Alternative Sales Channels

By Jeffrey Burt  |  Posted 2006-01-03 Print this article Print

The lack of a channel strategy also means Dell could be losing PC sales on the low end, Gray said. With prices continuing to drop, more people who otherwise would not have bought a PC—or who would have bought only one—now are going to their local retail outlet to purchase their computers.

"The company is exploring alternate sales channels," Gray said. "At the same time, the resell channel views Dell as a threat and always will."

Rollins said there are no plans to create a larger channel strategy, arguing that keeping in touch with customers enables Dell to offer better service and support. Dell has used retailers, such as Costco Wholesale Corp., Target Brands Inc. and home-shopping network QVC Inc. to reduce inventories of older products, but it wont grow beyond that, Rollins said.

"Well do those occasionally," Rollins said. "Those are more sell-through items, but, no, our issue is to work with the customer and know what they want and to keep that intimate relationship with them and not have a middleman step between us and them."

Is there a chink in Dells armor? Click here to read more. The market opportunities are large enough not to have to go through resellers, and the companys product road maps will ensure continued enterprise success, Rollins said.

Paul Gottsegen, vice president of worldwide enterprise marketing in Dells product group, said Dell servers will keep in step with Intels processor road map.

The company already has outfitted its entire line of systems with Intels first dual-core Xeons and will upgrade them when the chip maker launches the next-generation Xeons early this year. Dells strategy also is fueling a wider interest in dual core, Gottsegen said.

"Early adopters are taking advantage of [dual core]," Gottsegen said. "What were doing by putting it into one- and two-socket systems is bringing it to [small and midsize businesses], beyond the early adopters."

In other areas, Dell in the first half of this year will release OpenManage Printer Manager for the enterprise-class printer environment, which will ease the setup, monitoring and reporting capabilities on the devices, said Tony Mara, senior manager of product marketing for the companys imaging and printing unit.

Steven Meyer, vice president of marketing for Dells services division, said the company will continue filling out the offerings of its seven services suites, including support services, planning and assessment, and managed clients.

Dell also will continue leveraging its partnership with EMC Corp. in the storage space, said Darren Thomas, vice president and general manager of Dells storage business. The partnership has given Dell greater traction in the enterprise, while opening up business for EMC in the midrange and low end, he said. The fruits of that partnership are evidenced by the successful penetration of Dells small-market-focused AX100 and the larger-size Dell/EMC Fibre Channel CX product line.

Rollins said its such partnerships that enable Dell to offer customers complete packages without having to go the acquisition route, as other vendors have.

Such partnerships have been a key benefit for Duckwall-Alco Stores Inc., which began standardizing the technology in its corporate headquarters in Abilene, Kan., and in its 257 stores in the central United States on Dell products about two years ago.

Tony Corradi, vice president and chief technology officer at Duckwall-Alco, said the retailer has been able to secure good pricing on products from Dell partners such as Oracle Corp. and Cisco Systems Inc.

"Weve been able to leverage relationships Dell has [with ISVs and hardware makers] for discounts that we wouldnt have been able to get with them because of our size," Corradi said.

Other Dell customers said the company is addressing the concerns they have. Secure-24 Inc., a hosting company based in Southfield, Mich., has been replacing its HP and IBM systems over the past four years with Dell servers and Dell/EMC storage systems.

"We see a cost advantage in buying Dell technology of 15 percent," said Volker Straub, chief operating officer at Secure-24.

In addition, Dells service and solutions-oriented approach has helped Secure-24 more quickly and effectively bring the technology into its three data centers, Straub said. The company currently runs about 200 Dell PowerEdge servers and two Dell/EMC SANs (storage area networks).

Despite Dells success over the past few years, competitors are viewing the company as vulnerable on several points, including its reliance on Intel and what they see as a thin-solutions offering. HP, of Palo Alto, Calif., has been pressuring Dell on pricing for its servers and PCs, which places a greater focus on innovation and overall offerings, said Colin Lacey, director of platform marketing for HPs industry-standard server business.

"HP is very focused on streamlining operations and managing costs and pushing those savings back onto the customer," Lacey said. "Weve been able to put more pressure on Dell in pricing ... As we start to close that gap, it neutralizes that advantage [Dell historically has had in operation efficiencies]."

Sun Microsystems Inc. also is taking aim at Dell, not only with its Opteron-based "Galaxy" systems but also with its new UltraSPARC T1 servers.

Dell points to progress in consumer market. Click here to read more. The new chips offer up to eight cores and are aimed at the Web transaction arena, which is an important area for Dell. Dell dismisses those competitive threats, particularly those from Sun.

"Im in the field a lot, and [Galaxy systems havent] come up at all, which means this isnt really having any ripple," Gottsegen said.

In the PC space, Dell also is facing a reinvigorated Gateway Inc.—which has reached profitability over the past few quarters—and Lenovo Group Ltd., which bought IBMs PC business last year.

The greater competition and the realities of the market are going to force Dell to become more conservative in its economic outlook, said Gray.

Dell doesnt want to raise expectations too high and then not meet them. "They have to be patient, as they always have been," Gray said. "They need to set lower expectations than they have."

Senior Writer Brian Fonseca contributed to this report.

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