Techaisle Analyst Insights

Dusting off my notebooks (the notepad variety) I came upon some carefully documented notes of my conversations with Dell’s Channel team, in particular with Greg Davis, Vice President and General Manager of Global Commercial Channels.  Just reviewing the notes of the previous two years it hit me squarely in my face that Dell’s channels team has been on a restless pursuit of:

• Simplicity,

• Training & enablement,

• Winning datacenter together with the channel, and

• Partner profitability

Fall of 2011

Although Dell’s Partner Direct program was formally launched in 2007 with aggressive channel recruitment and courting happening in 2008, we will pick up on our conversations with Dell’s Greg Davis and Paul Shaffer, Executive Director Global Channel Marketing & Demand Generation from the fall of 2011. Partner enablement, training, certification and integration of acquisitions had percolated to the top of the team's agenda. For an IT company which is notorious in selling direct, drastic measures were needed to become “one” with the channel. Dell delivered 75,000 training modules to its partners, 30 percent of Dell’s commercial business had started to come from channels and 58,000 registration deals were closed. With the acquisition of Force10 Networks Dell announced enhanced network certification programs and 130 premier partners got their certifications. Emphasizing that the training modules were working, Greg Davis had mentioned that top 10 partners who invested most in training had seen 110 percent growth in revenue. Fall 2011 was also the time when partners started seeing the first glimpse of gentle motivations from Dell to push deeper into healthcare segment and drive revenue from datacenter solutions. Inroads were being made into smaller partners for SMBs as much as national and larger partners.

Cloud Channel

During the same time period while Dell was building out its confidence and trust with the channels, enterprises and SMBs were moving to cloud, thus dis-intermediating the channel. Especially the VAR channels (which typically form the largest percent of channel partners of an IT Vendor) had been finding their traditional business models threatened by products and services that could be sold direct by a vendor over the Internet. To continue to adapt to the changing times and never taking its eye off the channel partners’ livelihood Dell launched cloud channel programs in the spring of 2012:

• Cloud Builder,

• Cloud Provider, &

• Cloud Service Enabler

A technical services team was also put into place to help partners sell data center solutions namely, server and storage. Dell now had roughly 250 premium partners and had delivered 135,000 training modules in the year.

Work was far from complete. More acquisitions were taking place; these acquisitions had to be integrated and above all emerging market countries had to be targeted. Both Greg Davis and Amit Midha, President, Asia Pacific and Japan, Chairman, Global Emerging Markets underscored the fact that they were working to ensure a consistent channel engagement across every market covering:

• Deal registration

• Compensation neutrality

• Conflict escalation process, and

• Executive priority

Asia/Pacific

The channel commitment work in Asia/Pacific countries in our opinion is far from complete. There are still some major strides to be made, specifically in the Asia/Pacific region. By its own acknowledgement, Asia/Pacific is the fastest growing regions for Dell which requires a constant confidence and trust building process with the channels. In many of Techaisle’s analyst interactions with channel partners in 2012 in Asia/Pacific, it was found that channels had warmed up to Dell but some questioned Dell’s sincerity whenever bigger contracts were involved.

In both summer and fall of 2012 we asked Greg Davis and Amit Midha where they thought they were with consistency and confidence. Not only were they bullish but also recognized that they have some hills to climb. They were also candid that services remain a big component of any channel’s revenue mix and while typical services such as warranty, break-fix, and insurance were straightforward re-sale of Dell Services, partnering in consulting was a bit more challenging.

Summer 2012

By the summer of 2012, efforts were paying off, 62,000 deal registrations per quarter were coming through partners with 72 percent approval rate, 35,000 training modules were being delivered per quarter, the number of premier and preferred partners had jumped to 2500, Asia/Pacific channel programs were being strengthened, SonicWALL was integrated and specific courses were introduced on how to talk to a CIO, value of integrated datacenter. Above all social media training programs were launched for the benefit of the channels.

