Dell Scoffs At Rivals' Channel Exclusivity Demands

Michael Dell scoffs at the notion of vendors strong-arming solution providers into selling their end-to-end portfolios, throwing around the word "loyalty" as if it were something a company could demand -- instead of earn.

It's been three years since Dell's chairman and CEO has been transformed from channel antagonist to channel protagonist. In the years leading up to the formal launch of the company's channel program, Michael Dell said he has seen behavior that is just not attuned to the realities of today's IT environment.

"Customers today are looking for best-of-breed answers," Dell said in an exclusive interview with CRN (read the interview following this story). "They like competition. They don't want to be beholden to one vendor. The reality is the data center is a heterogeneous world. … To assume everybody is buying everything from one company is just not realistic."

It's a well-known fact that some of Dell's chief competitors increasingly want solution providers to focus only on their branded solutions, in essence creating closed-market systems that reward fewer, more "loyal" VARs, so it's rare to find a company bucking that trend. But at Dell, the door's wide open.

And solution providers are coming on through.

Dell's channel business has blossomed since the launch of its official PartnerDirect program in 2007. The Round Rock, Texas-based company's global channel revenue increased 49 percent in the second quarter of 2010, compared with the year-ago quarter. U.S. channel sales were up 38 percent for the same periods, said Greg Davis, vice president and general manager of global commercial channels.

As of October, Dell had more than 61,000 registered partners worldwide and about 2,300 certified partners, including almost 1,000 in the U.S. A year ago, Dell had only 1,300 certified partners globally. While many companies increasingly expect solution providers to sell more of their respective products, Dell places no restrictions or minimums on the breadth of products its partners sell. That's no accident. Dell realizes that customer IT environments have multiple vendors in-house and it's crazy to pretend otherwise, said Davis.

"We always have been an open-architecture company. I want you to sell 100 percent Dell servers, storage and networking. I'm not creating proprietary reasons to do it, but we will try to win the business every day by making sure our program, our products, are the best in the market and allow you to be successful with customers," he said.

With this strategy, Dell hopes to win over solution providers frustrated with other vendors' my-way-or-the-highway attitudes, Davis said.

NEXT: Dell's Partners

Dell's Partners

SADA Systems, a North Hollywood, Calif.-based solution provider, is a prime example of the type of partner Dell wants to embrace. Making its mark with cloud-based solutions, SADA Systems came in at No. 57 on this year's CRN Fast Growth list with two-year growth of 52 percent.

As a fast-growing solution provider, SADA Systems' president and CEO, Tony Safoian, has no time for hidden agendas or business partnerships that don't meet the requirements needed to serve CIOs. The VAR increasingly relies on vendor partners open to change, new ideas and even leveraging other manufacturers' technology if it is going to build tomorrow's infrastructure for customers today. Increasingly, but not surprisingly, one of those companies is Dell, Safoian said.

"The reality is any environment we go into is heterogeneous," Safoian said. "I'm not going into any server room and seeing only Dell boxes. That's just not going to happen."

But other vendors seemingly expect that to be the case for their products, he said. "As greater consolidation happens in the market, there are all these firewalls being created by certain vendors trying to be all things to all people. Dell has the right vision in that space."

Dell's commitment to an open architecture and open partnerships is evidenced by the fact that one of the requirements to obtain the company's Enterprise Architecture certification is a third-party certification from another vendor like VMware or EMC, said Dell executives.

Technologies such as virtualization and cloud computing, the progress of open-source software such as Linux and the growth of Google all point to companies operating in a more open environment, said Steve Felice, president of consumer and SMB for Dell.

"We want to set ourselves away from Cisco, HP and IBM, which we believe are going in the opposite direction," Felice said. "Open, capable and affordable: These are the messages we want to get out. Other companies take the complex needs you have and say, 'You need to trust us.' It becomes a black box and you're tied to it."

