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Channel conflict looms as Dell's acquisition of MessageOne closes

The MessageOne acquisition will help Dell's push into SaaS but will also create more services competition with partners.

Now that Dell's acquisition of MessageOne, a Software as a Service (SaaS) vendor, has closed, some Dell partners foresee an increase in channel conflict.

The MessageOne platform, plus technology from Dell's acquisitions of Everdream, SilverBack Technologies and ASAP Software, will help Dell build up its data protection and systems management SaaS offerings. Dell's SaaS push creates another market where there will be channel conflict, an executive at one Dell partner said.

"There's a lot of challenges in dealing with Dell as a solution provider," said the partner, who spoke on the condition of anonymity.

The major problem, according to the partner, is that Dell wants its partners and customers to be exclusive to Dell. But Dell's direct sales representatives will cooperate with partners in some cases, and then turn around and create channel conflict when a customer wants to buy a different vendor's products.

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"You use Dell for a partnership when you have to, not because you want to," the partner said.

Greg Donovan, CEO and president of Alpheon Corp., a managed service provider (MSP) in Morrisville, N.C., said the Dell SaaS push isn't a fit for MSPs, but it could create channel conflict by bringing more reseller partners into the services market.

"Will that compete with myself and other MSPs? Yes," he said. "Am I afraid of it? No. There's plenty of business out there."

Dell just launched its first formal partner program in December, and its history of direct sales led to fears of channel conflict almost immediately. Adding SaaS could complicate things further. The biggest issue is the recurring revenue model, which does not fit how most partners do business -- or how vendors compensate them for that business.

"The whole challenge about how you compensate your channel for reselling Software as a Service is a work in progress," said Michael Speyer, a senior analyst for Forrester Research. "What incentive is there for the channel to sell SaaS if the dollars aren't there for them?"

In a February report, Speyer wrote that SaaS adoption among small and medium-sized businesses (SMBs) grew 58% from 2006 to 2007. Forrester has since published a follow-up report, predicting that SaaS adoption could double in 2008.

According to Donovan, SaaS makes sense for Dell because it lets the company get more into services without losing focus of its main business, hardware sales.

"It fits well into their overall strategy," he said. "They're going to leave a lot of the heavy lifting to their partner base."

A Dell executive was not available for comment.

The Dell acquisition of MessageOne was announced in February. MessageOne's founder is Adam Dell, Michael Dell's brother.

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