In late summer, in a conversation with Greg Davis and Bob Skelley, Executive Director, Global Certified Partner Program & Channel, they reiterated their commitment to make Dell “easy to work with” and restated their deep & maniacal focus on training and competencies. This focus resulted in 34 percent of global commercial business funneling through Dell channels, up from 30 percent in the fall of 2011. Number of deal registrations had jumped to 71,000 and an enhanced deal registration tool on mobile platforms was rolled-out. 47,000 training courses had been delivered in the quarter and Dell now had 113,000 channel partners. Initial focus on healthcare segment had resulted in a surge in end-user customers. A 40 percent growth in certifications was also achieved when compared with previous quarter. With the integration of Wyse, a desktop virtualization certification program was introduced. Dell channels had truly arrived and there was never a question of ever turning back.

One year later, Fall 2012

One year later, by fall of 2012, Dell had 130,000 channel partners, 35 percent of commercial business revenue was funneling through channels, 142,000 training courses had been delivered in the year, number of deal registrations had shot up to 65,000 and there were now 3600 preferred and premier channel partners. In the words of Greg Davis, “Dell has the most confident and competent channel partners in the world”. One year later, I saw an urgency to deliver with a profound focus on datacenters, systems management and cloud services. Virtualization was also beginning to take center stage. Kathy Schneider, Executive Director, Global Channel Marketing & Programs, drove home the point that she and her team were focused on driving best practices across four strategic pillars:

1. Easy to do business with One Price and Sales Tools

1. Win in the Enterprise using a comprehensive sales tool aptly named as Enterprise Master

1. Training & enablement through expansion of training beyond Dell’s standard solutions to include social media

1. Partner profitability through a simple, effective and rewarding incentives program

It has been a long way from direct PC selling to indirect solution selling. Real progress has been made. Dell’s channel executives are an end-to-end solutions empowering team for the channels. Not all channels will thrive but those that are equally committed to learn, adapt and practice will certainly succeed.

Anurag Agrawal
With contribution from Gitika Bajaj in Asia/Pacific

 

ML110 Proliant from HP is a favorite of VARs/SIs in India to sell to SMBs, especially small businesses. It is “robust, configurable and affordable”. In India where there has been considerable drop in sales of commercial servers within enterprises and government segments, VARs/SIs have turned their attention to the ever-elusive SMB market segment.

VARs/SIs from Delhi to Chennai, Mumbai to Kolkata, Lucknow to Jamshedpur, Pune to Hyderabad – you get the picture – hold the key to opening up demand for first server opportunity within the SMBs. They are doing so by delivering two key messages:

1. Servers help in Business Process Consolidation: With an on-premise server SMBs can install software solutions such as locally available ERP (not SAP), accounting and financial management, CRM and many different vertical applications to improve business processes and thereby grow revenue

1. Servers help in Email Consolidation: With an on-premise server SMBs can use email applications that promote scheduling, calendaring and sharing within the same domain name. There are still way too many SMBs in India that have employees using individual emails with no common folders

The messaging seems to be working. Channels are optimistic that the small business server spend in India will reach US$75 million in 2013, a jump of 13 percent from previous year. But they also say that the path to influence small businesses will not be easy.

The question is, why have the VARs/SIs taken the lead in creating server demand.

Let us take the example of VARs/SIs in Kolkata. West Bengal is a “dead state”; State government is not spending on IT, Central government is not giving any budgets to the State to spend on IT; therefore VARs/SIs instead of sitting idle are busy pounding the streets of Kolkata, seeking out SMBs and discussing the above two key simple messages which seem to be resonating well. On the other hand, in Delhi NCR region, a hot bed of technology adoption, VARs/SIs are targeting pockets of areas such as Gurgaon and Noida.

Selling to SMBs is a very time consuming and pain-staking process. As one SI put it mildly, “there are no green pastures anywhere; we have to plant the seeds”. These channel partners have to overcome three important barriers to adoption:

1. Lack of awareness of technologies: Too much information and technical jargon is being thrown at the SMBs forcing them to “tune-off” creating lack of awareness. VARs/SIs therefore are engaging SMBs, one at a time, to make them aware what servers can do for their business

1. Lack of time: SMBs generally do not have time on their hands to search for a channel partner to help them understand technology. Even if they have the time, business priorities in many cases trumps technology and decisions get pushed to the proverbial eleventh hour

1. Affordability: Price is still a major factor for purchase of servers and accompanying solutions.

At the other extremes are cities in southern India (beyond Bengaluru and Chennai) such as Kochi, Madurai, etc. where channels are fighting a different battle, the infamous “power-cuts” for nearly 8-10 hours each day. The SMBs in this region are first focused on their usual business continuity before turning their attention to IT adoption. But the relentless channels are not giving up on their pursuit and messaging.

