Channel Strategy

As a follow-up to our Analyst meeting, I recently sat down with Steve Felice, president of Small and Medium Business, to discuss a range of topics that have received investor attention including:

• Dell's Go-to-Market Strategy
• Differentiation in the Channel
• Indirect Model in Asia
• Current Macro Environment

Please watch the video below.  If you would like to get more details from our analyst meeting, you can view the presentations and webcast from this meeting by clicking here.  As always, I look forward to your questions and comments!

-Rob

Today, Dell announced it will begin using Ingram Micro Inc. and Tech Data Corporation in the U.S. and Canada to sell Dell products to small and medium businesses.  In addition to retail, system integrators and value added resellers, customers now have the choice to use two distributors with whom many partners are already engaged.  The initial offering will consist of pre-configured Dell systems which will be competitively priced with similar products available directly from Dell.  Currently, these systems include Dell Vostro desktop and notebook configurations in addition to select Dell peripherals. There are plans to broaden the product availability in the future. 

So why are we doing this?  In response to partner feedback, Dell is expanding its partner program by providing multiple routes-to-market:  direct, PartnerDirect, and distribution. This change offers another solution for partners that have immediate business needs.  Customers seeking specific technology requirements will still have the opportunity to take advantage of Dell's build-to-order product line through its PartnerDirect program.    This partner expansion is another demonstration of Dell's ability to be fast and flexible and continuing to provide value to our customers.

How does this fit into our strategy?  Dell's growth strategy involves reaching more customers worldwide, including expanding our relationships with value-added resellers and distributors.  We are committed to create efficient solutions and product leadership across all of our businesses.  In May 2007, Dell announced the company would explore new ways to reach customers.  This led to the inception of the PartnerDirect program, which has grown to a global business with more than 35,000 registered partners worldwide.

Our current indirect business generates more than $12 billion of Dell's run-rate annual revenue.  We expect this new route-to-distribution to provide another vehicle where customers can choose Dell as their solution.  In February, we reported on the growth of this PartnerDirect program.  We've seen a lot of progress in our PartnerDirect program and will continue to pursue opportunities that create valuable customer solutions and offer long-term growth.  For more information on today's announcement, check out Greg Davis' blog and vlog, where he discusses PartnerDirect and our new distributor partnership. 

In May 2007, we announced the company would explore new ways to reach customers via the channel.  A little over a year ago, Dell launched its PartnerDirect program in the U.S. and later in EMEA to engage the value-added-resellers and systems integrators in the channel.  At the onset, there was a great deal of skepticism of the program and whether Dell, historically known as a ‘direct' company, could work differently and build trust in the channel. 

Since launching a year ago, Dell's partner program has grown to more than 37,000 registered partners worldwide, with over half this number coming outside of North America, and based on last quarter's results the channel generated nearly $12 billion in run-rate revenue. 

With the new business segmentation announced on Dec. 31^st, 2008, PartnerDirect is now being run as one-global organization.  Under the leadership of Greg Davis, VP and General Manager of Global Commercial Channels, PartnerDirect is now a global program offering the same benefits to partners worldwide.  Today, our partners can access the PartnerDirect portal in 19 languages in 148 countries. 

We also created a Partner Advisory Council, where we host face-to-face meetings with our partners semi-annually and host teleconferences almost every month.  The Partner Advisory Councils are held in every region, and include special councils tied to our certification paths.  At the core of the PartnerDirect program is the ability to listen and implement changes from the feedback our channel partners give us.  We also solicit partner feedback through a variety of social media tools, including Dell's Channel blog. 

Channel conflict still exists in some cases and improving deal registration was key for our partners.  Today there is over 70% approval of deals that are registered, and we work directly with partners to qualify deals that might not otherwise meet our criteria.  We examine each conflict on a case-by-case basis to determine what the best solution is for all concerned.

Additionally, when we first began the program we launched with a minimum deal registration of $75,000, and have since changed this amount to $50,000.  We are working on reducing the deal registration minimum even further, based on requests from our partners.   At the start of this program, we had less than 20 deals being registered; today we have over 500 per week.  Additionally, we have been working with partners to extend credit lines and work directly with customers to offer Dell leasing.

Our partner certification efforts are focused on our enterprise architecture, managed services and federal government certifications.  In addition to certification, we offer training programs where we actively work to build our partners' knowledge and experience with our products and services to support their business' growth.  This is an area of focus for us, as we continue to develop and refine our training offerings.  

We've made progress in this first year of the PartnerDirect program, and with a new global organization, we will increase our global initiatives, leverage programs and tools worldwide to deliver further efficiencies, save costs for our partners, and continue to find opportunities to drive long-term growth.

Today, 250 equity analysts and institutional investors joined us in Round Rock for Dell's equity analyst meeting. These meetings, which are available via live webcast, serve two important purposes.  First, they give this audience and all of you an opportunity to hear directly from Dell's senior leadership, and second, it's our chance to help you understand where we're going financially, share our key initiatives and address questions and concerns.

The meetings and briefings are spread over two days, with the first day being a prerequisite to discussing our growth priorities on day two.  We spent the first day providing a framework by which investors could understand the fundamental changes we're making to Dell's business model - from manufacturing to channels to services.  

Dell has always been known for its direct model.  With it, we created a direct customer relationship model and build-to-order manufacturing capability like the world had never seen.  Our assets were global and our cycle times were some of the shortest in the industry. 

But today's PC economics are much different.  Moore's law led to better performance, rapid growth and lower selling prices, ultimately leading to smaller absolute cost advantages.  And growth shifted from desktops to notebooks and from large enterprise customers to consumers and small enterprises.  Our customers are more diverse than ever before.  We now need to serve them in very different ways. 

Mike Cannon, President of Dell Global Operations, talked about how Dell is optimizing its global manufacturing network to better meet customer needs.  By matching product design to customer segments, we're able to eliminate embedded product costs.  Getting this part right actually enables us to think more broadly about our manufacturing model and enhance the value we provide our customers.

Many have also questioned how being direct works with channel. The reality is that we have a $10 billion global partner business that we've steadily built for 23 years.  Paul Bell, SVP & President of Dell Americas, spoke to our channel strategy and the investments we're making to better work with VARs and systems integrators. The flexible engagement model we've developed is backed by a compelling value proposition for our partners: our strong brand; a broad portfolio of industry-leading products; and simple, beneficial terms.  It's designed to minimize conflict while building trust and mutually beneficial relationships.  Since we announced this new initiative in Q3, we've worked hard to bring our regional partners onboard to make our solutions available in the geographies that need them most.  

Steve Schuckenbrock, SVP Global Services & CIO, spoke about how customers spend a massive share of their IT budgets on services and how they face a burning need to shift this spend from maintenance to innovation.  We approach services very differently from our competitors.  We believe services should be customizable, a la carte, and available remotely.  So Dell's new services model combines disruptive technologies with our core strengths to provide customers convenient and affordable enterprise-class support and monitoring services.  Through ProSupport and the assets we acquired through several acquisitions we are building a platform that allows us to remotely manage the client lifecycle.  We let customers choose which services they want and when they want them.  And we provide solutions where consultants are available - but not required.  We have a $6.2 billion global services business today, and there is no reason it can't double over the next 3-4 years.

These are changes in the way Dell interacts with customer. They set a foundation upon which we'll build our future success.

If you haven't already seen the webcasts or presentations, I encourage you to watch a replay of them here.