The Dell Effect

Nevertheless, in the US market the situation is not quite so comfortable. Several systems integrators that have said their Dell business is on the rise admitted that the services work they do is for a lower margin than they would normally receive on their own.

In one example, Dell charged the client US$400 an hour for professional services, while the systems integrator doing the work was only being reimbursed for only US$150 an hour. This is compared to an hourly rate of US$200 to US$275 per hour for the same work, depending on the engagement, if the SI brought in the job on its own.

Several companies also said Dell requires its professional services partners to sign a no-
compete agreement that prohibits them from doing any work with the client outside the Dell relationship, however, this could not be confi rmed locally.

So where does Dell intend to take its services efforts from here? Dell’s Windeyer wouldn’t discuss it except to say that it was, at least initially, going after the low hanging fruit by continuing to work on increasing its attach rate.

Nevertheless, few of the system integrators said they had recently come up against Dell when competing for services engagements. Leading Solutions CEO, Frank Colli, says: "We haven’t seen them at all. I’m sure they’re out there and we have some clients where we compete against Dell for hardware but Dell hasn’t offered any services to them as yet.

"Where we always see them is at a price driven point, not doing services stuff. Any time we see them out there we generally lose business to them because they’re extremely aggressively priced but we tend not to lose business to them at the same price or higher. It will be interesting to see how they in the market with the services product offering but I don’t know if Dell really will be able to deploy the same model to services as it has to hardware."

By contrast, Dimension Data’s national practice manager, data centre solutions, Ronnie Altit, often comes up against Dell in various accounts. "Dell is not yet doing a consultancy led sell, it’s selling services with products such as its SANs," he says.

Business Computer Services' Nade: Smaller companies want ongoing support from resellers

And while he may see Dell in the market, Altit believes that Dell is going to struggle to get the sort of efficiencies it is after in the storage market. "Storage is not yet commoditised," he says.

"There are still a lot of companies that struggle to understand the storage concepts and the most effective and efficient ways to implement a storage solution. Dell obviously has a large incumbency with its server business and as organisations are consolidating servers they are also looking at storage at the same time. But with storage, backup and archiving becoming inextricably linked you need a breadth of skills to cover all three and not just from a hardware play."

At the small to medium end of the services market, Dell doesn’t seem to be having too much of an impact. George W. Nade, principal at reseller Business Computer Services, says he wasn’t aware of what Dell was doing in services. "We work in the small end of SME and at that end we are seeing a lot of clients looking at Dell because of the pricing but unless they have their own IT department, we’re not seeing them buy Dell from a business point of view."

He says from a margin perspective the company can’t compete against the likes of Dell in a straight hardware sale and "smaller companies want the ongoing service and support from organisations such as us".

While Nade concedes that the thought of Dell pushing services on his patch does cause some concern, ultimately it’s not just about dollars and cents. "With small clients, consistency of people is important. They like to see the same person and service they can reasonably rely on rather than a services organisation where they have to explain the same thing 17 times to 17 different people. I see it as something we can validly sell against unless price comes into it."

Some customers found the pricing of Dell servers, for example, was too good to pass up but his company would be employed to maintain the software.

"We have a policy of not touching hardware not supplied by us while still under warranty and unless the customer has bought the extended service they can be waiting days for someone to do something.

"But if our customers are looking at Dell because of the price, we tell them they can buy the machines and pay us to set them up and support them. I know Dell is trying to get that business but none of my clients have been offered that service."

Still, if Dell started pushing services harder it would make life harder for the reseller, he says.

"But then again, some customers will go off on the basis of price and then come back. At the small business end, service, knowledge of the people and the site, and if we sell that properly to the client, we will be able to maintain our client base."

Hugo Ortega, principal at reseller PC Anytime comes across Dell in the marketplace but he believes its approach to small business is still too much based on price.

"When it comes to problems in specific areas, many smaller companies want a little more intimate service, I don’t think our business has much to fear right now from Dell but it will have a lot to fear if we don’t get our act together and adopt similar best practices," says Ortega.

"We have to make a move from being computer technicians to consultants. There is nothing to fear if you adapt a similar mentality to the Dell mentality. We need to step away from being computer technicians running around with little backpacks and become consultants that can wrap up deals and sign contracts for three months, six months instead of just the $90 per hour in front of the customer."

Ortega has already started to copy some of the aspects of the Dell model. "We offer free telephone support in the first instance. Yes it does tie us up but if we can walk someone through a problem on the phone they’re empowered but if we do need to send someone out the customer can see where the service charge came from rather than just going out and charging an $80 callout charge for a two minute job," says Ortega.

As long as there is time for his company to adopt similar efficiencies to its larger competitors, Ortega is confident that at a local level, within 20kms of its own premises, he will be able to compete strongly. "People know that we are local and that we can provide a more intimate service because of that. Dell is synonymous with hardware so it will take a lot of time and effort for them to build a services business. Most people can’t distinguish between a good technician and a bad technician, but they do know whether the service was great or not, he says. "Companies like us need to focus on that, small things like how you smile, how you shake hands when you’re finishing the job."