Dell Partners: Channel Conflict Is Getting Worse

“It’s not just for client systems anymore. Our biggest issue across the board is the Dell direct mentality, because there are just no checks and balances. … It’s just like the Wild West out there,” said a top executive from a longtime Dell Titanium partner.

Conflict between Dell Technologies’ 27,000-strong direct salesforce and its channel partner community has moved beyond PCs into lucrative storage, server and hyperconverged infrastructure deals, Dell partners told CRN.

Some of Dell’s most strategic solution providers said the conflict has reached a breaking point, forcing them to shift resources toward Dell competitors that won’t battle them in the sales trenches.

Dell partners interviewed by CRN said they have several top-of-mind concerns, including the direct salesforce increasingly trying to steal new customer opportunities, particularly through controversial deal registration rejections; the loss of seasoned partner account managers who used to act as champions on the channel’s behalf; and the lack of a strong channel strategy for Dell’s Apex as-a-service offering.

“Dell direct is our biggest competitor,” said the president of a longtime Dell Titanium partner, who went all-in with Dell after its $67 billion acquisition of EMC five years ago and is now shifting deals to Lenovo. “It’s not just for client systems anymore. Our biggest issue across the board is the Dell direct mentality, because there are just no checks and balances. … It’s just like the Wild West out there.”

[RELATED: Dell’s Bill Scannell: Our Channel Strategy Hasn’t Changed]

Dell’s direct sales team recently swooped into one of the solution provider’s longtime existing customers that he’s been selling Dell storage infrastructure and services to for years and undercut his team’s price for the project, which included a large order for servers and VMware licensing, the executive said.

“Losing that deal cost our company hundreds of thousands of dollars of operating income, millions of dollars of revenue, and tens of thousands of dollars of services,” said the frustrated solution provider.

In an exclusive interview with CRN, Bill Scannell, president of global sales and customer operations at Dell Technologies, vehemently denied that there is widespread Dell channel conflict.

“Are there a couple of partners that have an issue?” asked Scannell rhetorically in an interview with CRN. “I’m sure they do. And as I’ve said to them on stage at FRS [Field Readiness Seminar, Dell’s sales kickoff] and at the partner Advisory Boards—call us. I’m [email protected]—publish that. If people have an issue, call me. Our partners are our most important assets. It’s our route to markets. It’s why we’re growing so well.”

The Dell Titanium partner president was among 10 top solution provider executives interviewed by CRN—nearly all of whom are Platinum or higher partner levels and spoke on condition that they not be identified for fear of reprisal from Dell—who said they have seen channel conflict worsen over the last several months. As a result, they said, they are now looking to invest more in Dell rivals such as Lenovo, Hewlett Packard Enterprise, HP Inc., Nutanix, Pure Storage, NetApp, and Cisco.

“We just signed up with Lenovo within the last month,” said the Titanium partner president, whose Dell sales are up in the low single digits this year on a 10 percent decline in net profits for that business. “We need options because it used to be with our Dell loyalty, we were willing to walk away from revenue because we would get something else in return, like they would bring us into a deal. That’s no longer the case. We’re not walking away from any revenue in our accounts ever again,” said the executive.

As a result of Dell’s behavior in the field, the solution provider plans to bring other vendors into accounts where appropriate, something he never would have considered in the past.

“If Dell won’t give us deal registration or if they’re submitting direct proposals, then we’re submitting competitive bids.”

Dell partners said the channel conflict began escalating this summer and has gotten worse over the last several months.

They expressed anger and confusion over what they say are the Dell direct sales force’s moves to push the channel out of established accounts even as Dell’s profitability soars. Dell’s net income hit $3.9 billion in its recent third fiscal quarter 2022, up 341 percent year over year.

“Sometimes Dell says they have to go direct in order to hit a price point because they claim to be at a negative field sales margin. ... It’s like, ‘You guys are having record quarter over quarter over quarter with profitability ... so stop telling me that you’re at negative margin and I have to be cut out of a deal,” the partner executive said.

