CRN FLASHBACK: When Dell's direct model rattled the channel
How the channel reacted to the growth of direct pioneer Dell in the 90s, in a launch which turned box-shifting resellers into margin-seeking VARs
"One of the things I benefited from when I started this business was that I didn't know anything," Michael Dell once said. "I was just instinct with no preconceived notions. This enabled me to learn and change quickly without having to worry about maintaining any kind of status quo, like some of my bigger competitors."
Not "maintaining any kind of status quo" certainly protrudes as one of the IT industry's rare vendor understatements. The influence of Dell was immense. But while its launch and success rightly ranks alongside Bill Gates' Windows and Steve Jobs' iPhone, it is hard to think of a bigger tech disruptor for the IT channel.
Founded in February 1984, it was during the 90s that Dell started changing the industry forever. It opened its famous manufacturing centre in Limerick, Ireland in 1990, churning out technology to order - from parts to PCs in just four hours. In 1995 it went global and the following year Dell.com launched. The site hit $1m in daily sales within six months.
A website selling low-cost technology, made to order and rapidly shipped? This was not a consultation, value-add proposition. Ongoing customers? Well, you were free to order again if you liked. No margin leaked to distributors or resellers. So how did the channel react at the time to the rise of this contrary, aggressive direct model?
"The channel said 'how dare he [Michael Dell] come along with such a model?', said Clive Longbottom, founder of analyst Quocirca. "The channel saw themselves as the gods; they were the ones who made a success of the HPs and the IBMs.
"If a channel partner told those vendors they were not going to carry their products, HP and IBM would go out of their way to court them and keep the channel happy.
"Then Michael Dell came along and told the channel 'we don't need you' and the channel was left wondering what to do next."
CRN FLASHBACK: When Dell's direct model rattled the channel
How the channel reacted to the growth of direct pioneer Dell in the 90s, in a launch which turned box-shifting resellers into margin-seeking VARs
Longbottom said the arrival of Dell forced much of the channel to reconsider its position and to reassess the model of buying kit from vendors to sell on with a margin with scant value-add.
"Resellers needed to add value to take them above what Dell was doing, which was just selling direct. So we saw a shift away from the 'pile 'em high' channel to offering customisation and setup. It all drove value-add within some of the channel."
Sarah Shields, who today is vice president of Dell EMC's UK and Ireland channel - something perhaps unthinkable in the 90s - entered the IT industry in 1995 at AMD, the semiconductor firm spurned by Dell at the time.
"I was working with the likes of Time and Tiny. When I moved into the PC area, Dell were the company everyone competed with," Shields told CRN.
"Dell had this incredible model in terms of prices, route to market, supply chain and efficiencies. The direct model was genius. The ability to order on a Monday and take delivery on a Tuesday was incredible. It was industry disruptive," she said.
"I remembering ordering my first Dell PC in 1997 and it was exciting. This massive box that arrived was the same size as a Smart car!"
Stuart Fenton, CEO of QuantiQ Technology, said when Dell started to gain traction in the mid-90s, the channel first thought of the vendor as a low-end consumer play.
"The overall market at the time was growing, but eventually resellers all saw Dell as a threat, particularly in the mid-market. Dell could complete not just on PCs, but on notebooks, printers and even software - they were able to offer the same assortment as a reseller," he said.
CRN FLASHBACK: When Dell's direct model rattled the channel
How the channel reacted to the growth of direct pioneer Dell in the 90s, in a launch which turned box-shifting resellers into margin-seeking VARs
Steve Ellis, managing director of APSU, said the arrival of Dell meant resellers had to increasingly sell their value to customers.
"There was certainly concern among the channel. Customers were getting deals and pricing from Dell and then that reseller would have to take it back to the likes of IBM and say 'you have to try to match this price'," he said.
"It was difficult to get the likes of IBM to answer that quickly and in several scenarios Dell were offering products at a price the channel could not match."
Rivals react
Equally rattled by the arrival of Dell were its vendor rivals - the incumbents that were happy riding the tech wave, mainly through the channel. Most prominent at the time were HP, IBM and Compaq. Longbottom said the success of Dell left these established vendors using the channel "between a rock and a hard place" in battling Dell.
"If you don't have a channel model, like Dell at the time, and you want to introduce one, then the channel might be wary but will embrace you. If you already have a channel model and you want to drop it, then the channel will trash you in the market," Longbottom said.
"HP and IBM also had to start selling through the web, which introduced more problems for them because they could not charge less on the web to a customer than the price via the channel.
"So they had to find a way to keep the prices high on the web, but still look competitive against Dell, all while selling through the channel and providing those resellers a margin."
Longbottom added that as HP and Dell had a high inventory model, which Dell avoided by building machines to order, it made it even more difficult to compete.
"So the channel was no longer about shifting products; those incumbent vendors needed resellers to add value, so that those who just wanted tin could buy off the web. Dell really had a massive impact on the industry," added Longbottom.
CRN FLASHBACK: When Dell's direct model rattled the channel
How the channel reacted to the growth of direct pioneer Dell in the 90s, in a launch which turned box-shifting resellers into margin-seeking VARs
Fenton said Dell was not taken seriously at first by rival vendors: "Much of the industry did not change its practices at all. At the time I was reselling Compaq, IBM and AST, and there was a lot of sarcasm about Dell's build-to-order consumer model from those core vendors. By the late 90s they recognised they were all in deep trouble."
However, Fenton said that while Dell was "terrifying" for a period of time, the direct vendor did its rivals a massive favour by training them to improve their agility.
"Dell's agility slapped the big boys in the face and it took them a long while to realise that and make those improvements. HP and IBM and all the players were trained by Dell to improve their supply chains and agility to the market."
Ellis agreed that Dell's rival vendors found it difficult to be as "nimble" in terms of getting back to resellers on pricing and deals.
"With Dell's direct model, they did not have to give a margin to distributors or resellers and Dell were very aggressive in their strategy of trying to get market share," he said.
"The other vendors felt they were still selling a quality product and customers should see the value in working with them, but Dell had commoditised the market for them."
The landscape is very different today. Freshly merged with EMC, Dell is six months into its partner programme and has been dealing with channel players for years now.
Shields added that Dell has been on an incredible journey: "When you think back 30 years and see a private company that went public, back to being private, then was part of the biggest IT merger ever. As Dell has gone forward and as the market has changed, Dell has evolved."
Such an evolution will continue, for vendors and the channel alike, while Dell-like pioneers will also emerge to give the firm a contemporary dose of its own 90s medicine.