebooks and desktops. For example, Jude Dagle, president of Computer Connections in Greensburg, Pa., says he offers Acer notebooks and builds his own brand of desktops, both of which are competitively priced to go up against Dell. Other VARs have discovered leasing hardware as an effective strategy.

Mike Thompson, senior vice president of marketing and services at Synnex, says his company has worked closely with solution-provider customers and third-party financing companies, such as GE Technology Financial Services, to offer hardware leasing deals that beat Dell's pricing. "Leasing can be a more attractive option and be more cost-effective than actually buying cheap products from Dell," Thompson says.

Even Dell sees its price advantage slipping away. When speaking at the recent Raymond James IT Supply Chain Conference, Dell CFO Jim Schneider said while he believes Dell is still the price leader in computers, its lead has "narrowed somewhat" during the past year, and that the company has "consciously backed off" pushing its low-priced equipment, instead turning its focus to higher margin products.

2 Beat Dell At Its Own Game. One of the biggest reasons VARs have lost customers to Dell, which has a ubiquitous presence across the Web, television and print, is they haven't been able to compete from a marketing perspective. True, there's no way for a $5 million SMB reseller to match the marketing budget of a $50 billion company. But solution providers have discovered they're giving away business to Dell in the SMB market by staying silent. Today, some resellers are promoting and marketing themselves more heavily via direct mail, electronic newsletters and even events. "We've seen a lot of customers that just assumed we couldn't match their pricing," Dagle says, "but they were wrong."

And it won't hurt to throw in some customer case studies with total-cost-of-ownership studies. As customers have discovered, the price in the advertisement isn't always what Dell will end up charging.

3 Outflank Dell At The High End. It's no secret that the Dell portfolio has had trouble scaling. The computer maker has abandoned its high-end technology strategies, such as eight-way servers, to dominate the entry-level and midrange segments. But many analysts believe Dell must drive upstream to the enterprise to continue its torrid growth (see "Cracking Dell's Code," page 26), and several solution providers say that Dell has already begun moving in that direction. In the fall, the computer maker launched a new line of XPS "high-performance" desktops and notebooks with higher prices (an XPS desktop starts at $1,099 compared with the $399 offers for basic entry-level PCs).

But solution providers have become increasingly successful at exploiting Dell's technical shortcomings. Because Dell is based largely on the Wintel platform, VARs are using open-source software and AMD products, like Opteron 64-bit microprocessors, to their advantage to keep Dell on the outside looking in. For example, Red Barn Technology Group (RBTG) in Vestal, N.Y., uses AMD's technology to differentiate its systems from Dell. "AMD has a strong position in high-performance segments, like higher education and gaming," says Jon Layish, president of RBTG.

John Samborksi, vice president of Ace Computers in Arlington Heights, Ill., says his company tries to stay away from price-sensitive verticals and focus on areas that demand higher performance--and aren't afraid to pay more for it--such as government, architecture and engineering. As a result, he has seen demand for his Intel Xeon dual-core systems take off. "We've won some big deals against Dell with our notebooks," Samborski says. "Their low prices just don't cut it anymore."

4 Exploit Customer- Service and Support Shortfalls. Once the gold standard for customer service and support, Dell's reputation has taken several recent hits. Resellers say many of their customers that purchase Dell systems have complained about the company's call centers overseas, and even the technical skills and knowledge of Dell's domestic support staff. "They're certainly not happy with Dell's lack of on-site support," says Al Rosen, president of Bi-Tech Enterprises of New York.

As a result, solution providers like Bi-Tech provide the integration and technical support after the fact, winning favor with small and midsize businesses that don't feel the love from Dell. Solution providers at the high end are also winning with better support and services.

Bob Venero, president and CEO of Future Tech Enterprise in Holbrook, N.Y., says his company beat Dell last year for the deployment of numerous PCs, servers and integration services for a major enterprise customer. Dell's price was $200 less per box on PCs, and $600 to $700 less than the incumbent vendor, but the deal didn't go to Dell. Why? Because the client realized, with help from Venero, that Dell couldn't guarantee the quoted price for 12 months or offer the services and support they needed. "The customer understood it was a buy-in," Venero says. "If you look at Dell, they come in with aggressive pricing and buy the business, but over time the prices and costs increase."