Server vendors like IBM that do not have affordable server products for the small business segment are paying attention to the messaging from VARs/SIs and have begun working with them selectively to organize road-shows in Tier 2 cities from northern to western India, from Lucknow to Nagpur and Bhopal.

Still there are many SIs across the country in India who are unhappy by the continuous evaporation of margins on hardware. Some even have gone to the extreme and said that “the way some vendors are working on lowering the margins on servers and storage, SIs will be forced to alternate business models in the next few years”.

India is a more complex IT market than we usually imagine. Based on local infrastructure capabilities and capacities, India has three different segments:

1. Totally mature,

1. Immature, and

1. Not Mature at all

Nevertheless, the SMB server market is still a massive, slow-moving glacier which has not yet reached the precipice of a waterfall. Till that happens, VARs/SIs are creating the demand and trying to grab the opportunity.

Gitika Bajaj

This article from the New Yorker brings out several good points about how Apple has lost some of its luster over the past months, but is still in good shape on fundamentals, although it did drop to below $400B market cap a few days ago. As we noted in December, Apple was coming under criticism for not being able to scale to demand for the latest iPhone launch and had several other hiccups to deal with, including questionable worker conditions in China and that its principal manufacturer, Foxconn, was rumored to have begun discussions to pick up the slack by investing in new factories in Brazil.

On the other side, Apple was in a bitter legal fight with Samsung, an important supplier and competitor (frienemy), and could not get an injunction to stick after a lengthy lawsuit. A recent ruling in the case reduced damages awarded to Apple from $1.05B to $600M and the appeals process is ongoing. Another cause for concern in our opinion was that Apple had slipped to 6^th place in the China mobile segment (the world’s largest and fastest growing major market), where local manufacturers Lenovo and Huawei were eating up share regardless of how much manufacturing was being done by Apple locally. Samsung leads the handset market in China, underscoring another competitive issue – in Korea, Apple is considered the most prestigious handset and it sells very well in the market, while Samsung is considered a premium brand in China due to early and broad Consumer Electronics investments by the Korean conglomerates; Samsung chief among them. China also has affinity with Korea based on the hope they can emulate the incredible economic growth shown by Korea over the last 25 years.

It was looking a little grim, but as noted at the time, Apple’s considerable war chest of almost half a trillion dollars was adequate to stave off short and medium term threats, however, as the above article notes, competitors are closing the gap and have introduced increasingly sophisticated models, most notably Samsung, with its’ Galaxy S line, which is seen as the strongest challenger to Apple’s technical leadership. Samsung’s newest version, the S IV is expected to be introduced this month, and in an example of raising the bar, is rumored to include “eye scrolling” technology.



 

The Big Picture

Apple has always been in a market crowded with well-funded competitors. Keeping the OS and architecture closed had major implications to the development of Apple, as seen above Apple never gained more than a 10-12% share of the OS market during the 1980-2000 boom of the PC market, which eventually forced them to accept both MS Office and Intel into their products to remain viable and while keeping a stubbornly loyal following for computing devices. It was really when Steve Jobs applied his design genius to a series of personal mobile devices starting with the iPod, which displaced the Sony Walkman, that Apple found a large enough consumer base to really explode onto the scene. iPhone followed with several versions and then the iPad was introduced in 2010 and the rest is history as they say…

The point here is that Apple became the largest technology company by using high-quality, high aesthetic design principles that allowed it to survive in the PC segment and applying them to a new category in the market: coveted personal technology devices that displace Phone, PC, Camera, Voice Recorder, Wristwatch, GPS, Media Player, Personal Planner, and other single use devices/apps combined into a single, small footprint high-tech productivity tool.

