Rethinking the Direct-Only Model

By Jessica Davis  |  Print this article Print

The OEM taps new technology and strategies to right itself, but challenges remain.

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."

Jessica Davis covers the channel for eWeek and Channel Insider. Her technology journalism career began well before anyone heard of the World Wide Web and has included stints at Infoworld, Electronic News/EDN, and the Philadelphia Business Journal. Her work has also appeared on CNN and Forbes.com. She has covered hardware, software and networking, as well as the business side of technology. She has won several journalism awards, including a national ASBPE award for best staff-written column, and was named Marketing Computers hardest working tech journalist on their inaugural list of top tech journalists. Jessica can be reached at jessica.davis@ziffdavisenterprise.com

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