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An year after Dell began its honeymoon with channels, we analyze how its strategy has fared
By Dhaval Valia
Early last year, when Michael Dell announced his company’s intentions to work with channels, it was received with lot of skepticism. Many analysts reasoned that the direct seller was trying to woo channels in the light of its waning PC market leadership. The company had posted three straight quarters of negative growth and in the process, acceded market leadership to rival HP. Many even suggested that Dell’s sudden inclination to work with channels was nothing but a streak of opportunism that would be short-lived. 
But since, Dell has surprised many by the vigor with which it has pursued its intentions of working with channels. In just over a year, since Michael Dell’s famous admission, the PC-major has added over 3,500 partners around the world and its channel business is on a $12 billion run rate, a significant fifth of its total revenues.
In India too, the company has been on an aggressive drive to woo channels. While the company began working with partners from mid-2007, it formally launched its channel program only in the first quarter of 2008. In February, Dell India formally rolled out its in-direct retail strategy by partnering with Croma and announcing the retail partner program; and in April, it rolled out the partner program for the SMB and commercial segment called PartnerDirect.
Already, Dell India’s fortunes have been on a rise. It posted Rs 3,500 crore in topline in 2007 compared to Rs 1,800 crore a year ago. In JFM 2008, the company has done even better, posting a unit shipment growth of 99 percent at a time when the overall market grew by a just over 10 percent, according to IDC research.
“While it’s too early to factor channel contribution to the business, it’s been a great quarter for us. Our overall PC market share rose to 7.2 percent from 4.2 percent in the same quarter last year. According to IDC, we have advanced from fourth rank to third in terms of market share. With the kick off of our channel strategy from February we expect significant growth,” said Rajiv Ahuja, Director, Communications for Dell Asia Pacific.
Retail going strong
Dell’s retail business has been a standout success during the first quarter of calendar 2008. “We rolled out our consumer channel program in February 2008 and in just two months have managed to increase our market share in consumer notebook space from 4 to 9 percent as per IDC Q1 2008 figures. That amounts to Y-O-Y quarterly growth of over 500 percent against the industry average of 141 percent. In consumer desktops, our market share rose from 2 percent to 4 percent during the period,” said Mahesh Bhalla, Director, Consumer Sales, Dell India. The company has signed up with more than 20 regional distributors and has activated 1,000 resellers through them.
“We started Dell business in March and since have been clocking 30 percent month-on-month growth. In the first month we sold 150 units, mostly laptops and in May and June we have achieved an average monthly rate of 350 units. Our aim is to take it up to 500 units within the next quarter,” says Hemant Shah, CEO, Care Office, regional distributor for Dell consumer products in Gujarat.
Sogo Computers, Dell’s regional distributor in Karnataka too has witnessed 25 percent M-O-M growth since its tie-up. “Our Dell sales over the quarter have grown much faster than that of the other consumer PC brands we re-distribute. We are seeing a lot of interest for Dell among channels,” says Dinesh Nair, General Manager, Sogo Computers.
According to Shah what will help Dell further its market share in retail is the addition of new models in the lower price range. “Gujarat consumes an average of 4,000 consumer notebooks monthly. So far, Dell had models that only addressed half of this market. For instance, HP-Compaq has Celeron M and Linux-loaded models at the lower end of the market, which were absent from Dell. But from June, the vendor has introduced a Linux-loaded model and this would widen their market addressability,” opines Shah.
Many MSAs believe that Dell could end the year with at least 25 percent market share in the consumer laptop space taking the number 2 spot. “Dell is stealing market share from all vendors including HP. Simply going by the current numbers, Dell is very likely to overtake Lenovo and Acer to emerge as the second largest consumer laptop brand in the country by end of this year,” believes Shah.
This success has come despite of Dell not providing credit to its regional distributors for stocking products, in contrast to its competitors. Regional distributors say that lack of credit from Dell is not an issue. “We aren’t particularly bothered with Dell’s no-credit policy. The fact, that there is only one distributor per region, gives ample opportunity to earn good margins as there is no price undercutting. Also, Dell has a price advantage of at least 10 percent vis-à-vis competition, which makes it attractive for customers and the margins, we earn on Dell, compensate for the working capital costs,” opines Nair of Sogo.
