A DELLicate Matter

After making his first public appearance at channel event since becoming the channel chief for Dell, Gregory Davis made it pretty clear that Dell intends to take a different tack than its direct competitors when it comes to approaching the channel.

Speaking at the Ziff Davis Enterprise Channel Summit in Chicago yesterday, Davis said that Dell’s approach to the channel would be centered on treating solution providers as IT extensions of the customers they serve rather than as extended sales representatives of Dell.

In that context, Davis said Dell will concentrate a lot more on lowering the cost of doing business for solution providers than they would on rewarding solution providers by giving them additional discounts on pricing or access to rebate programs that reward them on the back end for the number of units they sell.

In fact, Davis said Dell would pretty much eschew the attach rate approach that has become the hallmark of Hewlett-Packard in favor of a simplified approach to the channel that emphasizes product availability and flat pricing models designed to eliminate the amount of time it takes to get hardware into the hands of the actual customer.

From Dell’s perspective, solution providers should be a lot more concerned about getting hardware into the hands of customers than they are about product margins because it’s only when the hardware is delivered to the customer that solution providers can start billing for their higher margin services that their customers really value.

Make no mistake: Solution providers still need to be wary because Dell has made no secret of its ambition to create a product model around services that will ultimately drive pricing for services down the same way we’ve seen margins erode around hardware. For evidence of that, all you have to do is look at Dell’s nascent effort to sell managed services around Vista and its recent move to acquire Silverback, a provider of managed services that can be resold by solution providers. And after losing millions of dollars in deals to Dell over the last two decades, it’s more than understandable that a lot of solution providers are not inclined to do business with Dell.

But on a practical level, hardware is often a means to an end so if rival vendors are unable to deliver a product in a timely manner or more often simply too late in responding to a competitive bidding process, Dell quite often becomes the path of least resistance for a lot of solution providers.

Naturally, Dell still has a lot to prove when it comes to being credible in the channel, especially when it comes time to sort out who owns a deal the first time the Dell direct sales force undercuts a channel partner. But the folks from Dell are far from stupid, so even a long time direct seller of product can figure out that undercutting its partners’ pricing only serves to lower margins for everybody. The real question will be whether Dell can retrain its sales force to work with rather than around partners after two decades of preaching a mantra that told customers in unequivocal terms that they simply didn’t need a third-party solution provider to buy hardware.

Ultimately, solution providers will have to decide for themselves about partnering with Dell, but you can hear for yourself what Davis has to say about Dell in the channel by registering for the Ziff-Davis Channel Summit Virtual Trade Show.