By Ramdas S, CRN, February 21, 2012, 1000 hrs
There’s a look of satisfaction on the faces of the Dell India management team. The satisfaction comes from the fact that the team has delivered more than what it set out to achieve in 2007.
Numbers don’t lie. From being just another MNC player trying to figure out the Indian market in 2007 with less than 4 percent market share in PCs, Dell at the end of 2011 is the undisputed leader in the Indian PC market. In the last three quarters its lead over its nearest rival has grown to over 100,000 units, or on an average a market share lead of 4 percent.
It’s not just in the PC market that Dell has made gains. Dell’s x86 server market share, which was around 10 percent in 2010, has nearly doubled to 19 percent in terms of units and 23 percent by value as of Q32011. From being EMC’s largest storage partner till a couple of years back, Dell today boasts of a competitive storage portfolio of its own. IDC India’s Q32011 report ranks Dell as the No 2 in the SMB storage market.
But it will be wrong to measure Dell’s India success simply by market share gains. What’s more impressive about Dell’s success is that it has been achieved largely on the back of a channel-focused go-to-market. Today, nearly 50 percent of Dell’s overall India sales revenue is contributed by channels. For a company that was best known for pioneering the direct-sales model in the IT market, this transformation is its biggest achievement.
“In 2007, when Dell announced its intention to have a channel play, nobody believed it. However, in less than four years, the company has achieved what took many channel-focused bigwigs like HP, Acer and Lenovo decades to achieve,” says Dinesh Nair, VP, Aldous Glare Trade & Exports.
Vishal Tripathi, Principal Analyst, Gartner India, credits Dell’s growth to its strong channel alignment. “One out of six PCs sold in India today has a Dell logo. Dell’s share of the PC market has grown substantially in the past five years. In 2006 it sold merely 290,000 units, while in 2011 it sold close to 1.6 million units.”
Tripathi reckons that Dell’s channel strategies and management have been the most innovative and proactive of any channel-focused PC vendor. “Dell has shown great maturity in aligning with channels. They have been very consistent with their channel strategies. They have stuck to the fundamentals of marketing and channel engagement. In fact, many channel-led PC vendors were compelled to follow Dell’s channel strategies.”
Nair points out that Dell hasn’t used any short-cuts to claim the market leadership in the PC market. “Their market leadership has come on the back of strong fundamentals—channel profitability, MOP uniformity, consistent marketing, and above all a genuine intent to work with the channels. This is also the reason why Dell ranks number one in consumer mind share today, displacing a channel veteran like HP which had ruled the marketplace for over a decade.”
The next frontier
Despite its phenomenal success in the PC market, Dell’s India leadership isn’t celebrating. The reason: they are focusing on scaling the new frontier of being the number one player in the commercial business consisting of servers, storage, software and services.
Despite rolling out partner programs in the commercial space, Dell hasn’t achieved the success it expected. Also, with Dell repositioning itself as an enterprise solutions company from just being a PC seller, the next big agenda for Dell is to become the preferred IT vendor in the commercial and enterprise space. The company knows this agenda can’t be achieved without strong channel play.
Dell admits that it has made some wrong moves in the past in this space and hence has to work harder to win channel confidence. Several leading solutions providers and systems integrators have had not-so-good experiences working with Dell in the past. Moreover, there is still a lot of cynicism with regard to Dell’s balancing of its direct and channel-led business.
“It’s not that we have not done business with Dell, however we didn’t have a very good experience,” says Neel Shah, Director, Insight Business Machines, Mumbai. “Working with business partners is about relationships and providing companies like ours with the comfort that their channel-led business will be prioritized over direct business. Partners haven’t still got that confidence.”
Seconds Rajeev Mehta, MD, Zest Systems, Delhi, “We worked with Dell on a couple of deals where we found their channel policies lacking transparency. As a result, we lost those deals and in the process realized that Dell lacks the channel culture and partner sensitivity that is required to succeed in this business. Their approach is to work on deals rather than work on building partner relationships.”
Ajay Maitin, CEO, Graphic Trades, Patna, is another partner who felt disillusioned with Dell. “Dell’s policies are good only on paper. Our personal experience is that while the DNA of HP is channel-centric, Dell’s DNA is still that of a direct sales vendor. Though Dell is trying to adapt to channels, they still have a long way to go. In fact, partner-led customers receive step-motherly treatment from Dell compared to their direct customers.”
