Dell Technologies’ direct sales force is gunning for a larger share of PC sales in North America, driving conflict with the company’s channel, which Dell has been wooing for the last 14 years, sources said.
The conflict is driving some Dell partners to push business to HP and Lenovo, sources said.
The stepped-up client direct sales charge is being driven by Dell Technologies North America President John Byrne, sources said, a onetime fierce channel advocate who has now informed Dell partner reps that taking client business direct is a “top priority.”
“That’s the message to the channel team,” said one CEO of a CRN Solution Provider 500 company that has a significant Dell business. “We are already seeing the impact in the field.”
The Round Rock, Texas-based company’s strategic shift to push client sales direct has angered solution providers as well as Dell Partner Account Managers (PAMs) who are “disgruntled” by the move because it effectively makes it more difficult for them to make their current quotas and increases channel conflict in the field, sources said.
[Related: Dell Slashes Partner Account Manager Ranks, Reduces Pay Level For Channel Reps]
Top solution provider executives who spoke to CRN—all of whom are Platinum or higher partner levels and spoke on condition that they not be identified for fear of reprisal from Dell—said they now see Dell as a competitor on PC sales and are exploring their options for taking client systems deals to other OEMs such as HP and Lenovo.
“The way I see it is the Dell direct reps are now in competition with the channel on client systems,” said the CEO of a national Dell solution provider who has already seen one of his company’s recent Dell PC deals taken direct. “This is a direct kick in the face to the VAR community. Based on how this all plays out, it will force partners to become uber aggressive to try to take Dell out to protect their turf.”
The CEO of a large national solution provider said Dell’s pivot to sell more PCs direct will benefit Dell’s rivals. “This is going to create turmoil and a lot of conflict for Dell,” said the CEO. “I think the ends will not justify the means, and more business will move to other OEMs like HP and Lenovo.”
One CEO from a Dell Platinum partner said Dell’s new shift toward direct sales in its End User Computing (EUC) business is forcing his company to compete head-on against Dell.
“We want to get the deal registration for [EUC] from Dell, but if we can’t get it from Dell, we’re saying, ‘Are you guys OK with us competing with you?’ Because I have salespeople with families to feed. I can’t tell them to stop selling, so we’re going to have to sell something else,” he said.
When asked how he would describe Dell’s client systems sales strategy: direct-led, partner-led or channel neutral, Byrne responded: “All of the above. We want both routes. We want both to be growing and both to be growing dramatically. We are taking share from HP, Lenovo and other competitors in this space.”
As to whether he recently directed both channel and direct reps to move Dell’s client business to a direct-first sales model versus partner-led, Byrne reiterated, “We want both routes of market to grow—both direct and channel.”
“What I have made abundantly clear to my core [direct team] sellers is: understand the rules of engagement. If you break those, bad things will happen to you,” Byrne said. In addition, he said Dell is “not interested in any share shift—zero,” around its fast-growing client business.
“I have a big [team of] core sellers, I have a wonderful channel ecosystem, and therefore, we have a design within our program, which is deal registration. And we want our partners to engage with our core sellers on opportunities, ideally across a full portfolio. But as this is a PC discussion, we want them to get that deal registration. When partners have [deal registration], I expect my team to honor that deal registration,” said Byrne, adding that Dell’s intent is to “drive growth across all lines of business, while maintaining a high level of trust” with channel partners.
When asked directly if Dell has recently changed its client systems compensation models for direct and channel reps, Byrne said he couldn’t “go into the specifics of the compensation plan” for competitive reasons. “But here’s what I can tell you: our strategies and our comp strategies are designed to drive sustained, profitable growth right now and in the future. Within that, partners are critical to that acceleration,” he said.
Dell’s sales shift on client systems comes with Dell cutting the number of PAMs in North America, reducing the ranks of veteran managers and slashing the on-target earnings (OTE) for some reps by as much as 30 percent, sources said (see related story).
Creating ‘Turmoil’ In The Channel; HP And Lenovo Sound Off
The solution providers CRN spoke with said they expect Dell’s move toward direct sales in its client business to force partners to move more PC business through HP and Lenovo, companies that are both committed to driving client business through channel partners.
“As long as Lenovo and HP are receptive, we are going to see some partners look to compete more with Dell in those EUC accounts because we have salespeople that have sales quotas to fill,” said one top sales executive from a global Dell partner. “As long as Dell’s OK with that, then that shouldn‘t be a problem. But Dell’s OK with it until you beat them for a deal.”