The open initiative is also driven by the tenet that 99 percent of commercial accounts aren't greenfields and companies aren't likely to rip out entire infrastructures, said Brad Anderson, senior vice president of Dell's Enterprise Product Group.

"You need to make [new solutions] work in existing environments," Anderson said. "Even with Dell having an offering in some things like networking, systems management, virtualization, even if we bring some unique IP, it's our philosophy that we're not precluding other vendors."

For example, Dell's PowerConnect networking portfolio supports Cisco, Juniper Networks and Brocade technology, too, Anderson said. "That's a big strategic difference with trying to vertically integrate a single vendor, that everything HP is 3Com, and Cisco is evil. The trouble with that strategy is 70 percent [of end users] are on Cisco. It's shortsighted not to support them. We do," Anderson said.

Dave Johnson, Dell's senior vice president of corporate strategy, has another take. "We are not focused on locking our customers in because we don't have a legacy we need to protect," he said. "We're much freer to leverage open architecture, to leverage all the innovations from a technology perspective and from a business process perspective to help customers achieve the most effective answer."

Still, some industry observers note that Dell's strategy is open by definition because it doesn't own the intellectual property in many segments, particularly storage and networking, that some of its competitors do.

"I think owning the entire hardware stack is more effective as it gives customers one throat to choke and allows for more seamless integration and management across the converged infrastructure," said Brian Alexander, managing director of equity research at Raymond James & Associates.

Dell has made a dozen acquisitions over the past three years and has publicly stated it's looking to fill more gaps. Still, company executives said the open-door policy would continue, no matter who buys whom. Ultimately, Dell's success in operating a more open-architecture sales strategy will be decided by customers, said Tiffani Bova, vice president of research at Gartner.

"I like when vendors put the power in [customers'] hands to determine how they want to run their organization when it comes to IT, so to me 'open' is good," Bova said. "When the customer is the guidepost to determine the best way to get products to market, then the result is an effective sales model."

Building a strategy based solely on what a vendor wants to do or is capable of doing will create a less-than-optimal experience for the customer, Bova added. "Dell has remained flexible with their channel program as they continue to invest in developing stronger ties with the indirect channel, expand their reach and push for more market share." Dell also has had the luxury of building a channel program from scratch, with no legacy complexities, systems or challenges to overcome, said Bova.

"While the program has focused on building a strong foundation, there is much work to do to get their indirect business to the next level. Acquisitions will test Dell's ability to integrate new products and services into the SMB space at scale while not encroaching on the very business and relationships they have been working so hard to establish," she said. "It is expected the program will continue to develop as Dell pushes their corporate agenda further into solutions and away from strictly product-oriented sales. However, that transition has proved a challenging road for many, so how Dell integrates their newly established channel against their stated near- and long-term objectives should further their desire to build a stronger and more leveraged sales model."

NEXT: Certification Power

Certification Power

Much of Dell's PartnerDirect program, and its channel success, stems from its Enterprise Architecture partner certification, created after Dell acquired EqualLogic in 2007. At the time, many legacy EqualLogic partners were "boutique storage VARs," said Paul Shaffer, Dell's worldwide channel marketing director. But since then, Dell has expanded the certification thanks to technology purchased through other acquisitions and focused on recruiting new partners from the top 1,000 VARs in the country, Shaffer said.

For example, Dell recently expanded its Enterprise Architecture program to include systems management, due to its acquisition of Kace and that company's systems appliances.

"We've launched a networking certification that encompasses our own line of PowerConnect switches and new networking products through our alliances with Juniper and Brocade and including Aruba now," Davis said. "We have server specialization, storage specialization, networking specialization and systems management specialization. All focus on data center solutions for customers."

Dell is also adding specializations in managed services as well as several vertical markets, Davis said. "We're focused now on shifting away from raw numbers and more about building the certification program out. We've had great success with partners who take training, understand our solutions, become certified, and become invested in Dell," he said.

