Dell Cheating on the Direct-Sales Model?

capt turnpike writes "Despite its CEO saying that the direct model is the company's 'religion', according to eWEEK.com, Dell seems to be moving away from direct sales and working with value-added resellers." From the article: "Still, 'they'll never admit it or make [the channel] a formal program,' said one analyst who asked not to be identified. 'If you look at Dell's stock versus HP's, part of the difference has to do with Dell's reputation for owning the customer. There's a sense they own the entire margin and have higher profits because they sell directly. It makes them appear more valuable to Wall Street.'"

Comments

You can buy Dell stuff all over the place

[JSBiff]

I just bought a new Dell LCD monitor through a reseller. I woulda been happy to buy it through Dell, but it was actually *cheaper* buying it from a reseller, go figure.

the future?

[VoxCombo]

Dell's supply chain model was so innovative when it was introduced, but that competitive advantage won't last forever.

This new "secret" channel may be their way of testing a new innovative model.

Re:Silicon Valley Business Model is Dead

[AuMatar]

Remove MS from that list- MS didn't pay dividends until a year or so ago. I'm not sure if they still do.

Where's the V in VAR?

[i am kman]

VAR used to mean you repackaged software and hardware and sold a more complete solution. These days, HW is often bid as a commodity line item so HW VARS often simply provide the HW as a convenience to their clients. Clients know Dell's prices and that's what they expect to pay so Dell's just using this channel as an extended sales force into clients that would've bought direct anyway - who cares?

In fact, they're successful with this model precisely because they're direct channel models is so successful. With our customers, they often specifically request Dell computers and they generally know exactly how much they cost.

Check Costco for occasional big Dell discounts...

[klubar]

I've occasionally found good prices on Dell equipment (including laptops and monitors) at both Costco online and in the Costco stores. Their prices are often 15 to 25% lower than Dell direct (but probably still more than the lowest Dell corporate sales prices).

Of course, no custom configurations...but the product does ship directly from Dell with Dell warranties.

For some reason, Apple seems to dump EOL equipment thru Costco too.

Re:Silicon Valley Business Model is Dead

[syphax]

The Dell model based on the "all capital gains, no dividends" business practice pioneered in the 1980s in Silicon Valley is 0xDEADBEEF.

I think that you are sort of right, but only accidentally. I'm talking a little out of my zone, but I think this is right (and Investopedia seems to agree.

If a company is confident that it can take a dollar of profit, invest it in its own operations, and yield a return substantially higher than an investor could by receiving that dollar as a dividend and investing it somewhere else (accouting for risk, task implications and such), the investor is better off if the company re-invests that dollar (which would ultimately lead to a more valuable company and thus capital gains). If a company is mature and/or can't generate a lot of incremental profits from re-investing that dollar, it should kick it out to the shareholders, and let them figure out how to allocate it.

So as Dell's growth slows down, it's ability to generate more profit through re-investment of profits diminishes (yes, it's a lot more complicated than that). So the logic dictating retaining profits vs. paying out dividends may very well change- let's see what Dell does.

Re:Can you say "System Integrators?"

[a_nonamiss]

something like 10-15% discound

We used to move about $40k-$60k a year in Dell hardware (not huge, but not too bad for a small firm) and we got a whopping 3% discount. Not even close to enough money to cover my time spent jumping through the stupid hoops that Dell made us go through to be a VAR. Also, my "dedicated sales rep" treated us like crap. I mean, really bad. (He once told me "You don't move enough product to warrant my time right now. I'll call you next week when I'm not busy.") I know he probably gets six figure deals and we were peons to him, but honestly, with the way he treated us, I had no incentive to sell more of their merchandise. The $50k was only when people specifically asked for Dell hardware. Towards the end I stopped recommending it altogether, then we switched to other hardware providers. If my story is typical, then I can see whey Dell is sliding.

Re:Check Costco for occasional big Dell discounts.

[stefanlasiewski]

Are the prices at Costco lower then Dell's weekly 30% off sales?

I just purchased an E1505 directly from dell.com . It was several hundred dollars cheaper then the comparable models at Costco.

The Dell deals really require some understanding of the Dell rebate process, and close monitoring of the different deals. It's a little sleezy. I missed a $585 off coupon the other day when it expired at 10:00:00PM Pacific Time. I missed the coupon by 30 seconds (I entered my credit card number, hit submit, and the price on the _very_last_ confirmation screen jumped by $585. Dell support also closes at 10:00PM, so I couldn't call anyone.

Costco doesn't have this headache.