Dell rival Lenovo sees a “huge opportunity” to step in and fill the Dell channel void, according to Vlad Rozanovich, North America president of Lenovo, Morrisville, N.C.
“Dell goes in this wave of, ‘Channel partners are important and critical to our business,’ to ‘we’re going to bring this more inside,’” Rozanovich said. “People are tired of that cyclical wave of, ‘Now I‘m important, now I’m not.’ And so that’s something we want to take over. And with the portfolio of having servers and storage devices, in addition to PCs, we could actually slot in really nicely to some of those channel partners that were using Dell for both.”
For Palo Alto, Calif.-based HP, which does 87 percent of its $57 billion in annual sales through partners, it’s “business as usual” when it comes to competing against Dell, said HP Chief Commercial Officer Christoph Schell in an interview with CRN.
“We are very committed to our partners,” he said. “This is not a choice point. Whatever we do, we do together with partners. … Every program, every service that we launch, we ask ourselves how we can make it compelling for our partners.”
Schell said HP is firmly committed to the channel. “We are here for any partner that is looking for a channel-focused vendor,” he said. “We are right here [for them]. … For me it’s business as usual.”
Channel Conflict Could Derail Growth
In the first half of fiscal year 2022, worldwide order revenue for Dell’s Client Solutions Group (CSG) through the channel increased 49 percent year over year, according to Dell Global Channel Chief Rola Dagher. “That’s outpacing the market,” she said. “We support partners that have strong, existing relationships with customers for our client solution portfolio, as well as those pursuing new client solution opportunities.”
In addition, the number of deals registered by channel partners increased 14 percent year over year in the first half of the year. Dagher said the plan remains the same for the second half of the year, which is to grow CSG sales both direct and via channel partners.
Some partners are reporting high growth rates in their Dell CSG business, but fear momentum will be derailed if Dell’s direct sales team blocks channel partners from various types of deals.
“We’ve grown our Dell EUC business over 30 percent this year—and the base is a big number. So we’re succeeding in this environment, and if you look at Dell’s numbers, they’re doing very well too,” said the Dell Platinum partner CEO. “But if Dell is struggling with a direct account, we want to be able to go get that business or help them elsewhere. … We might be able to help Dell sell more. It’s one thing to sell end user compute, but then it’s another to sell ruggedized systems, services, warehousing, etc. There’s EUC, and then there’s more profitable EUC.”
The change in the client go-to-market strategy comes as Dell’s CSG business—which includes PCs, desktops, notebooks and more—is booming. Last month, Dell reported record operating income of $995 million for its CSG business on a record-breaking 27 percent sales increase to $14.3 billion during its second fiscal quarter. Commercial client revenue was up 32 percent year over year to $10.6 billion in the quarter.
The Dell Platinum partner CEO said he was not surprised by the shift given that Dell senior executives have privately told channel partners that they prefer to take device sales direct because of the higher margins.
“Dell’s top executives have told us they make more margins when Dell sells its EUC direct than they do with partners,” said the Dell Platinum partner CEO. “They have a lot of different routes to market, and some people want to buy direct, so they’re going to sell them direct. They want to make sure that the channel is driving new demand and not simply shifting share that Dell has created. They don’t want share shift.”
Dell Is ‘Underestimating’ Channel Value On Client Business
Partners told CRN that they believe Dell is underestimating the value channel partners bring to the client device business, particularly when it comes to the customization that many accounts require.
“We are doing custom application stacking, imaging and special bundles for customers,” said the Dell enterprise-focused partner CEO. “Is Dell willing to do all of that? Customers like the flexibility we provide, whether it is terms or special systems access, testing and configuration. Dell is not going to be able to take 15 to 20 years of relationships that we have built up with customers and take them direct.”
Solution providers also lamented the potential loss of a key door-opener, as PC sales drive many other sales opportunities for them and the OEMs they represent, including additional equipment, software and services.
“The client business touches every employee in a company; every employee has a machine that needs to be procured and maintained,” said the national Dell solution provider CEO. “It opens the door for us as partners to show our value to customers.”
Partners said Dell’s push to move more client business direct could also impact the vendor’s enterprise business.
“This is not only going to benefit HP and Lenovo it is also going to hurt Dell on the enterprise side of the business, where they [still] want the channel to help them win business,” said the CEO of a top Dell enterprise-focused partner. “It is going to help all the major OEM Dell competitors that have a well-supported channel strategy. I don’t want to bring Dell into my accounts. I just don’t.”
