Is Dell For Real?

Could it be that the channel has judged Dell unfairly? Dell CEO Kevin Rollins seems to think so, at least as far as the public sector is concerned. When prodded on the topic at the recent annual FOSE show in Washington, D.C., Rollins pointed to 10 recent deals with partners in the federal government, and said in no other market does Dell play nicer with VARs.

But that's exactly what leaves some suspicious--and others scoffing. Dell, whose entire sales campaign revolves around a direct model, may very well rely on the channel for more of its public-sector business than it seems.

Terry Castro, vice president of American Data and Computer Products (ADCPI), says she heard that nearly half of Dell's government sales happen through the channel. Whether true or not (when contacted, Dell said only that the company works directly with customers in the federal government, while also partnering with small businesses and systems integrators), many argue that reliance doesn't necessary translate to loyalty. Nor does it result in exemplary treatment of partners.

Dell presumably entertains the notion of VARs for its government business for two reasons. First, it increases the number of contracts for which the company qualifies. It's likely no coincidence, for example, that nearly all of the aforementioned new partners are small businesses that are deserving of federal set-aside dollars. And, second, the gotchas associated with selling to the government are far easier to avoid when left to the experts.

And let's be fair. A right of entry into contracts and a sector foothold are perfectly legitimate reasons for turning to VARs--an idea that is no doubt shared by the more channel-friendly vendors out there. However, in preservation of its sacred (and admittedly successful) direct model, Dell doesn't seem to want people to talk too much about support of the channel. In the same breath that he pointed to new partnerships at FOSE, Rollins said resellers--of the product-peddling variety--offer government nothing more than a markup. He also discouraged agencies from relying too heavily on outsourcing for achieving IT initiatives.

One Arlington, Va.-based VAR, who focuses on government and education and chose to remain anonymous, claims that Dell goes so far as to request that partnerships not be mentioned. Hearsay, perhaps, but this comes from a Dell partner of 10 years.

Again, Castro will tell you that support of the channel is support of the channel--begrudgingly or not. Despite no extension of terms, and flooring accounts that allow Dell to avoid carrying any receivables other than its own, she says the partnership is a good one--and allows ADCPI to accommodate the inevitable requests for Dell products that come from government customers.

Not everyone is quite so diplomatic--pointing to deals that offer too small of a slice of the contracts, and treatment that makes the term "partnership" seem like an oxymoron. The previously mentioned Arlington, Va.-based VAR, for example, says Dell consistently undercuts it by 25 percent to 30 percent on contracts.

"They do really horrible things with pricing," says the president and CEO. "I don't even care about terms or flooring--I'll pay cash. I just want to be treated fairly." While HP, IBM and Sun regularly pay visits and offer marketing and program incentives, he says, Dell barely offers up any partner go-to rep.

But the truth is, he and other Dell partners in government have their hands tied. While Dell doesn't break down revenue according to sector, Input's listing of the top federal vendors for 2004 ranked the company No. 8, with $957 million. Dell was the only company in the Top 10 to receive the majority of prime-contract spending from the sale of products. Furthermore, an estimated 30 percent to 40 percent of the company's total sales go to the public sector, and more than 50 percent of government purchases of laptops are Dell, according to Forrester.

Granted, the contracting officers that Forrester senior analyst Alan Webber spoke to said they'd never seen an indirect purchase of a Dell computer. But the obvious demand from the public sector still leaves many VARs obligated to accommodate customers.

So, will Dell at least play nice with those it does do business with? Sure--as long as it's good for them, concedes Don Parsons, vice president of Evansville, Ind.-based Automated Office Solutions. But if Dell can make more money by cutting out partners, he says, they'd do it in a heartbeat. *