Dell’s Winning SMB Strategy in India, For How Long?
Complex PC Reseller Landscape
There are 30,288 channel partners in India, of them, 24,850 are PC resellers. As per Techaisle research, volume resellers account for 12 percent of all resellers but they constitute 47 percent of PC shipments. 50.2 percent of the PCs sold by these volume resellers go to the SMB segment. On the other hand, micro-resellers account for 16 percent of reseller PC shipments but constitute 50 percent of reseller universe. Their main customers are consumers, nevertheless 28 percent of their shipments also go to the SMBs. India is a country where dealers are evolving from a mono-brand approach to competing multi-vendor offerings, where low margin in hardware sales is driving dealers towards value-added services and a creation of a more skilled dealer channel. In India, people have begun to frequent malls-like culture and they are part of the consumer segment. Small businesses and selling is focused on price conscious provisioning of PC devices. Techaisle Channel Research also shows that there are many stages in the value chain before a PC reaches the end customer affecting the price structure. With additional presence of 6,340 system builders, the Indian channel landscape is not only complex but constantly evolving.
In the last two years, Dell has established itself as a leader in the Consumer PC market and is now trying to extend the same winning streak to the SMB market. But was it a stroke of luck, its own strategy that worked or the fault of others? Luck does not play a role in a market which is still considered nascent and growing. Dell has been winning both, due to its own efforts and the wrong steps of others. This winning position is for Dell to lose and others, namely HP to regain.
Let us break it down. Dell started its winning streak with the consumer segment. Initially rejected by Redington and Ingram, Dell motivated and signed up with Supertron to make them their National Distributor. Supertron with no presence beyond the Eastern Region quickly became a useful crutch for Dell to expand and establish itself in the India market. With the success of Supertron, Dell also picked up Global as a distributor. With an explosive growth in consumer notebooks, Dell began establishing regional distributors for reach and market penetration. Their goal - to sell 5 notebooks for every 0.75 desktops.
During the growth phase of Dell in India, HP began to falter for a variety of reasons. Redington, a trusted partner for HP, which had initially rejected Dell’s offer now chose to drop HP and partner with Dell; albeit for some products only.
To address the SMB market in India, Dell developed a “Direct-to-Dealers” strategy. It is a two pronged strategy where Dell deals directly with end-tiers of channel partners for Tier 2 and 3 cities by passing over the distributors. However, for Tier 1 cities, Dell follows the traditional route of selling through distributors. Dell itself does not stock and sell with channel partners but sells on a back-to-back basis. Targeting low-end products for SMBs, Dell is also using the retail channel to sell Vostros, a PC specially created for SMBs. This is a key factor since traditionally vendors have shied away from selling commercial SKUs through predominantly consumer channels. Needless to say, Dell has recognized that the small businesses, especially less than 20 employee size companies use retail channels to buy PCs. For its lower mid-market customers, Dell is encouraging its channel partners to sell on a solution based approach.
With limited experience in dealing directly with the VAR/Dealer channels, signs of frustration are becoming visible, not yet within Dell but among the channels. Account managers are pushing channels to “pick-up vendor mandatory stocks” even if the inventory is not sold out. At the same time, channels mention that Dell does not provide any price protection nor does it yet understand the buying cycles in India which is different from many of the mature markets. In lieu of price protection, Dell has designed a rebate program for its channel partners and empowers them with white papers and training programs to help them achieve better profitability.
Even if channels show some negative sentiments, there may be a positive side to Dell’s PartnerDirect program, that has provisioning of single point of contact for SMBs to reach channel partners.
Targeting the SMB Market of Tomorrow
Dell is trying to not only target today’s SMB but also to keep in sight the future SMB. Besides a distribution channel strategy, Dell is trying to focus on Cloud and Mobility for the SMB market. This itself is a great strategy but is yet lacking in proper execution. Vendors such as HP may have a much better chance of executing on the Cloud and Mobility front. Both these solution areas require extensive and experienced channel partners. Dell is in the early stages of partner development and majority of them are focused on basic building block products such as PCs and Servers.
HP on the other hand has the capability to analyze its partner network and segregate them by expertise levels, creating partnerships among them to design a coherent and executable Cloud and Mobility strategy. On the flipside, since Dell’s channel ecosystem is relatively new, it has a rare opportunity to build a long-term program based on learnings from its own mistakes and partner feedback.
Although Cloud Computing in India is on the rise, there is more hype than substance, and there are more free services being used than paid. With a limited bandwidth and internet speeds, it may not be long before cloud services get delivered over the wireless. Because of Smart phones and other mobile devices, the march towards mobility in India cannot be stopped. However, SMBs mostly want integrated solutions to limit complexity and therefore seek channel partners that are capable of delivering cloud and mobility solutions together in an integrated way. Unfortunately, very few channel partners currently do so – especially for Dell. Those that do are financially out of reach of a typical SMB customer. And this is making SMBs unsure of overall benefits of Cloud and Mobility and a desire to spend. Dell has to identify channel partners that could be ramped up and focused on delivering Cloud based solutions that have higher relevancy to SMBs.
Dell may be winning at this stage but its competitors are hot on its heels.
Anurag Agrawal is the CEO of Techaisle, a global market research and consulting company focused on SMBs and Channels. Prior to Techaisle, Anurag headed Gartner’s Worldwide Research Operations and before that was with IDC.
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