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Techaisle Blog

Insightful research, flexible data, and deep analysis by a global SMB IT Market Research and Industry Analyst organization dedicated to tracking the Future of SMBs and Channels.

Dell India: Priming for IT leadership position

Intense India Focus

Indian government's Digital India campaign is getting the attention of almost everybody in the IT industry, be it the multinationals or the local players. Sensing the vast potential, Dell started early with its governing body inaugurating the entire launch of Digital India in Delhi. Summing up his excitement, Alok Ohrie, President, Dell India said, “It is one of those campaigns which I believe is going to really position the country to a point where clearly it will continue to become stronger as an economy and would help realize the dreams of the nation with regards to it being a knowledge based economy. This is one initiative from the government that's going to really energize spend on IT and it is also going to be a big play for most of the players in the IT industry”.

Dell in India is also beyond just domestic operations. Almost all business functions that exist globally are represented in India including an R&D setup of about 2,500 engineers and PhDs. The India-based R&D unit seems to have played a big hand in the development of Dell’s 13G server technology.

Capitalizing on privatization

Immediately after privatization, Dell executives saw the potential for an accelerated pace of execution of various initiatives at a global level as well as a whole lot of flexibility and encouragement to try new go-to-market models. This agility is what Dell India needed and as per its executives “has benefited Dell India big time”. In fact, they are quick to point out that the India operations have grown a little faster than the global business, “our growth in India versus the competition is five to six times faster”.

Midmarket businesses in India are listening and are accepting Dell’s end-to-end solution story and are expecting an advisory role and a consultative approach from Dell in their engagements. Many digital commerce businesses are also looking for Dell to help them define a blueprint for future with regards to IT deployment. Being private with an end-to-end solution orientation Dell’s India sales organization is neither getting limited nor getting constrained in its alignments with customer business objectives, nudging the customers to a future ready infrastructure capable of delivering a future ready enterprise. Playing an advisory role is also forcing the sales organization to be creative in its solution design, unrestricted as it does not have any legacy to protect.

The new GTM

In early 2014, Dell India rolled out a new GTM strategy for the India market. The new GTM strategy was first piloted in India and provides customers with a choice of being with Dell, either direct or indirectly through a partner. It is a GTM model that lends itself extremely well to improving Dell India’s engagement across different customer segments. This strategy brings a change from Dell India’s direct approach in the past with Dell introducing three RTMs: 1/Dell Led for direct sales engagement, 2/ Partner Led for business accounts with special pricing and products; and 3/ Distribution Led for consumer IT products.

Within the GTM model there are three different RTMs (routes-to-market). First is the Dell-led RTM which is Dell’s direct engagement with end-customers. Some of the account managers’ training modules have been modified to help them have deeper, richer, more mature conversations with customers in the form of advisory roles and consultative approaches. However, Dell-led RTM does not mean that partners are shut out from engaging in the same account along with Dell. The partners bring complementary skill-sets to work along with Dell solution experts. Dell asserts that it is more than willing to work with a partner and hence Dell has named the RTM as Dell-led and not Dell direct.

Within the Dell-led RTM, Dell has further segregated accounts into two: one that is more of reach, development & penetration consists of Dell India’s existing accounts and where a lot is already known about the customer; and in the other are those accounts that Dell calls as activation. There are close to 2,500 accounts in Dell-led RTM which are split into four geographies - the north, south, east and west.

The second RTM is the Partner-led RTM for business accounts with special pricing and products. Apart from the 2,500 accounts, the rest of the named accounts have been identified for partners to engage with by identifying, developing and addressing the opportunities. Dell is in a support mode in these opportunities.

The third RTM is distribution-led RTM focused on consumer IT products. This RTM was developed to expand reach into customers in tier 3/4/5 cities as well as customers who are not IT savvy. Dell currently has five distributors in India and a web of local distributors to reach into remote areas of India.

Disappearing Partner Conflict

Dell is recognizing the need to erase the perception of consistent channel conflict and hopes that the three different RTMs will help. Alok Ohrie points out, “anomalies have been removed through the new GTM model and it is a very, very predictable model for the partners”.

Techaisle’s India analyst, Gitika Bajaj and Arun Mishra crisscross the entire country directly meeting with channel partners. Not every Dell channel partner is happy but from an overall perspective there is obviously tremendous momentum and Dell’s RTM has legs. Comparing Dell with its closest competitors, channel partners say that “Dell's responsiveness is impeccable when a deal is being struck at the end user level”.