S Sridhar, Director, Marketing, India Relationship, Dell, is candid. “Probably we didn’t have a clear demarcation of the direct and indirect business earlier, and as a result we lost the trust of certain sections of the channel. We have made mistakes in the past, but we are now ready to correct them. If one looks at our new Global Commercial Channel (GCC) program, we have taken all possible partner concerns onboard to ensure that there is least conflict between our direct and indirect business.”
Sridhar goes to the extent of terming GCC as the best partner program in the marketplace today, better than the programs of IBM and HP. “I invite all partners who have had issues with the earlier engagement programs to look closely at the GCC program. We have gone to great lengths to address all the possible issues with regard to conflict between channels and Dell direct sales. My request is that partners should judge us on this new program.” Still, Dell’s top brass realizes that having a good or great program is no guarantee that it will be accepted by the channel.
The other challenge Dell faces is that the commercial channel is largely divided between HP and IBM due to obvious reasons. As Neel Shah puts it, “Aligning with Dell is not easy for most leading IBM and HP channel partners who have been competing with Dell for several years. We have fought Dell tooth-and-nail, have won and lost business. Now suddenly going hand-in-hand with Dell to meet some of our long-term customers is not easy.”
Harsha Lal, Executive Director & GM, Public & Large Enterprise, Dell India, acknowledges this. “Relationships are never built in a day. We realize that we need to create a positive perception among channels about Dell. More importantly, we ought to give them a very compelling reason to choose Dell over their existing vendors. We are slowly but steadily working toward ensuring that we move from a transaction model to one that’s relationship-oriented and thus win the channel’s confidence.”
Dell has been slowly but steadily building a partner ecosystem around GCC. As in the PC business, it hasn’t taken any shortcuts; it has been working with smaller solutions partners, enabling them to grow profitably.
According to Dell, even though they have not been able to win the bulk of the top mid-tier partners, they have developed a number of smaller resellers who have grown considerably in the past few quarters. “The biggest deal we won through a mid-tier partner last year was worth about $2.5 million. Besides, one or two established partners of the competition have even set up alternate companies to do business exclusively with Dell. We are proud to say that in the past two years we have engaged with several partners who have grown with us.”
The Dell GCC program has three partner levels. The basic tier is a registered partner, which requires no specific qualification. At present there are around 1,200 registered resellers, of whom about 400 do at least one transaction a quarter.
In the middle tier is the Dell preferred partner, who has to commit a certain amount of business every quarter to Dell. On the achievement of the targets there are rebates—typically 1 percent for the client business, up to 3 percent on servers and up to 5 percent on storage. A Dell preferred partner also needs to commit to a separate revenue target for the enterprise business (server, storage & networking) as well as for the PC client business.
Then there are Dell premier partners, who have to ensure a bigger engagement with Dell. These partners get more rebates, and there is better hand-holding. The company’s new financial year starts on February 1, and Dell is betting on upgrading some of its preferred partners to the premier partner status.
The GCC currently accounts for approximately 30 percent of Dell’s commercial revenue in India. “We plan to grow this number in 2012 and have already lined up several new channel enablement initiatives,” informs Suresh Reddy, Director, GCC.
Suketu Shah, CEO of the Pune-based Genie Infotech is a partner who has benefited from GCC. “We started working with Dell six months ago when the GCC was formed, and we found that it had a completely different approach to business. We showed some patience, and today approximately 35 percent of our Rs 25 crore revenue comes from Dell. We are averaging over $400,000 every quarter, and we see this share growing in 2012.”
Adds Vineet Mittal, MD of the Delhi-based VSM Agency, “We started a relationship with Dell almost six years back. At that time it was a pure opportunity business because Dell did not have any channel strategy in place. But steadily, over the years, Dell has become more channel-friendly. The GCC program is comparable with those from HP and IBM, and there’s very little that is different between their programs. What is important is that Dell has successfully inculcated a strong channel culture within its teams.”
Deciphering GCC
Despite this endorsement by some partners, many still remain skeptical about Dell. Partners point out some fundamental differences between the policies of Dell and HP or IBM. The most significant one is the way Dell treats opportunities.
One big thumbs-down given by partners is for Dell’s deal registration policy.
