Dell’s Services Ambitions Makes VARs Nervous

Is Dell shooting itself in the channel foot with its services ambitions? A growing number of solution providers seem to think so.

After years of rejecting the channel and services, Dell is embracing both models in hopes of jumpstarting sales and reviving its market leadership position. The acquisitions of Everdream, Silverback and Equal Logic, as well as deep alliances with VMware and other software publishers is opening services opportunities previously unavailable to Dell and, in theory, its channel partners.

But solution providers are growing increasingly wary of Dell’s services ambitions because it is or could cut into their golden revenue stream – value-added deployment and configuration services. In fact, some solution providers are longing for the old days when Dell publicly ignored the channel.

It’s long been a fallacy that Dell hated and ignored the channel. Savvy solution providers would work on Dell’s periphery to recommend products to customers. Dell would drop ship product to customer sites and VARs would provide the installation, configuration and maintenance services. It was a wonderful arrangement since Dell recognized all of the product sales revenue, and solution providers would capture the margin-rich services revenue without the hassle of joining another vendor program, managing supply chains and inventory or dealing with distributors.

The glory days are over at Dell. As market share erodes in product segments that it previously dominated, Dell is turning to make services a part of its portfolio. That has many solution providers rethinking their position working with Dell and recommending Dell products. Several solution providers have said that they’re steering clear of Dell because they can’t take the chance of losing services business or the possibility of Dell hijacking its accounts.

It’s an interesting conundrum. A combination of market forces and channel pressure forced Dell to capitulate and join the channel community. In the two years since forming the formal channel program, Dell has signed more than 40,000 solution providers to its partner ranks and generated nearly $10 billion in revenue through partners. But was Dell better off when it was blissfully ignorant of the channel?

Dell has recruited much channel management talent, including Donna Troy (formerly of SAP) and Nancy Reynolds (Trend Micro, Palo Alto Networks), and gained channel savvy managers such as Peter Klanian (Silverback) through its acquisitions. Dell is working on optimizing its position on services, and it’s difficult to fathom that this bench of true channel-savvy managers could compromise the channel.

The real question is whether the fears of solution providers over Dell’s services have merit or if this is just another period of growing pains and partner adjustment to change?