At the Dell EMC World 2017 conference this week, Dell EMC launched three programs that alter the way IT organizations will potentially pay for tech infrastructure, and that could have profound implications for channel partners.
Under the company’s new Cloud Flex for Hyperconverged Infrastructure (HCI) program, IT organizations can now opt to pay for tech infrastructure monthly, instead of having to allocate capital upfront to acquire HCI appliances and servers. This option is similar to how IT organizations invoke infrastructure-as-a-service (IaaS) resources on demand. Dell EMC plans to extend that program out to larger rack-based systems later this year.
At the same time, Dell EMC is also implementing a Flex on Demand option that allows organizations to pay for storage systems only when they come on line. Historically, most organizations have been required to pay for storage systems upfront. The Flex on Demand option allows them to hold those payments until storage capacity is consumed.
In addition, Dell Technologies, the parent company of Dell EMC, has added a service model to PCs via the Dell PC-as-a-service option. With this program, IT organizations can manage and secure PC hardware, software and the services tied to them as an operational expense. Under the terms of this program, organizations can upgrade their PC hardware and software multiple times over a multiyear period.
Finally, Dell EMC also announced it is making the Virtustream cloud service operated by its sister company a part of the Dell EMC channel program.
Altering the Balance Sheets of Solution Providers
Collectively, these changes could dramatically alter the balance sheets of solution providers. Many smaller partners are especially dependent on upfront payments from customers to fund their operations.
To mitigate that issue, Dell EMC will give partners up front 50 percent of the profit margin that will be generated when a customer employs Cloud Flex or Flex on Demand. However, the customer is under no obligation to complete the transaction. At the end of the first year of the contact, Dell EMC will allow customers to either return the equipment or upgrade to the next generation of Dell EMC offerings. If they upgrade, margins for the partners on that deal will increase.
The tradeoff is that the revenue attached to Cloud Flex gets attributed directly to Dell EMC versus the partner. In effect, it turns smaller solution providers into agents rather than resellers.
Because Dell EMC has insights into what next-generation technologies will become available, the company has more confidence in being able to profitably deliver IT as a service, said John Byrne, president of global channels for Dell EMC.
“We see that as the benefit of being the only provider of IT that can offer systems on an end-to-end basis, from the PC to the server,” said Byrne.
The move to give partners access to 50 percent of the profit attached to those deals is intended to protect smaller partners that depend on the money to fund their operations, said Diane Krakora, CEO of PartnerPath, a channel consulting partner. “It’s about motivating the smaller partners,” she said.
While so-called “lifestyle VARs” don’t generate a lot of revenue annually, they are important to vendors because there are so many of them that they make up a substantial portion of the channel, explained Steve White, an industry analyst for International Data Corp. By arming those partners with a financial model that makes moving application workloads to a public cloud less economically attractive, those partners can compete more effectively. “It’s about protecting the lifestyle VAR,” he said.
However, it’s still not clear how many customers will avail themselves of this option, or, for that matter, if other vendors or distributors will come up with similar programs.
In the meantime, the merger of Dell EMC continues to be a work in progress. Howard Elias, president of Dell EMC Services and IT, revealed that in the coming months, Dell EMC plans to unify large swaths of its service portfolio.
As that process occurs, partners will have to navigate when they opt to resell services provided by Dell EMC versus developing their own services portfolio. Those services should be easier to sell if there a fewer of them that customers need to understand, said Elias.
Obviously, Dell EMC deserves credit for being willing to experiment with new business models—ones that it probably would not have attempted as a public company. The question now is, to what degree will those moves ripple across the rest of the channel?