While Apple survived the PC Wars, many (including myself), gave them little more than niche player status and came close to counting them out altogether. The current situation is similar in a couple ways as Apple looks forward, but instead of Microsoft and Intel the arch rivals are Google and Samsung. The chart shows how WinTel dominated the PC segment from 1985-2005, squeezing Apple to 10% of the market. Currently, the rise of Mobile Computing brings hundreds of millions of new devices into the market, passing the threshold where Smartphones eclipse PCs in both volume and installed base within the next few years, creating an Android camp and an Apple camp. This has many implications for Apple, a few of which include:

Innovation: Apple needs to continue to innovate at a rapid pace. In the first 20 years of the PC market, consumers accepted a very high churn rate in both hardware and software categories because each generation was substantially more efficient and productive than the previous one. To prevent a backlash from consumers, Apple and other players are going to have to make fundamental improvements like very accurate voice recognition and new visual interfaces, not just new form factors.

Price/Performance: demonstrated Price/Performance increases in the bandwidth, applications availability and usability for less money will drive higher adoption. Again, looking back to lessons in the Personal Computer market, there was a long period of time where $2,000 was what the market expected to pay for a quality PC, and new models came out at a regular pace with faster CPU cycles, larger memory and storage subsystems, expanded OS and App capabilities, while keeping within the price range. This worked for a long time, until the market became too crowded and some vendors, led by Dell, overhauled their cost structure by cutting out the channel, using direct sales and a more tightly integrated and automated supply chain, giving back to the consumer in the form of lower prices - then it was a race to the bottom. Remember when the hot new vendor was eMachines?. The de-facto premium price-point that has been set for iPhones and iPads in the market is ~$700 and to maintain it there will be pressure to continue delivering more for the same price or less, as the slew of competitors undercut Apple’s premium.

Cutthroat Competition: All of these segments are characterized by intense competition, and with Google’s ownership of both Android and Motorola brands, things become even more interesting in the handset segment. As Apple goes it alone against the whole market, similar competitive issues will appear as they did with PCs; many companies adding applications and value to a standard operating system (Android), diffusing the R&D costs among a whole ecosystem of suppliers while Apple concentrates on staying ahead of everyone by themselves. Ensuring a steady flow of high quality finished goods coming from China, concentrated among a relatively small group of suppliers, could also become an issue as trade friction, consumer backlash and other uncontrollable variables come into play in the global supply chain and domestic market.

As Apple looks to expand into Televisions there is a potential to tap into another ~$120B market, however, this is not going to be like the introduction of the iPhone; the market is mature and growing slowly, ironically dampened by the move to Tablet computers and Internet content, with a lot of heavyweight competitors led by #1 vendor in the world - Samsung. And Google is also waiting in the wings. Déjà vu all over again. If Apple can pull a rabbit out they may be able to add enough value to demand a premium in flat screen TVs, but that is going to be much easier said than done, the brand only goes so far when displayed next to a similar product priced 20% less on the Walmart showroom - Apple's retail success is based on a much different formula. No 35% margins here without the same kind of fundamental improvements discussed above; interface improvements, simple but deep integration with other devices and something like a super green carbon footprint on top of the demonstrated product superiority. Maybe.

Again, Apple proved very resilient as a survivor in the PC wars and many underestimated their staying power. The Market Cap remains near $400B and they have room to maneuver, it will just get harder over time, as it does for every company that gets to the top.

I first met Jag Randhawa at Dell World. It was a meeting organized by Dell Analyst Relations to showcase Dell’s Cloud Business Applications. Unbeknownst to Dell Analyst Relations, we hardly discussed Dell. What struck me immediately was his smiling demeanor and an earnest desire to be a champion of business innovation and his views on what IT could do to spur growth through employee involvement and implementing new technology ideas.

We re-connected, ten months later at his office.

Jag Randhawa is the VP of IT at CAMICO Mutual Insurance Company, an SMB with slightly less than 100 employees. And he is the quintessential CIO who loves his job, his company and his fellow colleagues. He also showers high praise on Dell’s customer intimacy, likes VMware’s virtualization solutions and embraces Open source.

Specifically, he uses Dell for Network, Switches, PCs, Servers, Storage and is purchasing Microsoft Software. From VMWare, he uses their server virtualization technologies and software like VMotion and inventory management software for managing all the VM servers.