Partners highlight that while IBM and HP have opportunity registration which works at an account level, the Dell deal registration process treats each inquiry as a separate deal. This means that a partner may do nine billings with an account, but the tenth deal can be routed to another partner or Dell may directly bill the partner.
“In the case of HP, we are informed by their account manager if another partner has taken a quote, or receives an enquiry from an account we have been handling. Even if HP finally goes direct with the client—as in cases where the margins are less, or there’s stiff competition—we do get the ORC. In my experience, Dell does not have this policy, which means that just about anyone can break into an account, and also you don’t get any ORC,” says Mehta of Zest.
Reddy says that while Dell believes in deal registration, they are also quite open to account mapping. “Ultimately, the Dell representative in charge of the business takes a call after speaking to the customer. Unless a customer gives Dell in writing that they would like to be directly billed, or that an order needs to be routed through another partner, Dell will always stick to the partner who brings in the business.”
Shah of Genie says that Dell’s policies are transparent. “We know clearly whether we are participating in a deal or not within 24 hours of deal registration. Once that’s locked in, no other partner can quote for that query.”
The Dell management understands that another reason why many IBM and HP partners haven’t aligned with Dell is because many of the top partners are also service providers for HP or IBM, and that’s something they may not be comfortable losing.
Dell is offering the authorized service partner status as a carrot to partners willing to provide it sales numbers. “Once a partner crosses a certain target he has the option to be a service partner. We would like a partner who’s committed to us to become an authorized service provider,” adds Reddy.
Some partners are critical of Dell’s decision to not offer its commercial series of products for regular distribution. While HP, IBM and Lenovo offer the majority of their commercial product lines on a stock-and-sell model, Dell has only a couple of server and one storage model available through sub-distribution. Responds Reddy, “We know it’s a significant business for our competition. But making Latitude PCs or our Power Edge servers available through a stock-and-sell model defeats the USP which Dell offers—the most current prices, and deliveries within a few days. We get several requests from partners to stock-and-sell, but we are firm on this resolve.”
“The absence of a stock-and-sell model is a welcome change,” agrees Shah of Genie. “There’s only one price, and that’s back-to-back. It protects the interests of corporate resellers.”
Another point of contention: Dell does not offer an official price list for its commercial range. This has also annoyed a few partners who were used to regular price-list-based communication.
Mahesh Bhalla, Executive Director & GM, Consumer & SMB, Dell India, explains the company’s point of view. “We don’t have a fixed price-list for Dell products because prices are always dynamic, and the idea is to pass on the best offer to the customer and partner at any point of time. We give partners budget quotes within a day, and price clearances within 48 hours. Today, even small SMB customers ask for discounts, so partners need to get back to the vendor.”
Reddy says that Dell has included several new features to the GCC transaction form. “We have express deliveries for critical cases. We have staggered deliveries if the customer so desires, and all these facilities are available to channels.”
Transforming and winning
Dell knows that for it to be a strong contender in the enterprise and SMB space it needs to create a strong partner ecosystem, and in this the GCC will play a key role. “Globally, Dell is transforming itself from a PC vendor to an enterprise solutions company and made as many as 20 acquisitions including that of Perot Systems. Hence it is imperative for the company to create a good partner ecosystem to drive its new agenda and compete seriously with IBM and HP,” believes Gartner’s Tripathi. (See box on Dell’s acquisitions)
Harsha Lal states that the key agenda for 2012 is to ramp up Dell’s storage business. “We believe that with the EqualLogic and Compellent acquisitions there are enough reasons for any customer to trust us with their storage requirements. We have signed up 20 focused partners for our storage business in the country. By the end of the first quarter of 2012 you will hear about some of our big wins through mid-tier channel partners,” informs Lal.
Dell is offering free training and certifications to channel partners willing to show commitment to sell its storage. In addition, Dell will focus on opportunities in the data center, cloud computing and security space. Dell has acquired companies such as Force 10 for data center networking equipment and Scalent for its virtualization management software.
Considering that both HP and Cisco have been promoting their data center architectures (Converged Infrastructure and UCS respectively), Dell’s plans look ambitious. “We don’t have a unified fabric product strategy as yet, but we have the best-of-breed computing, storage, networking and data center management platform,” argues Sridhar. “CIOs and partners are smart; they understand that you do not always need a branded unified computing strategy. They know that they can build a solution with faster ROI and lower TCO if they pick and choose the right building blocks backed by an established vendor like Dell.”
