Dell Re-Architects PartnerDirect – Going Against The Stream

Dell Partner Highlights

• Adds Premier to (renamed) Preferred and Registered Partner Types
• Certifies according to revenue and training achieved
• Is experiencing a big move to indirect distribution in its Enterprise business
• Has far less indirect distribution in its Client Business
• Dell’s is a countervailing movement in a market becoming more direct
• Important questions about channels and Cloud Computing remain
• The number of sales leads and the consistency of its channel programmes will define its success

Dell Is Seeing Strong Indirect Growth In Its Enterprise Business

Dell announced today that it is re-architecting its PartnerDirect channel programme – adding a new top layer to its existing two and clarifying the various certifications and incentives. It should allow Dell to expand its business with larger customers, although it is no doubt also fixing some internal issues in the changes it’s making. Its classification of resellers is based on the revenue they bring in and the level of training they commit to and achieve.
Dell launched the original channel approach back in December 2007 and has seen strong increases in its indirect business in the Enterprise area as a result. In fact Paul Shafer in our advance briefing on today’s launch indicated that 25% of Dell’s commercial business had been through indirect channels – up from 16% two years earlier. His group aims to grow at twice the market rate and at twice Dell’s direct revenues. We believe resellers are particularly strong in the systems storage area. He reports indirect business being involved in between 1,200 and 1,500 deal opportunities per week in North America, of which it wins about 70% and 1,100 to 1,500 leads a week in Europe. Dell actually sells exclusively through the channel in some Eastern European countries of course.

Dell Is Shifting To Indirect Business Against A Market Moving Slowly To Direct

The ITCandor Market Model includes channel breaks, so we thought you might like to see where Dell stands and what trends we see in the data. The statistics covered here includes all ITC hardware – mobile phones as well as PCs, for instance. Despite increasing its indirect business Dell still has less than the other vendors in general: hence, while its market share of direct business places it second place, it was in 20^th position with a 0.9% share of the indirect revenues (see Figure 1). Over all we believe 12% of Dell’s revenues came through indirect in calendar 2010, compared with 100% for Samsung and 70% for HP for instance.
Dell’s moves to increase revenues from indirect channels are countervailing in a market moving slowly towards direct selling. At the moment vendor direct Internet sales are growing more than traditional direct outbound techniques. However, as vendors become more vertically integrated – bundling hardware with software and services into ‘solutions’ – so contract values and direct sales are highly likely to increase. Figure 2 shows the quarterly development of ITC revenues from direct and indirect channels from the beginning of 2003 to the end of 2010.

A Rising Tide Lifts All Boats – And Visa Versa

I remember Robert Youngjohns at Sun describing the dramatic fall in business levels in April 2001 – Sun lowered its expectations and the resellers came back with even lower forecasts. It was a clear commentary on the start of a two-year downturn in which all vendors suffered. The most important lesson learnt was that customer spending, not indirect or direct sales teams, drive the market. In fact there is perhaps less differences in growth by channel than you might expect. In Figure 3 we show the revenue growth attained through each of the five types of channel we calculate each quarter. We’ve included OEM business here, although not in Figures 1 and 2. The strong growth of OEM business is most notable – caused partially by Dell’s own decision to off-load its PC manufacturing we believe.

Cloud Computing And The Channel Is ‘A Big Bear’

Paul indicated that there are two types of services Dell’s partners offer. In particular:

• Their own professional services which they either sell themselves, or included on ‘Dell paper’
• Dell’s technical support services; approximately 20% of Client, 50% of Enterprise overall and 90% of storage systems contracts include Dell Pro Support, for instance

He also recognised that there is a lot at stake in terms of channel participation in Cloud Computing, describing the issue as ‘a big bear we’re grappling with’. He sees the large resellers (with revenues sometimes as high as $1.5b to $4b) investing in their own data centres – as Dell has done itself recently.
We believe that, if managed poorly, there could be troubled times ahead for many vendors. Smaller managed services companies are particularly vulnerable to moves by large systems and public Cloud providers to offering Cloud services from national data centres. For the moment however many of our channel contacts say that the Cloud is not yet high on SME agendas, but don’t hold you breath for long.
Dell will be helped by its constant dialog through its Solution Clubs and perhaps even by the smaller number of partners, but will need to identify when and where to ‘work with’ the channel in the Cloud Computing area, especially as European Telecoms suppliers enter the market in Europe for instance. How it defines and plays in the ‘aggregator channel’ will be important.
It will be launching a new Cloud Certification in the second half of this year – which will need to combine third-party software from Citrix, Microsoft, VMware and others along side Dell’s portfolio. It also sees its newly announced Vstart bundle as a channel play, although like other quasi-appliance plays it may wrong foot those partners who specialise in building solutions themselves.

Some Conclusions – A Less Antagonistic Channel, But The Normal Rules Apply

A few years’ ago I remember being loudly booed for mentioning at a Tech Data event that I had come straight from a Dell conference. Recently I’ve met a couple of resellers who work happily with Dell, although they tend to value the better consistency of its product than the size of the hardware margins it gives. Paul mentioned that Dell tends to ‘configure to order’ more than its competitors who offer fixed configurations and is proud on the awards it’s won from CRN and others: hardly surprisingly he wouldn’t be drawn on whether Dell offers less margin than its competitors.
Despite the constant debate on the channel’s ‘value add’, the threat of digitisation to specialist in physical logistics, we believe that Dell’s continued success will be dependent on the quality of products it designs, the sales leads it brings to its partners and the consistency of its channel programmes.
By adding a new top layer it’s extending its reach through key players, which we believe will be important as we move towards ‘aggregator’ channels.
The channel is changing. We believe it is less antagonistic towards Dell. Time will see whether through careful management it can extend its business through today’s announcements. We can see it growing the proportion of its revenues through indirect channels growing to 35% by 2012 if it’s successful.