Cloud Focus

His is a Dell shop, to the extent that he has replaced all existing storage and security solutions with those from Dell. He and his IT team of twelve do not work with any channel partners. His philosophy – whichever applications that can be pushed to the cloud without compromising security of his customer data, just do it. And he has done it; CAMICO is using 12 cloud applications which are:

1. SalesForce.com – Sales Management

1. SilverPop – Marketing Automation

1. Nexure – Agency Management Solution

1. Acuity – Legal Partners Expense Management

1. DocuSign – Electronic Signature

1. LearnLive – Webinar Broadcasting and Training

1. ADP/HCM – Payroll and Human Capital Management

1. Skype – IM and Video

1. Paypal and Total Biller Solution – Credit Card Payment Gateways

1. Concur - Travel Expense Management

1. RingCentral – Telephony

1. MailRoute – Email Spam Filter

Business Perspective Focus

To increase employee engagement and help grow the business, he created a Bottom-up Innovation Program at CAMICO, in which employees submit ideas to grow the top-line, increase operational efficiencies, improve customer service, enhance business processes, and reduce cost. This program has generated many valuable ideas, and as a result he is embarking on two of his most ambitious business focused IT projects.

1. Using Open Source for eCommerce solutions

1. Developing a Big Data Proof of Concept

Both of the projects are still in infancy stage and they are both being developed using Open Source. To explain further on the eCommerce solution initiative, he says, “We currently host our website and members-only extranet using Oracle Portal, and now we are planning to use Drupal for our website and another open source software for extranet, which is yet to be determined. Our website and extranet also have eCommerce capabilities embedded in it, so we will be porting our eCommerce into this new Open Source portal”.

He is most excited about the big data project which is his initiative to provide actionable insights and perspectives for the business management at CAMICO. When I asked him about the key objective of working on a big data project, he said, “We are experimenting with Big Data using many of the Open Source software to analyze and find correlations among loss trends. The first objective is to find loss causes in our current data and subsequently use these findings to better underwrite future risks.”

Employee Engagement Focus

As mentioned earlier, The Bottom-up Innovation Program was his brain child. The program encourages all employees to submit ideas that could add value to customers or the business. Employees observe their environment, listen to customers, and bring their outside experiences as consumers to generate ideas that could benefit the company or customers. These ideas are validated, refined and prioritized by a committee of fellow employees. For every accepted and implemented idea, employees are recognized for their contributions through intrinsic and extrinsic rewards. This program makes employees more an integral part of the company, thereby increasing employee engagement and retention. The program has become such a success that he is invited to speak at several industry events for the benefit of other organizations. He not only speaks about the concept but also explains the implementation mechanics and expected outcomes of the program.

Overcoming business challenges

Similar to most other CIOs, he and his team have a long list of IT initiatives but the top four initiatives for 2014 and beyond are:

1. Replace Website, Members-Only and eCommerce platform

1. Use Big Data for analyzing current and future risks

1. Move more infrastructure solutions into the cloud

1. Build targeted Mobile solutions

But there are enough challenges that his team (he detests the word “staff”) has to overcome. As per Jag, the biggest challenge for any IT department is money and talent. He elaborates on his statement, “There is never enough money to do everything we want to do. However in my view, if there is a business justification for an expense, money is never an issue. The definition of business justification is, for every dollar spent how much money the new solution is going to make or save? There are times when you cannot find direct or immediate benefits, so you have to find creative ways to show value and sell new ideas. Cloud applications make it easier to try new solutions without heavy upfront commitment”. To qualify, he quickly states that the big data project was unscripted and not budgeted but he was able to create a business value which catapulted it to be among the top four IT initiatives.

Business Focused CIO

He is very clear in his mind that there has never been a better time to be a CIO. And he has a message for other IT leaders, “Technology has become an integral part of the business. IT leaders should always be thinking of how they can leverage technology to create competitive advantage, grow the business and create operational efficiencies.” As if on cue, he recites what he practices:

1. Partner with business peers. Look for ways to help them achieve their goals faster using technology.

1. There is no IT project; every project is a business initiative. If you want funding for any initiative, figure out how it adds value to the business.

1. Find partners who will help you showcase the value of technology.

1. Above all, build credibility with your peers by providing excellent service.

Way to go.