Dell has signalled to channel partners that its transition to private ownership will not mean a return to strategy that it was once famous for - cutting out the middlemen. Shareholders yesterday took just twenty minutes to pass CEO and founder Michael Dell's proposal to remove the company from the NYSE in return for $24.9bn in …
That would appear to be common sense.
"Dell has now amassed more than 133,000 partners worldwide, with circa 4,000 certified as top-tier Preferred or Premier. It approves tens of thousands of deal registrations a quarter - the mechanism Dell uses reward firm that bring deals to the table - and this is all too much to risk."
Any other attitude would definitely be a case of torching the barn with all the stock inside.
While I agree that it is common sense, I think that the shareholders were wanting them to cut out the partners in order to get a very short term result.
"short term result".
That describes most public stock exchange shareholders right there. Short term results, and damn the long term viability of a corporation. It's why I strongly believe that only those who have an interest in the long-term viability of a corporation should be allowed to vote on its management - others can hang on the coat-tails with dividend stocks, but no freaking voting!
"I think that the shareholders were wanting them to cut out the partners in order to get a very short term result."
Cutting partners would have an negative short term result. Partners aren't employees, so there is no savings. And when you cut the partners, all of the partner revenue goes away instantly.
Cutting partners is a good LONG TERM strategy, but they will need to eased out gradually. If you use partners, the only way Dell can compete is on price, and partner/channel selling is the road that led to the failure of so many computer makers. Direct sales is the only to control the whole experience, and is something no other company actually has been able to do. Compare HP and IBMs atrocious eCommerce and fulfillment setups.
Partners just gave Dell more revenue at a lower margin. And since margin is dropping everywhere, the best strategy is go completely direct. HP and IBM can't follow them. I hope HP likes making printers, and IBM likes making big iron, because Dell Direct will take everything else.
@ Tom Samplonius
Direct works if all you are selling is hardware, preferably of a specific type. The problem with that is you become a monoculture. And while a monoculture can get big as Dell 1.0 proved, if something changes the environment for the monoculture, you're toast. And something ALWAYS changes the environment for the monoculture.
Once you get into the sort of integrated systems Dell 3.0 is looking to sell, you need channel partners. Your channel partner knows the clients, knows what they need, and establishes the one-on-one not-an-account-number-only relationship you need for the long haul. Yes, it might be more profitable if the sales organization grew that way organically and was all under the same house. It would also be more profitable if I could sell unicorn farts to power your car with no CO2 emissions for a whole year. And those two resource live right next to each other. Back here in Walgreen land you need a channel partner for that kind of integration. Dell will still be able to sell direct to small outfits that don't need that level of integration, or who have somehow landed a genius team to run their IT Support. But the channel were never going to pick them up anyway, so they aren't irritated by that the way they would be if Dell went after their customer list.
What I think you are going to see is a couple of quarters, possibly years, of Dell running losses or at least even more paper-thin margins than they have in the past while they re-org the company. That's the kind of thing you can't be on the exchange and do. You take a 1 to 3 year hit on the profits so you can more quickly get to your full channel goal, then run the next 10 years in a profitability range that makes taking the hit worth it. Gutsy and risky. Wall Street likes the first, but is even more averse to the second than vampires are to garlic and mirrors.
"Cutting partners is a good LONG TERM strategy, but they will need to eased out gradually. If you use partners, the only way Dell can compete is on price, and partner/channel selling is the road that led to the failure of so many computer makers. Direct sales is the only to control the whole experience, and is something no other company actually has been able to do. Compare HP and IBMs atrocious eCommerce and fulfillment setups."
That's the trouble; if a company that goes all direct misexecutes anything, they end up with a poor user experience. If you have channel partners, then I would think the best channel partners rise to the top and people get a good overall experience. I personally have just ordered from Dell directly though...
"Partners just gave Dell more revenue at a lower margin. And since margin is dropping everywhere, the best strategy is go completely direct. "
It really depends, revenue per unit would certainly go up but if quantity dropped too much it'd be a problem.
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