Dell's Secret Reseller Channel

By John G. Spooner  |  Posted 2006-05-11 Email Print this article Print

Customer pressure is driving more resellers to work with direct-market giant Dell, and Dell is making it easy for them. But don't tell Wall Street.

Dell and the channel are secretly growing fond of each other.

More and more VARs (value-added resellers), indifferent to shrinking hardware margins and prodded by price-sensitive customers, say they are buying Dell computers for their clients.

The Round Rock, Texas, PC maker embraced resellers by granting them visits from account representatives, sales support and even hardware discounts, VARs say.

That Dell is seemingly growing fonder of the channel should be no surprise. Some industry insiders estimate that 20 percent or more of Dell's revenue is derived from the channel. VARs offer the PC maker incremental business opportunities, which it might not have been able to win on its own. The company can also fill those orders using its traditional direct-sales mechanisms to provide hardware to the VARs at a time when it is wrestling with slowing unit shipment gains—and PC market growth itself is slowing, according to analysts and Intel—while it sees tougher competition from rivals Hewlett-Packard and Lenovo Group.

Still, "they'll never admit it or make [the channel] a formal program," said one analyst who asked not to be identified. "If you look at Dell's stock versus HP's, part of the difference has to do with Dell's reputation for owning the customer. There's a sense they own the entire margin and have higher profits because they sell directly. It makes them appear more valuable to Wall Street."

Dell lowers its forecast as it cuts prices. Click here to read more.

But more and more VARs say they are selling Dell's portfolio as their customers seek savings on hardware. They say that Dell is treating them to discounts equal to its competitors, usually between 1 and 4 percent. Those surveyed by eWEEK expect the trend to continue, particularly since Dell needs to find a way to keep growing. Dell announced May 8 that it will miss Wall Street forecasts with first-quarter revenue of $14.2 billion and earnings of 33 cents a share. Dell had projected revenue between $14.2 billion and $14.6 billion and earnings ranging from 36 cents a share to 38 cents.

"I think they are recognizing that the channel is the best leverage into the market," said MJ Shoer, president of Jenaly Technology Group, of Portsmouth, N.H., a reseller serving SMBs (small and midsize businesses) in the New England area.

"They're great at getting into NASA and Boeing, but they're not so good at reaching the CPA firms and law firms where so much opportunity lies. … It's more efficient for them to send a representative to meet with me a few times a year and let us reach hundreds of customers every day."

Shoer said he now has regular contact with Dell sales personnel and presales help arranging specifications and quotes.

Dell representatives would not confirm any arrangement with individual VARs, saying only that the company does not differentiate between customers and resellers. When asked about the company's sales strategy, Dell spokespeople did not have an immediate comment.

The Dell Solution Provider Direct program, launched in August 2002, provides volume discounts, but claims to be primarily a streamlined source of Dell product, leaving time and energy for "high-margin value-add activities," according to Dell.

It sounds a lot like a channel program.

Dell further claims not to pursue VAR customers for direct sales, but will not turn away inbound requests.

John G. Spooner John G. Spooner, a senior writer for eWeek, chronicles the PC industry, in addition to covering semiconductors and, on occasion, automotive technology. Prior to joining eWeek in 2005, Mr. Spooner spent more than four years as a staff writer for CNET, where he covered computer hardware. He has also worked as a staff writer for ZDNET News.

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