Supply and demand

A Quocirca survey into channel organisations' main suppliers revealed that direct vendor Dell figured highly. Why?

Earlier this year Quocirca conducted an online survey among 200 employees of channel firms in the UK.

The first thing we asked them was which they consider to be their main supplier. The five most cited were Microsoft, IBM, Hewlett-Packard (HP), Cisco and Dell, each with over five per cent of the total.

Hold on - Dell? This is a vendor that has a direct sales model, no channel management team and only one formal OEM relationship. So what's going on?

Many channel organisations, especially those working in the SME market, are IT generalists, delivering complete solutions to their customers. Requests from customers are likely to start with statements such as "We need a better way to manage email," rather than "What is the biggest, fastest server you supply?"

The 'Dell resellers' that responded to this survey listed themselves mainly as consultancies or VARs. Their main target markets were SMEs and local government organisations.

You can imagine the process that one of these resellers might go through when the first of these hypothetical requests is put to them. They will first consider what email server software best suits their customer. (Quocirca research shows that in most cases this is Microsoft Exchange.) They will then consider what hardware to run it on.

Most hardware servers are bought as a commodity. The reseller will aim to get the best price and performance for their customers. The reseller might have a relationship with IBM or HP and ask them for a quote. At the same time they can go online, or make a quick call and get a quote from Dell.

Once they have all the information they require they will prepare a proposal for their customer. If the best option is to include a Dell server, they may well do exactly that, regardless of any formal relationships with other vendors.

Does this mean resellers don't care a great deal about supplier relationships and the product margins they can get by working with suppliers? Possibly so. The research showed that product margins are tight and most resellers rely on services rather than product margin to make a living.

In such circumstances it is possible that Dell is the cheaper option, or even that it is easier to source Dell product than have a relationship with IBM or HP.

But let's keep this in perspective. We are talking about only a small percentage of a large sample. There were half as many again resellers who cited HP as their main supplier as there were for Dell. Those who listed Microsoft still source hardware from somewhere, and quite a few listed Computer 2000 and Ingram Micro.

Both of these distributors definitely would not source hardware from Dell.

But for those dedicated to working with the channel there is plenty of room for improvement. Dell would never pass leads to a reseller, but then only about 15 per cent of the survey's respondents felt they received valuable leads from their suppliers, and most value their own reputation more than supplier accreditation.

All of this underlines the fact that in the hardware market - where the product is often a commodity and margins are tight - it is increasingly difficult for vendors to differentiate themselves. Dell doesn't bother trying for resellers, other than to conveniently provide a reliable product at a competitive price.

Other vendors are striving to make a difference in the channel. For example, IBM is working hard to help resellers in their target markets. Its revamped PartnerWorld programme now includes partner industry networks to help resellers find and build appropriate solutions for customers.

Unlike Dell, IBM adds more direct value to its products by way of software and services. One of the main aims of IBM's channel programme rethink is to target SMEs better.

But hardware suppliers that work with the channel should remember that however good their products and channel programmes, when resellers are putting solutions together they will often look for the cheapest components to put together the most cost-effective solutions.

If this means the best thing to do is to buy hardware direct from Dell, then some will continue to do so.

To see the illustrations associated with this report please click here.

CONTACTS

Bob Tarzey is service director at Quocirca.

Quocirca (01753) 855 794
www.quocirca.com