On 8th February 2017, Dell EMC debuted its shiny new channel partner program, made shinier by the use of precious metal names as partner tiers – Gold, Platinum and Titanium. In addition, Dell EMC introduced Titanium Black, a subset of the Titanium tier population. In a conversation with Cheryl Cook, SVP, Global Channels & Alliances, Dell EMC, I asked her if this program could be classified as Dell Channel 2.0. She smilingly replied that it is actually Dell EMC Channel 1.0. John Byrne, President, Global Channels, Dell EMC, said that it was just the beginning, the work is not done, not by a long shot.
To be sure, Dell has been making strides in the channel community. Techaisle’s latest survey of SMB/midmarket channel partners found that Dell’s likeability was up to 61% in 2016, from 53% in 2014 and 26% in 2013. Additionally, during the same time period percent of channel partners who said Dell has cutting edge technology increased to 40% from 31% in 2014 and 21% in 2013.
Prior to the merger, channel represented more than 60% of EMC business and more than 40% of Dell’s business. Now as Dell Technologies, channel accounts for more than US$35B in revenue, almost half of the company’s revenue.
Partner tier eligibility is based on revenue ranges and takes into account larger and smaller partners as well as regional thresholds. Within the revenue ranges, a key line item is percentage of revenue derived from services. More importantly, any customer that has done business with Dell or EMC channel partner will be designated as a partner-led account, a departure of revenue-based hard deck policy at EMC and a narrow list of named accounts at Dell. Dell EMC plans to review the revenue range thresholds at six-month period to continue to evolve the partner program so that it is not onerous to the channel partner community.
The new program, built on three core tenets - simple, predictable, profitable – aims to reward partners for brand exclusivity (in North America & Latin America), sales aggressiveness, relentless execution, services selling & portfolio expansion. At the same time, it aims to foster peer-envy and create a path for up-leveling.
For the last six months, in the run-up to the program debut, Dell EMC channel team has spoken with many partners, presumably with very large partners, to seek their inputs. A majority of midmarket and SMB focused channel partners are hungry for communication and direction from Dell EMC, specifically revolving around the partners’ solution portfolio, competition, margins, discounts and sales support. There are also many questions and trepidation about the importance of VMware in portfolio mix.
Needless to say, the next few months are very crucial for Dell EMC to actively communicate with its partners, alleviate their fears, minimize ambiguity and motivate the community. Many SMB and midmarket focused partners are legacy Dell partners and do not want to be overshadowed by their larger colleagues. Any transition responding to the level of complexity resulting from the Dell/EMC deal is bound to create uncertainty. And this is the type of uncertainty and disconnect that John Byrne hopes will be alleviated when the channel partners begin to absorb the program details.
To begin with, a unified partner program should make the program participation simpler for partners. Dell EMC launched one partner portal on February 20th, with one deal registration process taking cost and friction out from the selling motion. An introduction of a simple MDF program (both proposal-based and earned) that will not change every single quarter should also help the partners. In fact, Dell EMC has committed an 8% increase on MDF YoY. The Dell EMC partner program structure is all about giving partners the runway they need to grow the business including semi-annual rebate eligibility, two paths to profit, and simplification of product categories from 26 to 9. The new partner program also includes stackable rebates and payment of incremental rebates when partners accelerate beyond their target. The rebate targets are 100% and 120% for growth rebate and additional rebate for selling services. Techaisle believes that these are powerful incentives, but would be better if Dell EMC addressed the gap between its loyalty incentive program and competitive offerings. Nevertheless, Techaisle’s channel research shows that 40% of channel partners are comparing incentive programs, especially, as channel partners have an average of 3.3 vendor partnerships. The incentive structure being offered by Dell EMC will definitely give it a leg up.
Dell EMC’s partner program is designed to reward exclusivity (albeit only in North America and Latin America) by allowing Dell-only partners to receive free training (and potentially free certification). Although Dell and EMC both have had exclusive partners, this is not (at all) the norm in the channel. It is Techaisle’s assessment that exclusivity will not be a preferred option for the vast majority of partners, and that this focus will not result in any significant bump in sales volumes for Dell EMC. SMB/midmarket focused partners see it as a conflict because their objective is to work on behalf of the customer, and providing options increases the customer’s belief that the partner is focused on delivering the best product at the best price, and not simply acting as a sales agent. Additionally, exclusivity can be challenging for partners because SMBs typically demand that the partner offer different price options, and are likely to have installed infrastructure and existing warranties that will drive them to different options in order to maintain platform homogeneity and reduce cost of integration or management complexity.