That includes partners like EveryNetwork, a Burlingame, Calif.-based solution provider that had sold EqualLogic for a number of years but didn't even think about expanding that portfolio until Dell acquired MessageOne, an e-mail SaaS solution, in February 2008. Now MessageOne is a successful part of EveryNetwork's business, said Julie Branc, consulting services manager at the solution provider.

"I've had no pressure from someone saying, 'Do you want to use this solution we have?' I think they've kind of evangelized it and gave us the information in a 'so-you-know' kind of way. But I've not had anybody push me into more than our current relationship is," Branc said.

NEXT: Internal Victories Internal Victories

As much as Dell's channel has progressed with VARs, it's been just as successful internally with other parts of the organization, said Davis.

"It's come a long way. To say all 80,000 [employees] are there yet, no, I don't think so. Anytime you evolve a culture it takes more than a couple of years to do it. I do believe we're further ahead than I thought we'd be two years ago," Davis said. "With leadership around the company, the message is getting out and you see more engagement and collaboration. There still is work to be done, but we're getting there."

Davis has done an exceptional job of winning over Dell's product groups, according to Dell executives. When a Dell server won an award earlier this year, Davis blogged about it to publicize the success. It's that type of cross-pollination that has helped sway the technical groups toward the channel, Shaffer said.

"Two years ago, product groups wouldn't shoot me a note about the channel. Now it's rare if a week goes by that the server product group doesn't ask me what will the channel think about this, or what about a channel-dedicated product," Shaffer said.

In September, Dell held an event for almost 50 solution providers in California, one of its biggest partner gatherings to date. Davis asked Dell leaders from SMB, public sector, health care and large enterprise to speak to partners about their strategy for the business, how partners can engage with that strategy and the best way to engage with the Dell team. The feedback was overwhelming, Davis said.

"We don't do enough of those. We could do more of those around the country. Partners see tremendous value in it. We do see [the different Dell groups] beginning to understand how to engage with channel partners and channel partners are beginning to understand how to engage with them," he said.

NEXT: Feeling The Channel Love

Feeling The Channel Love

Dell's channel success is tied to the fact that its evangelism starts at the top. Michael Dell ensures the channel love trickles down to all facets of the company. He even helps solution providers close deals. Last summer, he traveled to a customer site on behalf of Redapt, a Redmond, Wash.-based solution provider, and helped the VAR close a $12 million deal.

"He's had communications with us to discuss different accounts and he is someone we've been able to turn to on occasion," said Jamie Rosvall, director of marketing at Redapt.

Redapt has worked with the vendor to transition some large accounts that wanted to buy from the solution provider and not direct from Dell anymore.

"We were able to have those accounts put in our name. Dell is very easy to deal with. Every year since we've been a channel partner [since 2007], our sales have increased with them," Rosvall said.

Dell's channel progress is also well understood by executives in terms of pushing the vendor's open strategy.

"Channel partners play an important role in this. Most customers' environments in traditional computing is very heterogeneous," Anderson said. "The trend is even multiple flavors of servers. For [other vendors] to say, 'You have to do it all, soup to nuts, one flavor of everything,' that's unlikely."

Dell also has had success in retaining channel partners obtained through acquisitions, Johnson said.

"As we look at acquisitions, one thing we look at is synergy potential where we can either provide for that channel partner a broader portfolio or, quite frankly, it's the other way around where we bring new product to existing channel partners," Johnson said. "What they look for is solutions that provide true value. If you do, they can usually extract margin from that and there is tremendous alignment where we are trying to go and where channels make a lot of money."

Dell's internal sales force, with a channel-neutral compensation plan, has learned to work with partners to great success, said Michael Dell.

"We have almost a quarter of commercial business with partners now, globally. That's a pretty substantial change," said Dell, who said he meets with partners himself three or four times a week. "I think the areas we're focused on, with data center, EqualLogic, PowerEdge, PowerConnect, Kace, those are areas that resonate with partners. But there's still a lot of room to grow in those areas."