Dell's Distribution Dilemma

Dell's entry into the channel could have greater implications for distributors and the vendor than they imagined.

One of the thornier issues that the channel as a whole is going to have to come to terms with now that Dell has a formal channel program is the company's growing footprint as a distributor. Beyond selling millions of machines, Dell also resells, among other things, storage products from EMC; virtualization software from VMware and Virtual Iron; printers from Lexmark, Xerox and Samsung; and a raft of security products from multiple vendors.

Because of Dell's size, it usually gets these products at a lower price than solution providers can get doing business directly with those manufacturers. So by doing business with Dell, it's theoretically possible for the solution provider to get a better deal from Dell than they would from either EMC or a distributor.

This potential price advantage is going to test a lot of the loyalties in the channel and may also pose a dilemma for any distributor thinking about adding Dell products to their line card. After all, if Dell is in the channel they are probably going to want to eventually take advantage of a distributor's ability to reach out to thousands of solution providers at a lower cost than Dell can do on its own.

As for the distributors, they are going to have to weigh just how much they may have to alienate Hewlett-Packard, Lenovo and others to pick up additional business. And some of them, such as Tech Data, that already sell Dell alongside a lot of third-party products are going to have to wonder how that business will continue to evolve now that Dell is reselling those products to channel partners that may have otherwise done business directly with the distributor.

Dell channel chief Greg Davis says that Dell will cross all these bridges when it comes to them, preferring instead to concentrate on the basic fundamentals of setting up a channel program that directly manages Dell's solution provider relationships with as little fuss as possible.

That's all fine and well for now, but as the Dell channel continues to become more complex, the company will continue to walk a fine line between being just a manufacturer and being some sort of unique reseller/distribution hybrid the likes of which have never really been seen before in the channel.

It will be a while before all this potential conflict plays out in the channel, but one thing is for sure, what Dell is trying to do today will seem relatively simple compared with the issues that will need to be resolved tomorrow.