Microsoft Claims Partners Will Be Able To Compete With Dell On Surface Pro Pricing

Microsoft insists Surface Pro resellers will be able to "compete" with Dell on Surface Pro pricing, sources told CRN.

Furthermore, the software giant, which provided a $2 billion loan to Dell as part of the hardware behemoth's $24.4 billion leveraged buyout two years ago, claims that Dell will not "actively" sell Surface Pro into SMB and midmarket accounts, according to solution providers who were briefed by Microsoft on the Dell deal.

Microsoft claims the Dell pact is targeted squarely at enterprise accounts with complex global purchasing requirements.

[ Related: CRN Exclusive: HP VP Sounds Off On Channel Controversy Surrounding Deal To Resell Microsoft Surface Pro]

In a carefully worded response to partner questions, Microsoft refused to comment on specific details of the pricing model with Dell, but maintained it is "confident" partners will be able to compete with Dell for customers where "pricing is a major consideration."

When asked to confirm the communications with partners, Microsoft told CRN it "does not discuss the terms of the agreements with its partners." Dell had not returned a call for comment as of publication time.

Microsoft, which is under fire from partners for a deal opening the door for both Dell and Hewlett-Packard to start reselling Surface Pro in October, also claims that its enterprise device sales team will not earn more or retire quota faster if they sell through Dell.

Microsoft is fielding the questions from partners angry about a deal disclosed earlier this week that turns Dell and HP into Surface Pro resellers, putting them in direct conflict with the channel.

While Microsoft, Redmond, Wash., has reached out to channel partners regarding the Dell channel conflict issues, it stated that it will share details on HP's plans at a later date, solution providers said.

Partners interviewed by CRN expressed skepticism, saying they expect both Dell and HP to have a significant pricing advantage that both vendors will exploit in the sales trenches against them. They characterized Microsoft's response to their concerns as politically correct rhetoric that will have no bearing on what actually takes place once Dell and HP start selling Surface Pros.

"This just means Dell is getting a better price but we don’t know how much," said one CEO for an enterprise solution provider that sells Microsoft Surface Pro, who asked not to be identified. "This is a change in what they committed to doing with us when we started selling Surface. I'll make a decision on what we do as a result of this, but that's difficult to do when you have Microsoft not being forthright and forthcoming. A straightforward question deserves a straightforward answer."

The executive said Microsoft should be up front with its partners about just what kind of pricing terms and conditions Dell is receiving under the pact and what the rules of engagement are with other Surface Pro resellers.

"If Microsoft is going to provide preferential treatment to someone, that is their call," said the CEO. "I need to know what those terms are so I can make a decision on how I am going to spend my time and energy."

Another top executive for a national Microsoft partner, who did not want to be identified, said he and his sales reps are going to be watching closely to see whether Dell and HP will be able to sell the Surface Pro below the cost of other Surface Pro authorized device resellers.

"If we find out we are losing deals to Dell and HP because of this, there is going to be blood in the water," said the executive. "The minute it isn't a level playing field or we lose a deal in the midmarket or SMB, I am going to call Microsoft on the carpet. Until they start taking deals from us, though, it is business as usual."

A vice president for a top East Coast solution provider that is buying Surface Pro from distribution, said he is already battling Dell in the sales trenches. "We've always been in competition with [Dell] anyway," said the executive, who asked not to be named. "So, it's not new. You can still go online and fire up a Dell Latitude 5550 and configure it and pay pretty close to what I pay for it.’

The president of an East Coast HP solution provider, who did not want to be identified, said he sees the HP/Dell-Surface Pro deal as just more of the same channel conflict that has always existed in the channel.

"Dell is and always will be a direct sales company as far as I’m concerned," he said. "Microsoft Surface is what it is. Guys like us couldn’t resell that product anyway. If a client really wants that device, either way, they are going to get it. If HP and Dell can make money by selling it, go ahead, because I can’t stop that train. I can’t believe that this is the event that would open up people’s eyes to the conflict between manufacturers having the ability to sell direct vs. channel partners. That conflict is and has always existed in the PC business."

Microsoft's channel strategy around the Surface line has been controversial since the device first launched as a retail-only product in 2012. Since then Microsoft had slowly opened the device to IT channel sales, but only to a select group of partners.

A Dell partner, who is not authorized to sell Surface Pro, said it is a "shame" that he has never been able to sell it, even with the low margins for reselling the device."I'd love to have a conversation [with Microsoft]," said the partner, who asked not to be identified. "I'd love to capture that wallet share, but it is what it is, and it's like, 'Really, you guys want to do it that way?' "

PUBLISHED SEPT. 11, 2015