The partner said the legacy Dell direct sales culture is taking hold once again in the field. “There’s no accountability down at the field level for violating channel rules,” he said. “A lot of the legacy EMC people are just being weeded out. That lets the old legacy Dell culture bleed back through. … The Dell direct culture is coming back.”

A sales leader from another Titanium partner told CRN that the channel conflict recently spread into a professional services engagement with a longtime customer that his company brought to Dell. “We always do the deployment services on all these products, and it was actually our customer we brought to them,” said the executive. “So as a customer we had for years, we brought them in, we engaged, and Dell puts together a quote with professional services in it. We said ‘Hey, we’re doing those services.’ And then the rep basically said, ‘Well, no, I’m selling the services. If you don’t like it, I’ll just take this deal direct.”

The increased channel conflict in North America comes after CRN reported that Dell North America President John Byrne earlier this year informed Dell partner reps that taking Dell Client Systems Group (CSG) business direct is a top priority. Dell would not comment on whether it is paying direct reps more, less or the same to sell PCs direct in North America.

Dell partners said the channel conflict has also been exacerbated by an exodus of longtime partner account managers in North America stemming at least in part from a reduction in the on target earnings (OTE) for partner rep positions by as much as 30 percent, partners told CRN. CRN first reported on the reduction in Dell’s PAM ranks in September.

Scannell, who oversees both direct and channel sales throughout the world, denied that there has been a shift in Dell’s channel strategy. He insisted, that there has been no Dell direct compensation changes that would drive increased channel conflict. “Our strategy hasn’t changed,” he said. “There’s a lot of questions around, ‘Have we changed our strategy?’ Our strategy is to grow faster than the market and through all routes to market—whether it’s directly with our customers, or through our partners, or through our alliance partners. That’s across the entire portfolio. So we are open for business. And it’s working really, really well.”

Dell’s channel business, in fact, has grown faster than its overall business in fiscal year 2022 year over year, according to Scannell. For its first fiscal quarter, Dell’s total sales increased 12 percent, while channel sales increased 14 percent. In the second quarter, Dell’s total revenue increased 15 percent, while partner sales grew 29 percent. In Dell’s most recent third quarter, total Dell revenue grew 21 percent compared to 34 percent growth from partners. “Partners are growing faster than we are as a company right now. We should be dancing in the streets,” said Scannell.

The Dell Direct Loophole

Dell partners told CRN that the channel conflict is manifesting itself as an increase in the number of deals nationwide getting rejected from registration. In some cases, those rejections come because Dell direct reps are going behind their backs promising to give customers a lower price if they buy direct, solution providers told CRN.

They said the direct sales encroachment has gotten worse in the last several months, to the point where their sales reps are no longer willing to share new deal or account information with Dell direct reps.

“What our reps are now doing as a result [of the channel conflict] is going to find channel-friendly vendors like Pure Storage, NetApp, Cisco and others, because we don’t want to tell Dell anything about these customers now because of that behavior,” said a top executive for a Dell Platinum partner. “We don’t want to have to go into every engagement wondering when we’re going to get shot in the back of the head, and [a deal is] just going to get ripped out from under us.”

The Dell Platinum partner said the strategic shift toward other vendors came after several questionable deal registration rejections.

“We won’t get a deal registration, but then we go to the customer and say, ‘Hey, we’re unable to get your preferred pricing on this deal because Dell direct is already working with you guys.’ And a customer has no idea what you’re talking about. They’re like, ‘I’m not talking to anyone from Dell right now.’ There’s shenanigans going on for sure,” said the partner.

What’s more, partners said they have seen Dell direct reps aggressively attempt to gather account information from channel sales reps in an effort to take new opportunities in existing accounts—such as new infrastructure orders or services sales—direct.

Multiple partners told CRN that Dell’s direct salesforce is getting away with snatching new opportunities from partners through what they call the Dell direct loophole. Dell partners said Dell’s deal registration terms open the door for Dell reps to take the deal direct if the customer makes that request.