Partners said they found it ironic the direct sales charge was being led by Byrne, who in May 2017 flipped the switch on what he called a partner-led strategy for Dell’s server, storage, networking and commercial PC businesses. At that time, Dell also established new rules of engagement in a bid to quell Dell partners’ concerns on commercial PC channel conflict.
“We want to provide our partners with the assurance [that] new Client Solutions Group business they bring to Dell EMC will be protected,” Byrne said in 2017. “When you think back to before the acquisition was done, our competition was saying ‘Dell is really going to mess up the EMC channel.’ EMC had really done a nice job on predictability of engagement. We brought out line-of-business incumbency. No one expected that.”
Supply Chain Constraints
Dell’s growth rate drastically outpaced HP and Lenovo in the worldwide PC market by selling more PCs and growing market share faster than its competitors, according to second-quarter 2021 data from IT research firm Gartner.
Dell, No. 3 overall, shipped 12.26 million PCs worldwide in the second quarter, representing a spike of over 14 percent year over year, which led its global market share to climb 1.5 points year over year to 17.1 percent. Comparatively, HP, No. 2, saw global PC shipments fall more than 11 percent year over year, with its market share falling 3.5 points to 20 percent share. Although No.1 Lenovo witnessed 3 percent growth year over year in PC shipments, its market share dropped 0.3 points to 24.1 percent share.
Dell is also closing the gap in the U.S. PC market, according to second-quarter 2021 data from Gartner. Dell’s U.S. PC shipment market share climbed from 26.1 percent share to 27.7 percent share year over year, maintaining the No. 2 spot, while market leader HP’s share dropped from 31.6 percent to 28.4 percent.
Partners said Dell has demonstrated its supply chain prowess on client systems in recent quarters. They said HP and Lenovo have lead times of four to six months, while Dell has lead times of only up to three months.
“It’s a fire fight every day to get these systems,” said the enterprise-focused Dell partner CEO. “People are buying whatever client systems they can get.” In fact, partners are now telling customers that if they want new systems in early 2022, they need to place those orders now.”
In an interview with CRN, Dell founder and CEO Michael Dell said his $94 billion company’s supply chain “is functioning well.”
“We’ve put in place a series of strategies that have served us well, and when we make commitments to our partners around delivery, we were able to meet those commitments the vast majority of the time,” said Dell.
In addition, Dell said his company’s “buying power” is much larger than his competitors and its relationships with its suppliers are strong.
“At the end of the day, business is at some level about relationships, and these folks have known us for a long time. They’ve known me for 37 years,” said Dell. “We’re kind of like the permanent customer–and that matters.”
When speaking to CRN, Michael Dell reaffirmed his company’s commitment to channel partners. “Our channel partners are a hugely important part of our success,” he said. “We spend a lot of time making sure that they’re engaged and understand all the capabilities that we have, that they’re trained up, we listen to their feedback, and they’re a critical part of our whole business ecosystem.”
When asked this week if Dell—which launched its first channel program in 2007—is shifting its client business more direct, Dell’s Dagher said: “We have seen growth in both our channel and direct routes to market, and we want both, and let me repeat, we want both channel and direct to grow faster than the market because the market is huge.”
When pressed on the direct sales PC and laptop sales offensive, Cheryl Cook, Dell’s senior vice president of global partner marketing, also emphasized the fact that both routes to market are growing faster than the market. “Our deal registration volumes are growing at an unbelievable rate, which is a reflection of how many deal opportunities are being approved. From a coverage [standpoint], our channel reps are covering only partners. They‘re not motivated to shift a route to market, they’re there to help our partners win. Again, I think I’ll point to the results,” she said.
However, multiple solution providers told CRN that ignores the reality they are facing in the sales trenches with Dell North America direct reps moving in to take business direct.
Customer Choice
Ultimately, the impact of Dell’s shift toward selling client systems direct will come down to what value customers see in buying from the channel, said partners.
“At the end of the day the customer is going to drive the decision-making process,” said the enterprise-focused Dell partner CEO. “If Dell listens to their customers and we as partners continue to add value, providing flexibility for big customers, it will be very difficult for Dell to take this business direct.”
History has shown time and time again that when vendors move to take business direct, there is a price to pay, he said.
“If Dell decides to alienate channel partners who have helped Dell build their market share and they walk away from those partners, history will tell you they will end up losing partner credibility, which ultimately turns into less revenue for Dell and more revenue for their competitors,” he said.
Kyle Alspach contributed to this story
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