Direct Is Not Religion, Says Dell

By Michael Vizard  |  Posted 2007-04-30 Email Print this article Print

Opinion: Direct is not religion at Dell, and the PC maker will consider whatever route to market best serves the customer, said Chairman and CEO Michael Dell in a memo to employees.

It's a pretty amazing thing when Michael Dell begins circulating an internal company memo that encourages employees to rethink the company's strategy to the point where Dell may even embrace the channel. For those of you who didn't get the memo, Michael Dell told his company's employees that the direct sales model is not a religion and the company should think about multiple routes to market.

As little as three years ago, that kind of statement from anyone at Dell would have been tantamount to treason followed by a quick summary execution without trial. So the question that the Michael Dell statement raises is, What has changed in the marketplace that is driving Dell to rethink its strategy?

The first answer to that question has to do more with the economy as a whole. The fact of the matter is that in an up economy, customers are a whole lot less acquisition-price sensitive. That means they are not willing to trade off superior service and product quality to get a better deal.

The second thing that has changed is that Hewlett-Packard and others have become a lot better at responding to the competitive threat that Dell posed. For instance, HP does a lot better job of having product available, is willing to match Dell on just about every pricing front and enjoys a better service reputation. All three of those things tend to make end users a lot more comfortable with HP today than they were three years ago.

But the one thing that most analysts won't give the channel credit for is how solution providers have evolved their business practices to keep Dell out of the deal in the first place. A few years back Dell spent most of its time convincing purchasing managers that PCs were just another commodity widget that could be purchased solely on price. A few support gaffes on Dell's part have proved that wrong, but solution providers have also been doing a lot better job of keeping the hardware sale wrapped up inside the total solution. That means the hardware sale is not carved out of the overall solution as much as it once was because the solutions being sold through the channel are a lot more complex today than they were yesterday. That means that the hardware is more tightly bound to the solution, which in turn makes it more difficult for Dell to appeal to the purchasing department to win deals.

Of course, the inconvenient truth for Dell is that it already does a lot of business through solution providers, who when push comes to shove will sometimes order Dell under the name of the end customer in return for a modest margin. There's a lot more of this going on than Dell has historically liked to acknowledge for fear of driving its stock down by opening the Dell business model to questions about its mythical superiority over indirect.

In fact, a suspicious mind might wonder if Dell is simply dropping this hint as part of a cynical move to bolster the company's stock price now that Wall Street is beginning to ask some difficult questions about the direct-versus-indirect sales model.

We'll probably never know the answer to that question for certain, and it's still too early to say whether solution providers in the channel would actually embrace Dell as a trusted partner. But the one thing that is certain is that the doubts about the channel's ability to provide vendors with a profitable business model should be put to bed now once and forever.

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