Even non-Dell partners grudgingly admit Dell’s growing presence. “The key factor helping Dell is novelty. The fact that it has been absent from channels and suddenly there is availability of an alternative product has excited many in channels and end-users. Many resellers have started selling Dell as they find HP and Lenovo over distributed. Their onsite warranty policy is also emerging as a strong differentiator. Particularly, in the student segment in Kerala, Dell has cornered a substantial share at the expense of HP and Lenovo,” admits Faizal A, Director of Kochi-based Aldous Glare, a HP and Lenovo sub-distributor.
Despite a good show in retail, Dell has had its share of problems. Just last fortnight, its distributor for Kerala, Positive Systems snapped ties citing lack of consistency in policy and delays in rebate payments. “When we signed up with Dell in April, they had a policy of zero inventory. But suddenly a month ago, they began demanding that MSAs stock-and-sell. While we had no issues with stock-and-sell, Dell refused to give us any credit and also denied price protection on stocks,” informs MP Sampath Kumar, CEO, Positive Systems.
Positive, who is a sub-distributor for Acer and HP, also alleges, “In addition they have set a steep target of 20 percent month-on-month growth. Achieving such a steep target is tough as we have to also maintain relationships with other PC vendors.”
Sameer Garde, Country General Manager, Dell India however believes, “We are still evolving our channel model in the country and there would be some trial and error. Its not fair to judge our performance based on one or two cases. What’s important is to take learnings from every challenge faced and ensure we better our channel engagement.”
Slow start in SMB
While Dell progress in retail has been noteworthy, the going has been slow on the SMB front. Signing up partners has been its biggest challenge as many solution providers aren’t convinced about Dell’s long-term channel strategy.
“Dell has approached us on several occasions, but we refused due to lack of clarity in their channel policy. Their strategy is very Dell-centric with minimal partner focus. Their list of direct accounts is so large that it leaves no room for partners,” says Suresh H R, Director, Central Data Systems.
Chetan Shah, CEO of Mumbai-based Xpress Computers also feels the same. “From whatever little I have learnt of their program, Dell doesn’t have any long term goals for channels. They want partners only as point-of-sale, and as they provide direct support, we see no real benefit of aligning with them,” opines Shah. Even those who have signed up for PartnerDirect program are looking at Dell to generate incremental business. Vadodara-based Informatics Technologies, an HP premier partner for eight years, who has signed up with Dell says, “While my core business will continue to be driven by HP, Dell partnership gives me an opportunity to tap business that isn’t presently addressed by us. We could have signed up with Lenovo or Acer as well, but they have too many partners running after the same opportunities. So I chose Dell as it has limited partners and better margins,” says Uma Mahesh, CEO, Informatics Technologies.
Informatics has done Rs 50 lakh of Dell business since April. “All of it has come from new accounts and not at the cost of existing HP business. Mostly, we have sold Dell to IBM and Acer customers but there have been a few HP accounts—managed by other HP partners—that we have targeted,” he elaborates.
According to Mahesh, there is nothing new in Dell’s channel program that other vendors don’t have, except that, it has a better margin structure and less number of partners. “Their credit norms, pricing support, customer and deal registration, every thing is similar to what other vendors offer. What works in their favor is that they have limited partners, unlike HP for instance which has so many partners that almost every big customer account in Baroda is mapped to one of them. Where is the opportunity to grow?” he questions. He further adds, “It could turn out to be the same with Dell once they gain market share. But till then, we see benefits in partnering with them.”
Bangalore-based Caddons Systems, a Lenovo business partner also has partnered Dell for incremental growth opportunities. “We wanted to add a second brand to our portfolio apart from IBM and Lenovo. We didn’t want to touch HP as they have too many partners. Acer isn’t as strong in the customer segments we address. Dell seemed to be the right fit as the second brand,” says P Govindraj, CEO, Caddons Systems.
Govindraj also believes that Dell has an advantage over HP and Acer in the SMB space. He says,“They have at least a 10 percent price advantage over competition and their onsite warranty support is a strong differentiator with small businesses.”
