Dell Channel Program Hits First Snag

Just days after unveiling its first comprehensive channel program, Dell seems to have failed the first test of its ability to attract a solution provider following.

Dell and EqualLogic executives Friday in a joint channel conference pitched Dell's pending acquisition of EqualLogic is good for the channel, and fielded questions from solution providers.

Dell early last month said it plans to acquire EqualLogic in a deal worth $1.4 billion. For Dell, EqualLogic is an opportunity to grab one of the top vendors in the fast-growing iSCSI market while laying the groundwork for a storage channel based on EqualLogic's channel-only sales model.

During the question-and-answer period following presentations from Don Bulens, EqualLogic CEO, and Greg Davis, vice president and general manager of the Dell Americas channel organization, the first two solution providers asked the same question: Will Dell sell the EqualLogic products direct?

Bulens said that the EqualLogic brand will remain very prominent, and the same products will be sold direct and through Dell channel partners. "There was some discussion of separately branded products, and that would just introduce confusion into the market," he said. "So it will be the same products with the exact same functionality for everyone."

One of the two who asked that question, Jim Quasius, president of GCA, a Tampa, Fla.-based Sun Microsystems and EqualLogic solution provider, said he has seen little to make him feel good about the acquisition.

In fact, Quasius said, Dell's answer to his question has him more concerned than ever, especially given previous word from Dell on the matter.

In a letter from to EqualLogic partners after the pending acquisition was announced, Michael Dell wrote, "Dell has been clear in its intent -- EqualLogic branded products will only be available through the channel."

Quasius said the Michael Dell letter was specifically worded, and gave the impression that there will be a Dell-branded version of the EqualLogic product. "They've completely reneged on that statement," he said.

Another solution provider who attended the conference, Bernard Westwood, CFO of Atlanta-based Syscom Technologies, said he was surprised by the answer to the question.

"That's not what we've been told," Westwood said. "It contradicts what others have told us, including our contacts at Dell. I've had follow-ups with them since the conference, but the answers have been wishy-washy."

Another solution provider who was on the conference call and asked to remain anonymous, said that Dell's selling of the EqualLogic product changes everything. "They should have a channel-only product," the solution provider said. "If the direct sales guy tries to register the EqualLogic deal, and gets rejected, that's fine for him. He'll go to the next product, like EMC or Dell's storage."

Dave Bondo, principal and executive vice president at Preston Data Systems, Preston, Wash., said his initial reaction was the same as that of everyone else. "Oh no, they've sold out," Bondo said. "But as I thought about it, I thought that we can view it as a good side. What good is there to fight it?"

That good side, Bondo said, is the fact that Dell could have bought any other storage vendor, but it is planning to buy EqualLogic. "And with the amount of money they are paying, that's a strong endorsement of EqualLogic," he said.

Dell channel chief Davis told solution providers that Dell has put in a neutral sales compensation plan under which its direct sales reps will get the same compensation whether a deal goes direct or through a solution provider. "Regardless of whether a product is sold direct or through a channel, their compensation is neutralized," Davis said. "What I hope we have done there is taken away any motivation for our direct sales teams to not partner closely with our channel to win business for Dell."

The anonymous EqualLogic solution provider said he sees huge problems in what he heard from Dell and EqualLogic during the call. "I think of Dell more like a CDW than a vendor," the solution provider said.

The neutral compensation program is bogus, the solution provider said. "You can't do neutral compensation," he said. "It has to be positive compensation, maybe 125 percent on channel sales. For direct guys, the perception is the channel will just gunk up the sale. They have to sell a lot of other things, like services."

That solution provider also foresees channel conflict ahead.

"For example, say we talk to customer ABC. And Dell's direct sales talk to ABC," he said. "We may get the registration, and the Dell guy doesn't. But then the Dell guy just goes to his next Bullet, and sells Dell/EMC. Also, many EqualLogic solution providers sell CommVault. Dell can sell CommVault cheaper than we can buy it from the vendor."

When asked by a solution provider about the timing of the solution program, Bulens said the acquisition is expected to close in late January or early February. "We will have to see how quickly the channel programs will come together," Bulens said. "We have to be certain that we continue to support partners as we have all along directly from EqualLogic or through our distribution partners around the world until our channels can come together in an effective way and to ensure we are preserving characteristics of our program that are unique to EqualLogic."

NEXT: Will deal registration ease concerns?

One issue is Dell's announced deal registration program, which comes into play on deals of $75,000 or greater, Bulens said. "That's higher than many of the deals that you are registering with EqualLogic," he said. "And so we will have to visit that issue specifically. Today, for the MSP program that is being launched, there is a difference in the deal registration policy. There's a lot of work that has to go on to bring the programs together in an effective way."

