CRN Interview: Dell ChairmanCEO Michael Dell

If you think Michael Dell isn't thinking about the solution provider channel, think again. In fact, the channel is in his crosshairs as a new avenue for growth.

In an interview with CRN Senior Editor Edward F. Moltzen this week at Dell's Round Rock, Texas, headquarters, the computer hardware icon shed light on the company's new efforts to ramp up solution provider sales, which now total about $4 billion annually in North America. Dell also gave his take on a range of topics, including Linux, Apple's iPhone, AMD processors in Dell systems and the company's new retail push.

CRN: One thing that drew a lot of attention recently is when you told your employees, "The direct model was a revolution. It's not a religion." What did you mean by that?

DELL: In the last several years, we have been growing fairly significant business working with channel partners and solution providers. And I think, first of all, that's a real business. But more than that, it's just a really important growth opportunity for us to work with partners as we expand the ways that we're going to go to market. So if you look back a couple of quarters, I think you'll see a very different Dell in terms of the range of partnerships that we've created. And it's really an acknowledgement of the relationships we've already built and intend on building further with solution providers, channel partners and retail partners -- not only here in the U.S., but around the world.

CRN: How do you intend to grow Dell's business going forward, working with more solution providers or doing more business with the solution providers you have now?

DELL: We've been listening carefully to the needs of the solution providers and trying to understand the kinds of things we can do to enhance the [channel partner] program we already have. You should try to recognize that it's already a several billion-dollar business. Clearly, there are a lot of happy partners there. We could do some more things like creating a more definitive program, an authorized logo, that kind of thing. We could do things like deal registration, which we've already started to do in our federal program. So we're going to work on a number of different program elements and reach out to these partners because, actually, this part of our business has been growing faster than the overall category. We take that as a positive affirmation that there is a great interest here. We're going to ramp it up quickly.

CRN: What will Dell's business model look like two years or five years from now? What can we expect to see?

DELL: I think what you can expect to see is Dell is working with a wide range of partners. Today, the direct model serves customers, and we've addressed roughly 20 percent of the opportunities out there. There are certainly folks out there who don't want to buy direct. So now, those customers will have a chance to have Dell product as well. We want, then, to work with customers in the channel to create the solutions that they can take to market to pursue the unique service elements they add to their businesses.

CRN: Dell is obviously a much different company today than it was when you started the business. How would you say the channel is different today than when you started your business?

DELL: The great thing about the channel, especially those channel partners that have succeeded, is that they keep evolving and keep changing and adding new capabilities and services. Certainly, we've seen all sorts of changes in the last 23 years, as long as I've been in this business. The smart, successful channel companies have continued to move their value-add into more interesting and developing areas. That's a continual process. It's going to keep happening forever. I think that's what the future is ... defining those things that are really relevant for customers and going to those areas. What we're finding as we go further and further with partners is that there are large range of unique solutions that these partners can provide to customers that would be way outside the range of things we would traditionally do as a company.

CRN: There are perceptions in the channel that Dell competes with resellers and aims to steal their business with low prices. Has there come a point where Dell will become a kinder, softer company to partner with than what's perceived in the channel? How would you describe Dell as a business partner?

DELL: The thing you have to recognize is that there are going to be a wide range of potential partners out there. We have found great success with a number of partners who have said, 'Hey, there are things that Dell does, there are things that we do. And guess what? They're really different. And actually we value the things Dell does, and that complements the things we do.' And we look at them and say, 'Hey, this is a great complement to what we do.' So, fantastic. Those are the kinds of matches we've been able to find. We don't seem to have a problem finding lots of them, and we think we can grow that quite substantially.

CRN: As a business partner, what can Dell offer solution providers that other companies can't? How can Dell do a better job of being a partner to the channel?

DELL: Well, we can continue to offer great value. Given that we don't use distributors and that we work directly with these partners, that's certainly quite valuable. We have some flexibility as a company that's in our historical nature, and that's quite attractive. We should also recognize that Dell is the No. 1 computer brand in America. Businesses use more Dell computers than any other brand in America. So that's pretty attractive, too, to partners. They want to be using the brand that more Americans trust than anyone else.

Next: Overcoming Dell's direct-sales heritage

CRN : Given Dell's heritage as a direct-sales company, are there cultural issues with respect to growing things like deal registration, rebates and other traditional channel program elements and strategies?