5 Emphasize Solutions. Dell is known for its aggressive pricing, not for its specialized solutions. So spice up your product line with some different offerings, like ruggedized "toughbooks" for physically demanding professions, or tablet PCs for the health-care industry (currently, Dell OEMs tablet PCs from Motion Computing's products). Concentrating on vertical solutions, VARs say, gives the channel a leg up on Dell and shows the customer that solution providers know more about their businesses than Dell.

Obviously, solution providers are differentiating themselves by coupling hardware and software with services, but where exactly? Since the Dell approach is to sell more entry-level servers for less, thus creating larger data centers, resellers are finding server consolidation and virtualization solutions are the garlic and holy water to Dell's energy-sucking server farms. John Gunn, president of Integrated Solutions Group (ISG) in Salina, Kan., says his server-consolidation solutions are a big hit with midmarket customers (ironically, ISG recently joined VMware's partner program, which is part of EMC, a major Dell OEM partner).

6 Leverage Dell Rivals. It may have appeared that Dell had won another battle when IBM decided to exit the PC business and sell off its ThinkPad product line to Chinese computer maker Lenovo. Not so fast. Solution providers say Lenovo has gotten extremely aggressive with marketing and pricing for resellers since the acquisition. Jiashi Duan, vice president of ApexCompu, a solution provider based in Malvern, Pa., says Lenovo is committed to building its PC market share in the North American channel. "They're so competitive," Duan says. "They've got great pricing and support. I think resellers should really look at them as a solid competitor to Dell."

Acer has also endeared itself with a growing number of resellers in North America by offering thicker margins than most other OEMs. Perhaps the biggest effect is Hewlett-Packard's recent resurgence; resellers say the vendor is getting back on track and stepping up its competitive efforts, particularly on pricing for resellers with programs like SmartBuy. Bob Whiton, managing director of Net Solutions in Tustin, Calif., says HP has started offering matching prices for systems when going head-to-head with Dell.

7 Get Personal. Dell's direct model prides itself on creating stronger customer relationships. But several solution providers in the small-business and lower midsize market have discovered their customers often move to Dell without ever seeing a Dell sales representative or engineer face-to-face. Indeed, solution providers say they often compete against the "specter of Dell" and rarely see actual bodies on-site at customer locations. So it's time to take advantage of your local presence. Small businesses especially appreciate the personal touch a neighborhood VAR can offer, so follow up those electronic newsletters, for example, with some technical seminars and marketing event for prospective customers. Syscom Technologies, a solution provider headquartered in Marietta, Ga., has found success with its series of homegrown events, like its recent Tech Fest 2005, where customers test-drive solutions and interact with Syscom engineers (the most recent Tech Fest focused on server consolidation and hardware TOC). Syscom vice president Rick Tashman says the events are a great way to get mindshare with clients, especially those SMBs that crave personal attention.

8 If You Can't Beat 'Em, Join 'Em. You know the old saying: Keep your friends close and your enemies closer. Now, we're not suggesting that VARs start reselling Dell hardware. But more than a few solution providers have found advantages to working with the direct computer maker as a service and support partner. One such enterprise solution provider, which asked to remain anonymous because of its partnership with Dell, says it doesn't sell Dell products, but makes money on value-added services after the direct sales. "We theoretically can sell their products, but we don't because there's no margin," says an executive at the solution provider. "So we add our services and get the margins."

After delivering quality integration and support services for enterprise clients, the executive says his company can then offer those customers additional products beyond PCs and servers--storage arrays, wireless networking and security solutions. In fact, the solution provider, which is also a large HP, IBM and Lenovo partner, is well-positioned to sell alternative PCs and servers to the customers if their satisfaction with Dell wanes. And to the joy of many resellers, that day may already be here.