Dell channel chief Davis said there are some things that cannot be discussed before the deal is complete. However, he said that Dell has launched managed services based on the SilverBack partner program, and that Dell grandfathered all SilverBack partners into the program, with no restriction or limits on deal registration size and quantity.

"I can't speak about the future," he said. "But I can certainly tell you what we announced, and what we did with our managed services. And as we build the next certification path around infrastructure architecture, we've got to be able to build that business and grow it the right way."

Another solution provider asked if he registers an EqualLogic deal with Dell whether Dell will respect the deal. The solution provider also asked if Dell will respect a deal he might register with other storage products, such as CommVault's data protection software.

Davis responded by saying that, until the deal closes, everything will be business as usual. "Clearly our deal registration program is only meant to register the deal with one partner, which is consistent with what you have today," he said. "And, it is meant to create an environment where you can now collaborate with our direct sales team when needed to help you win and close an opportunity. And when you don't need them, it certainly protects you from our direct sales team from taking that opportunity direct."

In response to a question from a solution provider about the chance that partner margins will change under Dell, Bulens said that the EqualLogic program allowed partners to sell its products at a premium price with strong margins.

"I can tell you that this value-based model and richness of margin is appreciated strategically by Dell," he said. "And the discussions we are having revolve around ensuring that Dell as a company can, like EqualLogic as a company, enjoy strong margins with our product. And that the sellers of our product will also have a good margin in serving their customers."

Davis added that Dell and EqualLogic are working together on the issue. "We certainly cannot afford to build a robust channel program and set of partners without having consistency as we do things like this," he said.

During his presentation, Bulens said that EqualLogic was successful because of its channel, but that it agreed to be acquired by Dell because of the return to shareholders and the IT vision it shares with Dell.

"It's been our slogan since the company started to simplify network storage," Bulens said. "And that's what we've been able to achieve together with customers, dramatically reducing the cost and complexity of deploying and managing a storage infrastructure. Soon after Michael Dell rejoined Dell, he also cast a very clear mission for Dell around IT simplification and reducing complexity in managing an overall IT infrastructure."

There is a less obvious alignment that will have to be proven over time, Bulens said. In a letter to the Wall Street Journal announcing the company's move into the channel, Bulens said, Michael Dell wrote, "While the direct model has served Dell well, it is not a religion. . . . We will pursue new business models to address the needs of our customers."

Bulens said that solution providers view the acquisition in one of two ways. The first way is sit back and wait, enjoying good margins on EqualLogic sales while working with customers who enjoy EqualLogic product. They are saying "while we may be cautiously optimistic, we're gonna sit back and wait to see how this all plays out," he said.

Other channel partners took a more extreme point of view, he said. "(They) said, EqualLogic is now damned and you've moved to Hell with the Devil." he said. "Our hope is that we can demonstrate to you as we move to closing this deal and executing on the other side of this planned combination that we can demonstrate to you that all of you should be viewing this opportunity for us to move together forward, but us recognizing that we're going to have to prove it to you."

Davis then took the microphone to summarize the details of Dell's new channel program. He mentioned that Dell will have two levels of partners. Those at the certified level will have access to 45-day credit terms on hardware purchased from Dell and will receive warranty parts free directly from Dell, while those at the registered level will have access to 30-day terms.

Davis said that Dell is developing a number of certifications for its partners, including a managed services certification already in play thanks to its SilverBack MSP offering, and an enterprise architecture certification expected to be available no later that mid-January for partners with skills related to storage, backup and recovery, security and power solutions.

Dell already has 24 pilot partners in its deal registration program. Those 24 partners in nine business days registered 17 deals totaling over $3.8 million in potential business.

"While I realize it was a pilot and a small start, it certainly should signify our commitment to working with our partners, protecting their customer information and their customer deals, and providing an opportunity to work closely with Dell and close those opportunities," he said.

In the end, solution providers said, Dell has to prove itself as a partner. "Dell has to be careful," Westwood said. "EqualLogic has a great channel. It can go very well for us if they keep the channel clean. But it will hurt if Dell just sucks EqualLogic in without the channel just as a way to play off against [storage vendor partner] EMC."

Bondo for now is looking at the bright side, but is still reserving judgment. "Nothing is forever and permanent," he said. "I like the way Dell has set up its channel today. If Dell goes back on their word and messes up the channel, so be it. But for now it's positive."

Bondo said he has already seen a gentler Dell. "One HP customer was looking to buy Dell," he said. "After we talked to the customer, the customer then called Dell. We talked to Dell, explained the situation. And Dell told us the account is ours."

Cautious Quasius said that he has never dealt with Dell before, and he is approaching them carefully.

"They've always been the enemy," he said. "I question their commitment to the channel. When I see them kick the direct guy out of a deal, I'll be a believer. But I guess I'll be a Dell partner now. I guess I'll have to wait and see."