As Dell Turns to Channel, Missteps Are a Near Certainty

For a company that built a business model around disdaining the channel, Dell sure gets a lot of attention in the channel. And that is only about to intensify as the vendor changes its public attitude toward VARs, integrators and service providers.

As widely reported, after years of pretending it wanted nothing to do with the channel, direct-selling Dell finally has acknowledged that it does about $4 billion of business annually through channel partners, and the company is looking to launch a formal partner program by year’s end.

The vendor’s moves come as IT distributors, with which Dell’s own logistics apparatus competes, take steps to make their businesses more service oriented.

Ingram Micro, the world’s largest IT distributor, on June 5 launched a high-end blade server and networked storage division. Ingram Micro’s main rival, Tech Data, opened a similar division back in January.

Distributors recognize that simply stocking and moving product, while important and is what they do best, falls short of fully attending to the needs of the VARs, integrators and services providers that buy those products from them. So the distributors have been looking for ways to become more relevant to their constituency by developing the ability to steer their customers—the VARs, integrators and service providers—through a solution sale, in addition to selling products.

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When a customer calls Ingram Micro or Tech Data to order a blade server, presumably the distributor’s rep has the know-how to walk the caller through other products, components and accessories that might be needed to round out the server’s deployment.

In addition, the distributors are putting in place more engineering personnel that guide solution providers through implementations and other services. It’s an approach that other distributors with a more technical bent, such as Avnet and its recently acquired Access Distribution, have employed through the years.

It is no wonder, then, that as Dell looks to become more channel-oriented, the vendor is eyeing acquisitions of service companies. Dell sees a “huge opportunity” in services, as its services business grows faster than its sales of computer products, said CEO Michael Dell.

In addition to acquisitions, the vendor also will seek partnerships as it vies to become a more service-focused organization. Of course, seeking partnerships would go hand in hand with launching a formal channel program.

What will likely get tricky for Dell, and potentially undermine its channel plans, is the acquisitions piece. It’s true that it has become somewhat fashionable for vendors to acquire service companies to boost their own offerings. And it’s also true that even the most channel-friendly companies, such as IBM and Hewlett-Packard, have sizable services organizations.

What makes it tricky for Dell is that a lot of this is new to the vendor. Dell already faces an uphill battle with a large contingent of the channel as it presumably seeks to recruit partners under a formal channel program. If by expanding its services business, the vendor is careless about separating what business belongs to partners and which accounts it will handle directly, it won’t be long before complaints over channel conflict start.

And since Dell handles its own distribution, as opposed to working with companies such as Ingram Micro and Tech Data to deliver its branded product, the vendor has to be especially careful.

It’s not enough to say, ‘We’re now ready to acknowledge and work formally with the channel.’ It won’t happen magically. A lot of hard work and delicate balancing of priorities and relationships lie ahead for the vendor that so often boasted of better pricing because it cut the out the middleman, i.e., the channel.

Missteps are a near certainty. The test will be how quickly and effectively Dell corrects them.

Pedro Pereira is editor of eWEEK Strategic Partner and a contributing editor for The Channel Insider. He can be reached at ppereira@ziffdavis.com.