Sources said the Dell deal registration terms and guidelines outline exceptions through which Dell “may, at its discretion,” go after the business direct, including “if the end user requests that Dell Technologies quote or bid on the deal.”

The problem, Dell partners told CRN, is Dell reps are encouraging customers to go direct when those accounts wouldn’t have asked to do so of their own accord.

“They’ll say to the customer, ‘Well, if you buy from your partner, it’s going to cost you more.’ Then they’ll come to you and say, ‘Well, the customer wants to buy direct because it’s going to cost them less,’” said one CEO of a frustrated Dell Titanium partner. “So now when they come to you and say, ‘Listen the customer wants to buy direct. I’m sorry,’ you don’t know if the customer really wants to buy direct or if that is being fed to them in a meeting that you’re not involved in.”

Multiple partners said they had similar experiences for both Dell CSG and ISG customers.

The CEO from another Dell partner said Dell direct reps are engaging in what he called “whispering” campaigns with customers to capitalize on the deal registration clause that says, in essence, “if a customer asks us to quote direct—all bets are off.” “What they are doing in these situations is telling the customer to ask for a direct quote. We believe they are whispering in our customers’ ears and then taking the business.”

Other Dell partners said they have seen similar deal registration scenarios. “It’s so easy for a Dell rep to sabotage the partner just by going through the CIO or going to the head of procurement saying, ‘I can sell it to you cheaper if you buy it directly,’ and that’s what happens,” said the CEO a Dell Platinum partner. “Then a Dell rep can say, ‘Oops, the customer told me they would like to buy direct.’ And that’s all they have to say—that’s the loophole in their whole program. If they say that, there’s no manager that’s going to go verify that. There’s no channel leadership that’s going to talk to the customers.”

The client systems channel conflict, meanwhile, is also on the rise, partners said.

The Dell partner who expressed concern about “whispering” campaigns said Dell recently took a client deal direct that his company had cultivated and had been working side by side on through joint proposals with Dell reps.

“We’ve been working with that account forever on Dell devices, doing the professional services and imaging,” said the CEO. “They stole it right out from under us. We lost hundreds of thousands of dollars in gross profit on that deal.”

In response to the conflict, the CEO told CRN he has instructed his sales team to move customers to alternative products and solutions. “We are moving customers away from Dell whenever we can,” he said. “The message we have delivered to sales reps is: if you have a customer buying Dell, obviously we need to keep supporting the Dell platform. But any chance we have got to disintermediate Dell, we will do it. If we are making a recommendation to the customer, Dell is going to be the last one we recommend.”

Scannell: Deal Registration Issues Are Not Widespread

When asked about partner complaints regarding deal registration and direct sales reps undercutting partners on price, Scannell said those instances are the exception to the rule and that the Dell deal registration process is working.

“We will have people in the field do the wrong thing from time to time,” said Scannell. “If that happens, I want to hear about it. We take deal registration and protecting our partners’ opportunities very seriously.”

Dell approved approximately 130,000 registered deals in its third quarter, up 9 percent year over year, while Dell’s deal registration approval percentage was “roughly flat,” according to the vendor.

Scannell did say partners need to understand Dell’s rules of engagement when applying for deal registration, especially if it’s a Dell direct account.

“If I’m in an account and we’re selling directly to that account, we have a direct relationship, there is no value for me to bring in a partner in the middle of that, unless the customer wants to see that. We ask our partners to go find new opportunities, ‘Go take share away from our competitors.’ And we’ll always accept those. But if we’re in the account, we don’t need help,” said Scannell.

Additionally, he said, “If another partner is working it, we’re not going to take a deal reg. If it’s not available because it’s a public bid, we can’t take the deal reg. If we have a contract that we have to bid directly with the customer—there are certain contracts that say, ‘We are not going to go through a reseller’— [that’s another reason]. So there are a handful of reasons why if it doesn’t meet those criteria that we won’t accept the deal registration.”

