A New Dell Direction: Is It the Right Course? - Rethinking the Direct-Only Model
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All
this comes as Dell might make the most dramatic change of all:
rethinking the direct-sales-only model. In a memo written to employees
that found its way into reporters hands, Michael Dell and his new
management team hinted the company had reached a crossroads. "The
direct-sales model has been a revolution, but it is not a religion,"
Dell wrote.
FoxHollows Miller said he supports the direct-sales approach
and Dells ability to deliver products at a good price. Its not a
well-kept secret that Dell already has a channel program. The company
formed its Solution Partner Direct program about two years ago and has
been actively recruiting channel partners since that time.
Many solution providers already do business with Dell, although
few talk about it publicly. Some say their customers are often the
impetus behind Dell deals. The customers believe they are getting a
better deal with Dells lower prices, so the VAR ends up dealing with
Dell. But the VAR ends up picking up the pieces when customers deal
with what many say is Dells abysmal level of customer service.
One VAR who deals with large customers said Dell has stepped up
its recruitment efforts in the last few months. The VAR, who asked not
to be identified, said the leaked memo from Michael Dell actually
trailed such channel sales efforts, which were well under way.
However, just the idea of Dell creating and publicizing a
solution provider channel raised the ire of some VARs, who questioned
whether resellers could ever trust a company they say undercuts them.
"No matter how many times a wolf tells you its going to be a
nice sheep, its still a wolf," said Tony Stirk, president of Iron
Horse, a Springfield, Va., VAR. However, Stirk said he still thinks
there are ways to work with a company such as Dell. "Some of us couldnt
care less if we got to do the installation and service work," he said.
Non-VAR observers say Dells efforts to fix itself must go
deeper than just the channel. Known primarily as a PC maker, Dell has
found itself in a market with razor-thin margins. While rival systems
makers such as HP play big in other spaces, such as servers and
storage, Dell has remained primarily a PC business.
Indeed, Michael Dells leaked memo mentions that the company is
looking at the data center as a source of diversification, although
some industry observers, who requested anonymity, said Dells expertise
beyond the PC is nonexistent. If it wants to be in the data center,
Dell may find itself as a reseller of someone elses technology, or it
may need to acquire another company that plays in that space, they
said.
Dells strength has not been technology innovation. For example,
the companys R&D budget for the fiscal year ended Feb. 3, 2006, was
just 0.8 percent of revenues. As with other systems companies, that
number was lower than in previous years. That is in contrast to HPs
R&D budget, which was 3.9 percent of revenue for the fiscal year
ended Oct. 31, 2006.
"Dells approach to innovation has been a market leadership
position. ... Weve chosen to deliver in terms of innovation using a
different model than the rest of the industry," Kettler said.
Lew Moorman, senior vice president of strategy and corporate
development at Rackspace, in San Antonio, said he is interested in what
Dell will do to innovate, since the company has lagged behind HP in
R&D. Still, the changes Dell is undergoing show that the company
can rebound, Moorman said. "It shows at least that there are no more
sacred cows over there anymore," Moorman said. "I think Dell has really
incredible ideas, and Michael Dell and his new team seem to be looking
at some fresh ideas and a new perspective."