The Dell EMC partner program also encourages and rewards individual certifications – a carry-over from EMC’s program. Techaisle believes a program should emphasize ‘just in time’ rather than ‘just in case’ knowledge. At some level, certification is a cost to the channel partner company, and may well have negative downstream effects: it forces the channel partner to sell specific products to recoup certification investments (rather than aligning directly with customer needs), and may drive increases in both employee wages and turnover. Most importantly, certification has almost zero impact in sales motions within midmarket businesses. Certification gives the information and rarely SMB/midmarket customers ask for certifications. Nevertheless, certifications are relevant, even mandatory, in some government contracts, and also within large enterprises as they have all kinds of compliance requirement for certifications. In general, vendors like certifications because it increases a partner’s investment in them, but partners view certifications as an outdated requirement that is misaligned with today’s market.
John Byrne says, “services are a pot of gold”. Quite true. A “by the numbers” review of the Techaisle’s state of the SMB channel survey finds that revenues from products and services are approximately equal, and that services revenue is as likely to be derived from transactions that do not include products as from product-inclusive deals. Channel respondents report that 58% of 2016 revenue was attributable to services-led contracts. It is worth noting that while measures of this type provide a very useful benchmark for channel businesses, they require some interpretation in their application. For example, the proportion of business attributable to services is only part of the issue that channel management is wrestling with: what kind of services (for example, cloud or managed or maintenance?) is an important consideration in evaluating the impact of a channel services revenue stream. Techaisle believes that more specific measures are often more helpful to channel management. For example, firms that are migrating to a cloud model will want to understand (and build) the proportion of their overall business derived from cloud. Working with this and related data, Techaisle finds that it is reasonable for SMB channel firms that are looking to be part of the “cloud channel” to be targeting from over 20% of services revenue derived from cloud in 2015 to more than 40% before 2018.
The new Dell EMC partner program is a step forward for the company, cementing its relationship with its partners. For now, channel partners are asking as to how Dell EMC will help them in transitioning their businesses: does Dell EMC understand the challenges they face? Is Dell EMC aligned with the opportunity areas that are essential to continued channel viability? And what support Dell EMC can provide to help them grow their business? Generating new business is going to be highly incentivized and channel partners need support from Dell to acquire new business – cold, warm and hot leads. Although a channel partner has its own sales team, a large portion of their sales leads comes from IT vendors. The Techaisle survey shows that 42% of partners are planning to spend more resources on lead generation activities in the next one year. The same survey also showed that 35% of partners consider vendor’s lead generation as a top five important partnership criteria. To be fair, the responsibility also lies with channel partners to gain mindshare of the IT vendor so that when a lead does come into the IT vendor it is passed on to them. Techaisle data shows that average length of sales cycle to SMBs varies from 6.4 weeks for a VAR to 9.1 weeks for an SI. And sales support during this period is very crucial for the partners. In fact, pre- and post-sales support is the second most important partnership criteria at 42% behind training at 45%.
In the post-transactional market, there are many gut-wrenching shifts happening within the SMB channel community. Many channel businesses will be ‘consolidated out’, absorbed by firms looking to consolidate their hold on the diminishing product-oriented transactional business, or by firms who want to apply post-transactional methods to established customer rosters. It’s important to note, though, that the future is hybrid IT – a mix of traditional and cloud-based infrastructure and capabilities. Traditional channel firms may need to work to absorb the mantras associated with the new market reality, but they have existing relationships and knowledge that are also important to future success. Channel executives who can integrate existing attributes with emerging imperatives – and partner with customers who also need to span conventional and emerging IT service delivery models – have an opportunity to position their businesses for long-term success in the post-transactional IT market. Dell EMC is poised and primed to tackle the hybrid IT reality. Dell EMC channel partner program 1.0 is promising and beneficial channel partners, yet unpolished and unfinished. The next versions could be even more valuable.