Dell has and will continue to take action against direct reps who violate Dell channel deal registration, Scannell said. “Am I saying, we’re perfect and it never happens, [that] what you described a moment ago has never happened — I’m sure it has,” Scannell said. “I know we’ve taken disciplinary actions [against violators]. First and foremost, we don’t pay reps or any of the management team if they violate a rules of engagement. And a second offense can lead to significant penalties, including termination.”

‘Well Over 50 Percent’ Of Dell Sales Go Through The Channel

When CRN asked Dell Technologies to provide an exact percentage of how much of its total revenue goes through the channel versus Dell direct, both for its CSG and ISG businesses, the company declined to provide the information.

Overall, Dell said “more than half” of its total revenue comes from the channel. “We’re roughly a $100 billion company with over 50 percent of that going through the channel partner. So that’s over $50 billion,” said Scannell. “I don’t want to get exact on what percentage goes to partners, but it’s well over 50 percent.”

However, one Dell partner said the “over 50 percent” figure isn’t something to boast about.

“I told Dell already, I’m like, ‘You guys should be embarrassed by that number. Don’t throw it around like it’s a great thing that 50 percent of your data center business goes through the channel. That’s embarrassing in the technology world when all of your other competitors are predominantly channel-focused,” said the Dell Titanium partner president who said Dell direct is his biggest competitor.

Comparatively, HP Inc. and Pure Storage said in the 2021 CRN Partner Program Guide that over 90 percent of their revenue comes from indirect sales; Hewlett Packard Enterprise and NetApp said more than 70 percent of sales are indirect.

Lenovo—one of Dell’s largest PC and data center foes—currently has over 75 percent of its total business going through the channel.

Lenovo’s North America President Vladimir Rozanovich in November told CRN his company was focused on onboarding disgruntled Dell partners in a move to win over U.S. market share in both PCs and data center infrastructure.

“When we look at how our competitors like Dell are defocusing on the channel, it means they’re taking a lot of this business direct in many cases,” Rozanovich told CRN at the time. “They might be doing it to boost their profit margins in some areas, but the reality is, it’s taking away revenue opportunities for the channel, and in many cases, taking customers away from the channel.”

Dell Apex Is A Direct Play

Some partners CRN spoke with are also concerned that Dell Apex was launched without a channel sales plan.

“They started going direct into some of our larger run-rate business customers that we were pursuing together for years and saying, ‘Hey, maybe you want to consume it like this going forward? By the way, we’ll get you a quote to do that.’ Unfortunately, you have to get it from Dell directly because there [wasn’t] even a channel program for this yet,’” said one Titanium partner. “That was very frustrating because Apex was kind of their new excuse.”

Scannell stressed that Dell is firmly committed to working hand-in-hand with partners to drive Apex as a service deals. “Very quickly, we’re going to make sure that we can transact Apex offerings through our channel partners,” he said.

‘Decision Time For Dell’

Some Dell Technologies channel partners said the company needs to make a change before it loses ground to competitors.

“Every partner that I’ve talked to is either already well down the path on [shifting business toward Dell’s] competition, or they’re just as frustrated as I am and they’re moving in that direction,” said a Dell Platinum partner. “Something’s got to change.”

Several partners told CRN they will look closely at the new Dell partner program terms and conditions, rules of engagement and incentives for its new fiscal year, which begins Feb. 1, 2022.

“Let’s see where [Chairman and CEO] Michael [Dell] and [Vice Chairman and Co-Chief Operating Officer] Jeff [Clarke] decide to put their bets related to the channel in fiscal year 2023,” said a top executive from a Titanium Black partner. “Do they just think they’re going to get that market share cheaper by not paying the channel? I think they’ll be really mistaken if they make poor decisions. They’re not going to abandon the channel all together, but if they make a poor decision to reward the channel with medium to lower-end programs in the data center space, they’ll learn firsthand that the channel actually does carry the sphere of influence in terms of what OEMs people are buying. … This is decision time for Dell.”