Here too Dell plans to build a strong channel play. “Our Public and Large Enterprise team handles close to 10,000 accounts. We are in the process of passing half these accounts to our partners, thus creating more opportunities for them in the large enterprise space,” says Lal.
The company is also taking the route taken by HP and IBM—it is aligning with ISV partners, and talking of connecting Dell channels with ISVs. “In the last quarter alone we have managed to bring 26 ISVs to the Dell camp, and we are piloting several initiatives across verticals,” says Sridhar.
Dell has a development center in the Bengaluru, and through its Force 10 acquisition, an additional 250-developer base in Chennai. The India sales team plans to leverage this talent next year. Says Lal, “We are transforming into a solutions vendor, and our channels can leverage on our engineering strength too.” Dell is also scouting for channels with specific strengths in solutions building. “We are trying to look at partners with unique skill-sets that we don’t possess,” Lal adds.
The PC and retail biz
While enterprise and SMB will be Dell’s focus for 2012, it also plans to consolidate its market share in the client business. Dell has maintained its PC leadership in 2011, and in fact managed to grow its share steadily QoQ.
A lot of Dell’s success has been credited to its regional distribution strategy. When the strategy was launched in 2008 most detractors said that Dell was taking a huge risk in spreading itself wide. Notes Bhalla, “Today we don’t have any bad debts, nor do we have even payments outstanding beyond accepted credit limits.”
The company has 35 MSAs (Master Sales Affiliates) across the country. It also has two national distributors in Supertron for consumer desktops and Global Infonet for its Vostro range. While some of the MSAs signed earlier dropped out of the business, Bhalla says that the model has gained maturity. “One of our successes is that we are very careful about overstocking; we generally see that stocks are kept for less than two weeks by our partners. Dell does not provide any price protection, so MSAs do not overstock. Also, if two MSAs are operating in a territory, they do not carry similar SKUs; this ensures that everyone makes margins, and that the MOP is intact.”
Channels across the country say that the biggest reason why the customer pull for Dell is so high is the huge advertising spends that customers cannot ignore. A director of a leading MNC vendor claims that Dell spends three times what his brand does to have its 4 percent lead over its closest rival.
Bhalla dismisses this allegation. “According to our internal survey, we spent less than the industry median on advertising and marketing. We are very judicious in our spending, and focus only on print and Internet. We don’t have celebrity brand ambassadors. I would like to believe that we buy advertising space at the best rates, so the allegation that we are spending heavily to buy market share is baseless.”
Channels report that Dell is facing stiff competition from vendors such as Sony, Lenovo, Toshiba and HP. “While the competition is aggressive, any weakening in numbers is only as a result of inflation. Consumers are spending more on fuel and food, and have less disposable income,” states Bhalla.
Analysts such as Tripathi believe that Dell’s biggest challenge will be to keep intact the freshness and novelty around its products and brand. Bhalla feels otherwise. “Unlike the consumer electronics market, the PC industry has customers with strong brand loyalty. As long as we keep producing great products we don’t see much of a challenge in keeping customers interested in the brand.”
Dell recently told its sales affiliates that it will be rethinking the commissions paid out for booking customer orders. Bhalla however says that “We are only planning to restructure the program, so average payouts would remain the same.” He also stressed the long-term rewards Dell offers. “We want long-term relationships, and we are restructuring loyalty programs based on the length and depth of the partnership. We are rewarding partners based on the milestones they have achieved with us—for example, clocking Rs10 crore selling Dell products.”
Bhalla says that at the end of the day every business is driven with a focus on partner profitability. “An example would be our decision to exit the netbook market because the market is shrinking, and the only way to keep that market alive is taking a call on margins, which excites neither us nor our partners.”
Conclusion
Dell has had a golden run over the past few years. As the vendor is trying to transform itself into an IT solutions vendor—and not remain just a PC player—it increasingly needs to depend on channels. While a cross-section of the channel is still skeptical, Dell is willing to go all out and woo them.
“In the past our relationship might have been opportunistic,” concedes Lal. “But now we want channels and Dell to depend on each other so that if business does not happen between us it should hurt both.” |