DELL: I think as you probably sensed, we're taking a fresh look at all these things and saying, 'What should we be doing for the future?' We've already started doing deal registration in parts of our business, and it wouldn't surprise me if we started doing it in more [parts] of our business. So we're really taking a fresh look at the whole thing.

CRN: In your book, you wrote extensively about your view of the channel -- this is back in 1999 -- your view of inventory and your view of retail. And you sort of describe a situation where when you tried retail, it was because other people said you really have to do this. And you wrote that when you got in, you realized it wasn't really profitable for you to go indirect. So then you pulled back and reaffirmed Dell's direct strategy. How would you describe what's gone on between then and now?

DELL: Certainly, a lot of things have gone on between then and now. That was eight or nine years ago. We have entire countries in our business that are completely indirect and channel-driven, and they are quite successful for us. And we have very big partnerships with a number of solution companies, solution provider organizations, integrators, resellers, OEM partners. Our business has evolved quite a bit from that time. It wouldn't surprise me if it continues to evolve.

What we're seeing now is we've quietly developed this business over the last few years. It has evolved quite well. There are lots of solution providers who appreciate that and are happy to engage with us. We think there are many more like-minded partners out there. We're going to keep expanding the rates of things we do, and it's constructive for our partners and for us. As I said, we're not bound by the past.

CRN: Are Dell's competitors -- feel free to name them if you want -- vulnerable to an aggressive vendor that will compete for channel mind share?

DELL: You know, I think we've heard from a number of partners that appreciate the fact that we work directly with them, that we don't have distributors, that we have a broad range of products and that we even have services they can resell. When you combine that together with their solutions, their software and their unique offerings, that makes it a very powerful and compelling solution on top of the No. 1 brand of computers in America. You put it all together, and this is sort of a latent opportunity. We have not done as much in the channel as we probably should have -- certainly not as much as we could have. So now we're going after it.

CRN: But this is still keeping faith with the direct proposition?

DELL: We're going to have a direct business, we're going to have an indirect business, and those are separate businesses. We've had these partnerships parts of our business for several years, and it has worked well. So we want to keep doing more.

CRN: Retail is sort of a different animal, but there is some overlap with the commercial reseller channel. Last year, some folks at Dell started talking about a couple of new experience stores: one in Texas and one outside New York City. The New York store isn't going to happen, we've been told. What's your thinking in terms of Dell retail, brick and mortar?

DELL: I think you'll be quite interested to see what we do, and it's going to be quite aggressive. I think you'll see Dell showing up in a lot more retail locations -- not only here in the U.S. but also in major countries around the world over the next several quarters. So stay tuned.

CRN: Last week, Dell talked a lot about Linux on the desktop and with respect to the Microsoft-Novell partnership. Is that a real potential growth area for Dell and its channel partners?

DELL: Linux has been around for quite some time, and on the server side Linux is well-established. On the client side, the opportunity is more emerging. We certainly see an enthusiast segment that is interested in Linux. We see some scientific and technical users. What we're doing very much here is listening to what our users tell us. If we see demand there, we're going to go and do our best to respond to it.

CRN: How would you describe Dell's relationship with Microsoft?

DELL: Microsoft is one of our key technology partners.

CRN: Was there any blowback from Microsoft with respect to Dell's Linux moves?

DELL: No.

CRN: Apple is set to come out with its iPhone in the next few weeks, perhaps next month. What's your thinking about that? Is it a competitive threat? Will we see a dPhone, a Dell phone or anything of that nature?

DELL: When you look at the space that exists between, let's say, a cell phone and a PC, there are all sorts of products that are put out there, proposed, experimented. Some of them have gone on to relatively nice success. But many haven't. It's sort of an area of great experimentation.

Nobody knows exactly what the right device is. It's not a two-inch screen, it's not a 15-inch screen. There are all sorts of tests in there. There are some reasonably successful products. It's an area we're paying increasing attention to. I wouldn't look for anything in the short term for us there, but we are certainly looking at it, as there is dramatic growth in next-generation wireless broadband networks. People want to take the Internet with them. It's something that's very interesting to us.

Next: Where do services fit into Dell's strategy?

CRN: How do services fit in as a competitive strategy for Dell, and how might partners play a role in delivering some of the things Dell has developed, such as remote diagnostics?

DELL: What we've seen from our partners is they are actually quite interested in taking on a number of the services capabilities or services innovations that Dell brought and extending them all the way through to their customers. Not all of them. Certainly, it's the partner's choice. But many of them are adding their value well on top of what Dell has traditionally done.

