Dell Shuts Down White-Box Channel Effort

By Pedro Pereira  |  Posted 2005-03-17 Email Print this article Print
 
 
 
 
 
 
 

Sources say the company has had trouble signing up VARs because of a lack of trust, while Dell says customers simply prefer to buy its own brand.

Dell has pulled the plug on a program to sell unbranded desktop PCs through channel partners. The company said customers prefer to buy the Dell brand.

But channel sources interviewed by The Channel Insider said Dell Inc. had trouble signing up VARs for the program, which kicked off in August 2002, because they don't trust Dell.

The Round Rock, Texas, vendor's highly aggressive direct-sales business model has raised hackles in the VAR community, which has had to compete with Dell's highly successful, price-competitive approach.

"Dell and resellers have a fairly adversarial relationship," said Darren McBride, president of Sierra Computers Ltd., based in Reno, Nev.

Dell, however, is positioning its departure from the unbranded-systems market as a product end-of-life issue. Dell was selling the unbranded desktop PCs, or white boxes, to resellers through its Solution Provider Direct program, but found that the solution providers would rather sell Dell-branded products, company spokesperson Roe Thiessen said.

"This shows that we can explore different channels and meet customer demand. Our brand still works and still resonates well," Thiessen said.

She declined to specify how many solution providers the vendor had signed up to sell unbranded systems.

Bill Hook, president of Keystone Computer LLC, based in Dubois, Pa., said he always viewed Dell's unbranded system initiative as a ploy to take market share away from small systems builders such as himself.

But, he said, what Dell may not have counted on is that small, locally based systems builders have nurtured long relationships with customers who trust their recommendations and enjoy face-to-face contact.

"People that I talk to generally don't buy the Dell after they talk to me," Hook said.

Bob Parsons, president of Automated Office Solutions, based in Evansville, Ind., also stressed the importance of relationships and face-to-face contact.

"It's a lot easier to drag me into your office because the system didn't work than it is to find a mail-order guy," Parsons said. "I've been in the business for 20 years. I have earned the trust from my customers."

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Thiessen, however, said Dell has plenty of face-to-face contact with customers who want it. "We have a tremendous amount of contact with SMB [small and midsized business] customers. We're the No. 1 provider of information technology to this market," she said.

Geno Marcoux, vice president and general manager of components at distributor Ingram Micro, based in Santa Ana, Calif., said manufacturers cannot compete with VARs on value, even if the manufacturer offers lower prices.

"Although a manufacturer may have the best sticker [price], there's more to end-user relationships than just pricing. Service and support, especially when it comes to total, multivendor solutions, are critical points of value that VARs deliver better than most manufacturers," Marcoux said.

He speculated that Dell didn't get enough volume with the unbranded systems and decided to reallocate resources back to the branded lines.

VARs and system builders said that even if they wanted to sell the Dell desktops, they didn't see enough profit in it. Profit margins were low on both lines of products, and the price differential between the white boxes and Dell-branded systems was negligible.

McBride said he can sell custom-built machines at margins of 15 percent to 20 percent, while the unbranded Dell PCs had margins of only about six points.

Dell's Thiessen said the company looks for channel partners who can add value beyond the cost and profit margin on the box, by building or adding software, and through services such as network installations.

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