Channel Choice Means a Brighter Future for HP

Sometimes a vendor makes a move that indisputably makes so much sense, one has to wonder why nobody thought of it before.

Such is not the case with Hewlett-Packard Co.s decision to redirect its direct-sales organization in Colorado to a partner-supporting role. Partners had for years been clamoring for the Palo Alto, Calif., vendor to make this very move and clearly define the rules of customer engagement.

But at long last, the decision has come. HP is discontinuing the practice of courting users with its direct-sales force—often luring customers away from partners—except for a set of “named accounts” that the vendor will retain as direct customers.

While long overdue, the move couldnt have come at a better time. Dell Computer Inc.s direct-selling model is showing real signs of weakness and may be an indication of what channel advocates have claimed for a long time: A direct-selling approach may appear on the surface to be efficient and affordable, but it simply cannot compete in the long term with the channels well-honed apparatus.

/zimages/5/28571.gifClick hereto read Channel Insider Editor Elliot Markowitz commentary on HPs channel strategy.

Dell has warned that its third-quarter results will likely come in at the low end of forecasts because of disappointing sales to U.S. consumers and in the United Kingdom.

Granted, one quarters results do not a company break, but Dell faces some tough challenges—a newly re-energized HP channel and stiff competition from Lenovo International.

Lenovo, for one, is showing the competition no mercy. The ink had barely dried on its the acquisition of IBMs PC business when the vendor started making announcements about low-priced machines aimed at the typical Dell buyer.

Last month, the Purchase, N.Y., company turned up the pressure by agreeing to sell the wildly popular ThinkPad line through Office Depot Inc.

While Lenovo aims to compete with not only Dell, but also HP, its moves may actually help HP. For one thing, Lenovo hardly missed a beat as it picked up the IBM PC business, even strengthening its commitment to channel partners. So far the companys only misstep was an inventory shortage of some models last summer.

/zimages/5/28571.gifRead detailshereabout Hewlett-Packard CEO Mark Hurds goals for HP.

By performing well and reaffirming its channel commitment, Lenovo may have contributed to HPs decision to curtail direct sales. Add Dells floundering into the mix, and it is easy to see the wisdom in HPs decision.

For years HP has been trying to out-Dell Dell on the direct-selling front—a strategy that transformed the vendor from channel darling to ogre. Some partners grew so frustrated with HPs direct-sales obsession that they abandoned the brand altogether in favor of IBM, which in the years leading up to the divestment of the PC business had made tremendous strides in supporting its channel partners.

No doubt a momentous decision such as the one HP just made doesnt happen overnight, but it doesnt happen in a vacuum either. The Lenovo and Dell factors surely played a role in the timing.

After all, it was only a couple of months ago that HP CEO Mark Hurd was making statements that left partners wondering if the company would ever correct its channel strategy.

Having reaffirmed its channel commitment in a very meaningful way, HP now will find out for itself that trying to copy Dell hasnt been the best strategy. Dell has little to offer aside from the lure of low-priced machines, while HP and Lenovo offer not only products but also the ability to leverage the channels massive infrastructure to meet customers specific needs at the most granular level.

Kudos to HP for making the right move.

Pedro Pereira is a contributing editor for The Channel Insider. He covered the channel from 1996 to 2001, took a break, and now hes back. He can be reached at ppereira@ziffdavis.com.

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