CRN: What's on your road map with that? It seems like you've spent a lot of time in developing some expertise in service delivery. What's down the line with that?

DELL: We're really working hard to help customers simplify IT. And the way to think about this is, today, Dell and some other companies have really helped to make the PC inexpensive. That's a good thing. But if you think about all the other costs that go into using computers and managing them, it's still pretty expensive. It's complicated. A lot of organizations are spending 70 percent or more of their IT budget on just maintaining old systems. They don't have enough money to go and innovate, change their business model and do new things, add new functionality, new competitive enablement. The reason for this is often because they are sort of locked into some over-proprietary products that come with software you have to rent that is so complicated you have to have armies of people to make it all work.

So what we're trying to do is look at all these dollars that are spent on this stuff and say, 'Can we really simplify these architectures and push some of that into the product and make it easier to deploy, easier to use, easier to deploy a new solution on top of?' And then [we can] begin to turn this equation around where more of your budget is actually going to new functionality, new applications, new innovation, which is what people want anyway.

CRN: Some of Dell's OEM partners have made disclosures about their OEM business that suggest Dell's printer business is declining dramatically. What's Dell's commitment to that business, where does it stand now and is there the potential to show good growth in printers?

DELL: We've sold 20 million to 25 million printers, something like that. So we're not getting out of the printer business, if that's your question. We're going to expand our participation in printing. Perhaps what you're seeing is a shift as we grow the range of technologies we have. So we don't just have one partner there in terms of ingredient technologies; we have multiple [partners]. You'll see new, fairly exciting color laser printers coming from us in the next several weeks that are industry-leading in terms of features, performance, cost and capability. There is still an opportunity there to grow a sizable business. It is a scale business for us today and one that we'll keep investing in.

CRN: Last week, the president of Acer, one of Dell's competitors, said he expects to overtake Dell in terms of market share.

DELL: Good luck with that. I think he has to look at revenue. You might want to go do the math on that. Dell's revenue in Europe is greater than [the revenue of] that whole company.

CRN: You mentioned Europe. What about growth outside the U.S.? Dell has an aggressive growth plan. Today, Dell is opening a new facility in Brazil. Are you learning anything in other geographies that you could apply in the U.S.?

DELL: We are a global company, and there's a good transfer of information we've been discussing around the world about what the best practices are in channel solution partner relationships. We've learned some things from what we've done in other companies that we certainly can incorporate here in the U.S. and vice versa. So there's active [information] sharing. We're opening plants in India, Brazil and Poland so we can support solution providers anywhere in the world.

CRN: Dell's last quarter was the first where sales outside the U.S. outpaced sales inside the U.S. ...

DELL: ... Not sales, units.

CRN: Units. Is that part of weakness in the U.S. or part of the way things have developed in the global economy?

DELL: Actually, we would be unique among computer companies to have more of our sales in the U.S. Part of it is a function of the fact that we sell more computers than anyone else. Part of it is a function of the fact that our businesses outside the U.S. have been growing and developing nicely in the past four or five years " it has doubled in size. So we'll continue to expand everywhere in the world.

CRN: Dell doesn't have a lot of inventory, which has been one of the company's hallmarks over the years.

DELL: But we can deliver very quickly.

CRN: Can you walk me through that?

DELL: [The Morton L. Topfer Manufacturing Center] will produce, let's say, roughly 50,000 computers. In the morning when we start, there are roughly 10,000 orders available to be built. But the fact is that we ship 50,000 computers. Where do those 40,000 orders come from? Those are orders we take during the day. They get shipped today. Nobody else in the world does that. Actually, we have a lot of inventory; it just moves very fast. So it's a very different model than you typically see in a manufacturing environment.

CRN: You still believe that Dell can grow sales with partners, just as you grow sales directly, without building up an inventory of replacement parts?

DELL: No, replacement parts we have. We have about 350 locations all over the world with spare parts for our products, around all the major cities all over the world to support our product. That's not counted in the inventory that you're referring to.

CRN: Last year was a significant in that for the first time Dell began shipping systems with AMD processors. It's still a relatively new business for Dell. Can you give us an idea of how that's been going and how it looks down the road?

DELL: It's been going pretty well. We've introduced AMD into, really, all of our product lines now. We started with our Dimension desktops and moved into Insprion notebooks and PowerEdge servers, and now we have OptiPlex desktops " a lot of products with both Intel and AMD processors, giving our customers a broad range of choices across all of our product lines.

*Editor's Note: Photos by Kim Kulish, CRN