Tucci: A Little Channel Conflict Is Good

EMC CEO Joe Tucci says the storage giant has attempted to "minimize" channel conflict with its multibillion-dollar five-year reseller agreement with Dell Computer, but noted that a "little conflict is good."

"I would be a fool to sit here and say that we have absolutely eliminated any channel conflict ever, and it would be unwise to even attempt to do that. A little conflict is good, too much is disruptive, and we think we have got the bar tuned," said Tucci.

Tucci's comments came after EMC inked a deal that paves the way for Dell to co-brand and resell EMC's Clariion line of storage systems. Starting in November, Dell plans to offer customers the EMC products, which include the FC4500, FC5300, FC4700 and IP4700. Dell will also continue to offer its PowerVault direct- and network-attached storage systems.

EMC's direct-sales force has agreed not to sell products to the SMB market, said Dell President Kevin Rollins. The SMB segment will be the exclusive domain of Dell, with EMC sales personnel ceding that space, officials said. EMC sales representatives will be assigned to work with the Dell in the SMB segment and in health care, government and education, where Dell is strong, said Tucci. Furthermore, EMC will take the lead in the enterprise, assisted by Dell in accounts where Dell has a stronghold, Tucci said.

Dell plans to augment its existing professional-services organization with methodologies, tools, best practices and customer training programs from EMC. Representatives from EMC's global services organization will also support and train Dell service personnel on the technical support and installation of EMC systems.

Neither top executive addressed the conflict issue that inevitably will result with multivendor storage solution providers that carry the EMC Clariion line.

Derek Gamradt, vice president of engineering and CTO of StorNet, an Engelwood, Colo.-based Storage solution provider, said he is reserving judgement on the deal until he sees how Dell prices the Clariion line and what services Dell wraps around the product. "This is clearly a technical offering outside Dell's normal box," he said. "This is a more robust offering than Dell has offered before. They are creeping into a part of the data center they have not gotten into the past."

John Orr, CEO and founder of Stack Computer, a 12-year-old Costa Mesa, Calif., mission-critical infrastructure provider that works closely with EMC professional services, said he expects the deal to mean a sharp increase in professional services engagements for his company in the SMB segment of the market.

EMC will subcontract an estimated $3 million in professional services work to Stack this year. Orr expects that figure to shoot up 20 percent to 30 percent in 2002 as a result of the close relationship his company has formed with EMC.

"Staying on top of EMC's professional-services organization and keeping in sync with them and not competing with them has been the key to our success," he said.

As to what impact the deal will have on Clariion profit margins, Orr estimates they will drop from about 20 percent to 15 percent in the next six months with Dell entering the game. Still, he said, that is not a concern because, "to be perfectly honest, the real margin is in professional services."

EMC also plans to leverage Dell's procurement and manufacturing expertise in the SMB market, officials said. Neither executive provided details, leaving open the question of whether Dell will manufacture the Clariion line.

The aim of the deal, said Tucci, is to make Dell and EMC the undisputed leader in the SMB storage market, unseating rival Compaq Computer. "We are going to use the advances in our software and bring business continuance to small and medium enterprises," Tucci said. "We are going to use the Dell supply chain to drive down our costs."

Ironically, the deal comes after Dell Chairman and CEO Michael Dell referred to EMC sometime ago as Excess Margin Corp., referring to EMC's high-priced storage solutions.

Tucci said he isn't worried about cheapening the EMC brand by co-branding systems with Dell. In fact, Tucci said that without a doubt, EMC and Dell are "two of the most powerful brands in the industry."

Rollins said Dell plans to use the same aggressive pricing strategy and sales tactics that propelled the company to the top of the Windows NT server market. He said there is no "floor" on how low Dell can price the EMC Clariion ine.