Dell Software and Services: Upside for Partners?

Dell (NASDAQ: DELL) at its annual shareholders’ meeting last week strongly made the point that it is shifting from a product-focused company to one built on enterprise solutions, services and software. The vendor pointed to solutions and services accounting for some $18.6 billion in sales, or 31 percent of overall revenue, in fiscal year (FY) 2012 and 50 percent of its gross margin in the first quarter of FY 2013.

“The key to our success is growing Enterprise Solutions, Services and Software at a rate faster than the market,” said Brian Gladden, Dell chief financial officer.

So how’s that plan going so far? It depends on how you look at it. In FY 2012, Dell posted a substantial $3.4 billion profit but in Q1 FY 2013, year-over-year per share earnings fell some 22 percent, revenue slipped 4 percent and, since February, its stock price has dipped from north of $18 to its current level of about $12.

Among the quarter’s sliding numbers, however, a 2 percent uptick in Enterprise Solutions and Services was one bright light, providing a bit of tangible evidence underwriting the vendor’s strategic jaunt away from selling point products.

It just so happens that many — actually, most — channel partners derive the lion’s share of the value-add they deliver to midmarket and enterprise customers from solutions, services and software. For Dell’s channel partners, then, what does the company’s evolving business strategy mean?

The answer is it’s hard to say. As a case in point, right now, only the vendor’s PartnerDirect Premier level, the highest tier that includes partners who have committed to $750,000 in annual volume, can gain access to the company’s 11 Solution Centers worldwide — where much of the solutions pairing and dancing takes place. (Premier level has a $750,000 volume require; another tier called Preferred has a $250,000 commitment requirement.)

As the company moves more toward solutions, services and software, will the criteria for channel partner involvement change to offer wider access to the technical briefings, architectural design sessions, proof-of-concept and ISV certification offered at its Solution Centers?

One clue may be that in May, Dell opened its 11th Solution Center, part of a $1 billion effort, in New York and pointed to the more than 2,400 customer engagements that have been completed at those facilities in the past year. No mention was made of how many of those engagements included, or even involved, channel partners. Maybe some did, maybe not.

Still, without question, many of Dell’s channel partners rapidly are evolving from deliverers of products to suppliers of successful business outcomes to end users, a business model that relies heavily on solution, services and software. Let’s see if Dell takes its channel partners along as it transitions to a different kind of company.