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Dell's (not-so) secret channel strategy

Dell touts its direct-to-customer approach, but big customers like EDS and others manage their purchases. So Dell direct sometimes takes a little detour.

Once upon a time Dell Inc. was a disrupting force in the PC universe – selling directly to end users and swearing to avoid the expense (and expertise) of the channel.

But after enjoying for a while the low prices and ability to specify components on a system themselves (then unbox, configure, network and integrate the applications themselves) many business customers decided they'd rather have value-added resellers (VARs) do much of the work for them after all.

So they'd order the hardware from Dell, order the service call from a VAR and try to coordinate the two, until it all go too complicated and they just told the VARs to buy the stuff on their own.

So they did. Eventually both the VARs and Dell found it advantageous to offer the other a little extra help to make the sales process a little easier. But the partnerships that resulted have remained a secret to many. Dell doesn't exactly deny its channel relationships; but it doesn't really admit to them, either.

The rest of the story

When it was founded in 1984 by Michael Dell, Dell Computer based its entire vision on the concept of selling directly to the customer and, from the outside, hasn't wavered from that goal. So far, the approach has garnered solid results. In fact, Dell commands roughly one-third of U.S. personal computer shipments and 17% of worldwide sales, according to an October 2006 report from market research firm IDC. In servers, meanwhile, the company shares the number three slot with Sun Microsystems with 10.5% of sales, according to a November server report.

Dell's Web site makes almost no mention of a partner program. In fact, the only exception is a single page provides scant detail on the "Dell Solution Provider Direct" program, a program launched in 2002 and, now, kept largely quiet.

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Some VARs, though, identify themselves as part of the program and report that Dell does provide special treatment. "Dell gives us the best bang for our buck in terms of pricing, tech support and availability," said Scott Gordon, president of SBBS Software & Consulting, a Glenview, Ill.-based solution provider that markets itself as a Dell Authorized Solution Provider.

On its Web page, Dell mentions a variety of program perks that include special point of purchase discounts, a dedicated Web site, dedicated sales teams, and a breadth of service and payment options.

"We are able to buy products at wholesale prices, and we don't have to call the regular retail number," said Gordon. "We have a specific group of sales reps that we deal with."

When questioned, though, company spokespeople reiterate that Dell is a direct sales company that does not offer any sort of channel programs to solution providers and VARs. The company does say that, although it does not actively pursue VAR customers, it will not turn away inbound sales requests.

"Dell does have the Dell Solution Provider Direct program, which is their VAR program, but they don't advertise it," confirms James Burley, president of Intech Computer Solutions (ICS), a reseller based in North Canton, Ohio.

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"There is no public loyalty program for the channel," confirms Christina Richmond, an IDC analyst covering hardware infrastructure channels and alliances. "There is no effort of any kind to create loyalty or work in a collaborative manner with partners."

Many solution providers hang their entire business on Dell and its products, however.

ICS, for example, uses Dell products exclusively for its customer base, which is made up primarily of customers with fewer than 100 PCs, Burley said.

EDS, meanwhile -- arguably one of the largest five solution providers in the country -- considers Dell one of its Agility Alliance partners, a group of nine select partners identified as the "go to" vendor for particular technology solutions.

In fact, Dell is the key provider of desktop computers, servers and associated peripherals for EDS, which spends approximately $400 million per year through Dell, according to Matt Trevorrow, vice president of workplace services in EDS Infrastructure Portfolio Development, in Plano, Texas.

"About 83% of all our deals over last two years have been with Dell on desktop," he said.

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Even in the absence of supporting programs, Dell product pricing makes the company attractive to the channel. "Dell offers margin, margin and margin," said Richmond.

Of course, in the hardware business, a slightly better margin can make all the difference. "We picked Dell specifically because of their price performance in the marketplace and their predictability," said Trevorrow. "Acquisition price is about 90% of the decision."

In addition Dell's direct-sale approach is one that many solution providers find they can fold into their business model. EDS, for example, partners closely with Dell, but encourages its customers to order directly from the computer maker.

"Historically, we used to run the hardware sales over our books but eventually realized, especially with the requirements of Sarbanes-Oxley, that it's not good for us to be in the resale hardware business," Tervorrow said. "It works out well with Dell because of how their supply chain is set up."

Dell's model allows it to deliver customer-configured solutions in as little as five days.

"With Dell, we don't have to send hardware to the depot and then configure it ourselves," Tervorrow said. "We can take an available system, configure it, enter a customer build and take advantage of customer services at the factory."

That's the model EDS used to fulfill a contract with the Navy Marine Corps Intranet (NMCI), which provides the Department of the Navy with network-based information services on a single, enterprise-wide intranet.

As part of its work, the NMCI organization sends each new Marine recruit a kit that includes a computer, a T-shirt and a class schedule prior to starting training.

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"It gives us a lot of freedom when we don't have to warehouse and depot all these products," Trevorrow said. "We don't tend to have that same feature characteristic with other manufacturers."

Solution providers also laud the long and clearly articulated product life cycles that help them plan with and for their clients.

"Dell stays with the same model for a minimum of eight years," said Trevorrow. "For customers who are refreshing systems every three years, it's good to know, for example, that the docking station and power plugs will stay the same. For us, it is a high value that over the life of the contract we can reduce the outlay on these items for our customers."

Electronic Vision Access Solutions (EVAS), which designs and manufactures computer access solutions for people who are visually, physically, hearing or learning disabled, also uses Dell hardware exclusively and depends on the company's commitment to a stable platform, said Gerald Swerdlick, chief executive of the Westerly, R.I.-based company.

"We ensure that the Dell Xtra Series Systems are manufactured to meet the technical requirements of Access Technology hardware and software," said Swerdlick. "By doing so, our customers are not subjected to the potential loss of compatibility that can occur in 'off-the-shelf' computers that are constantly changing to meet the needs of the marketplace."

Read more aboutDell's channel program and why the VARs work in it, despite Dell's love/hate relationship with resellers.

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