However the price advantage would be substantially eroded as according to a few partners, Dell is planning to add one more layer to the PartnerDirect program. “In Vadodara they have signed up with Rhythm Electronics as their volume partner to stock SMB products, which could potentially increase the markup on Dell products,” said Uma Mahesh.
Mumbai-based sub-distributor, Triune Marketing is another sub-distributor who has partnered with Dell. “So far we haven’t been assigned the volume partner tag but we sell to both resellers and small businesses. From a billing of Rs 15 lakh in April, we are currently doing a monthly average of Rs 35 lakh. We have told Dell that we could bill Rs 1 crore if allowed to stock,” reveals Mridul Desai, CEO, Triune Marketing.
“Dell’s advantage lies in its pricing and onsite warranty. Also, Dell is ahead of competition in bringing new technology due to its BTO model. However, the biggest downside is the delivery time taken by the online ordering mechanism. While on paper, Dell claims 5-day delivery, it usually takes 10 days from the time the order is processed and hence we have been emphasizing on stock-and-sell,” Desai opines.
Despite delivery issues, Desai feels, “Some of the processes Dell has are really good. Other vendors need to learn from them. The purchase mechanism is smooth; their delivery mechanism though delayed is good. Customers and channels get information on the delivery status of their products. The follow up with customers and channels is also good. They also have a good deal registration mechanism wherein once you log in deals, Dell will not go direct or support any other partner,” says Desai.
Enterprise Pangs
It’s in the enterprise space where Dell faces the toughest challenge convincing channels. Many channel partners also contend that Dell doesn’t have a strong products story in the mid-market and enterprise space.
“Dell seems very keen in making their channel story fly in the enterprise space; however it faces a strong perception issue. Enterprise customers don’t believe Dell has a strong server and storage portfolio. From a partner viewpoint, there is a lot of hesitation in working with Dell as they have a strong direct model. However, they have made good progress in the volume space. They are very aggressive, competitive and good at executing large volume deals,” says Durganadh Venkata, VP, Locuz Enterprise Solutions, a Hyderabad-based system integrator.
But having said that Durganadh admits his company has a transactional relationship with Dell. “We already have a working model with the company for transactions where we feel customer has a strong customer preference for Dell,” he adds.
Also unlike retail and SMB, Dell doesn’t have any significant price differential to offer over its competitors. “In large enterprise deals, all companies are capable of coming up with a winning price, depending on how focused they are on a specific opportunity,” says Durganadh.
Agrees D Chandra Sekar, Director of Delhi-based PC Solutions, “I haven’t lost any large deal to Dell on pricing. It used to happen a year ago when Dell quoted below-cost prices for strategic accounts. However, over the past one year both HP and IBM have become price competitive and have demonstrated the willingness to take Dell head on.”
Chandra Shekar adds, “Dell has been pursuing us to become their partner for the last one-and-a-half year. But we don’t really see the need to sign up with them as we are happy with our partnership with HP and IBM. Also, we are increasingly moving away from hardware-based transactions to providing complete solutions, so adding another box brand doesn’t really help.”
But then there are some system integrators who are closely looking at what Dell has to offer. “We have been in touch with Dell and are discussing the details of their channel program. Dell has a very strong presence in BPO and education sector and we believe partnering with them could serve as an entry point for us in these segments,” says Neel Shah, Director of Mumbai-based system integrator, Insight Business Machines.
“We are not completely comfortable with Dell’s rules of engagement regarding account lock in and have suggested a few changes. They have assured us that they will evolve a better policy for deal and customer registration. If the new policy suits us we will work with Dell,” Shah adds.
A Gururaj, VP, Value Point, one of the largest HP partner in the country warns his peers from having any partnership with Dell. "We have had a very bad experience with Dell when we worked with on a few large deals. There were shipment delays of more than five weeks in a couple of deals, and in a couple of others they sold directly after we did all the spade work. Their policy looks fine only on paper, but in reality they don’t have people who understand channel business,” he adds.
In conclusion, Dell’s report card on the channel front is a mixed bag. While the company seems to be doing well in retail, it needs to put more effort in garnering channel confidence in the SMB and enterprise segment. So far, Dell has done a noteworthy job of creating a partner network and putting various programs in place in such a short time.
How well they will do in future will entirely depend on executing the channel engagement programs in a consistent and fair manner. |