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HPE – doubling down to be SMB’s IT partner of choice

HP has split into two – HP Inc. and Hewlett Packard Enterprise (HPE). Almost all SMB relevant products and solutions (except PCs and printers) now reside within the HPE organization. The global small and midmarket businesses, SMB (1-999 employee size) market has been the growth engine for the IT industry at large. The reason is quite simply that SMBs account for over 80 percent of businesses in any country – developed or developing. As per Techaisle, SMBs are forecast to spend US$597 billion on IT in 2015. Their IT requirements range from servers, networking and storage to cloud, mobility, analytics, managed services and collaboration solutions. Today, most SMBs are looking towards IT suppliers that offer appealing value propositions in either of three IT delivery models – traditional infrastructure built on-site from hardware and software components; hosted solutions and/or applications most often purchased on a “pay as you go” model; and, cloud infrastructure delivered on-demand.

HPE – the new incarnation of HP and its focus on SMBs with Flex solutions

Since the launch of its “Just Right IT” portfolio (September 2010) for SMBs, HPE has been striving to better serve its SMB customers by consciously lowering cost of solutions, improving agility in deployment and enabling faster time to value in managing IT assets. Just Right IT includes products, services and solutions specifically engineered for SMBs. The portfolio offers management, data protection, communications and connectivity solutions that are designed and priced "just right" to deliver affordability and value to SMBs. These solutions revolve around HPE’s core offerings of servers, storage and networking which comprises of:

  • Servers: ProLiant MicroServer, ProLiant 10 Series Servers, ProLiant 100 Series Servers, ProLiant 300 Series Servers
  • Networking: 1950 Switch Series, R100 Wireless VPN Router Series, Cloud Managed Networking, and 2920 Switch Series
  • Storage: Solutions for the virtualization, SQL Server, Exchange, File sharing and Backup

In November 2015, soon after the split, HPE announced a new portfolio of ProLiant Generation 9 (Gen9) Servers (ProLiant DL20 Gen9 and ProLiantML30 Gen9) that are specifically engineered for SMBs to help reduce cost and complexity to run the new style of IT, web, collaboration, and business workloads. HPE is hoping that the new server portfolio advances its vision for compute and the future of data center technology.

HPE also announced its Flex solutions which bundles various services around its server, storage and networking products including support services, financial services, ISV software, distribution services, and management. It is specifically targeted at three different segments of SMB market at the low end of which are the SMBs who are “starting out” and at the high-end are the SMBs who are “expanding their business”. This does align well with what Techaisle analysts find in Techaisle’s SMB & Midmarket IT Sophistication Segmentation as shown below.

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Dell-EMC deal – sense and sensibility or solid reasoning

On October 12 Dell took an enormous step along its new chosen path of reorienting away from a provider of low-cost PC and server hardware to a role as a more sophisticated supplier to businesses that view technology as a strategic asset rather than as a tactical necessity. Dell announced a “definitive agreement” to acquire EMC (including EMC’s ownership positions in VMware, RSA Security, Pivotal Software, Virtustream and other industry firms and joint ventures) for $67 billion – the largest-ever acquisition in the information technology industry. The deal was announced to analysts and media in a conference call that featured Dell Founder and CEO Michael Dell, EMC President/CEO/Chairman Joe Tucci and Silver Lake Partners Managing Partner and Managing Director Egon Durban, and included VMware CEO Pat Gelsinger, Dell CFO Thomas Sweet, and David Goulden, who acts as CEO for EMC’s Information Infrastructure business.

Two second Take

The acquisition greatly enhances Dell’s position in higher-margin, higher growth markets: storage is expanding faster than servers or PCs, and EMC is focused on the higher-margin software used for device management as opposed to the creation of physical devices themselves.

Revenue Synergies – the $67 billion question

While the call eschewed any commentary on staff redundancies between the two organizations, it focused its messaging on “revenue synergies that are three times larger than cost synergies,” a justification for the deal that comes primarily from new growth opportunities rather than from squeezing out costs through headcount reductions.

It can be assumed that most of this growth potential comes from expanded market rather than product positioning. In his remarks, Michael Dell noted that Dell/EMC (including VMware) have already established “leadership positions in storage, servers, virtualization and PCs,” and have strength in IT’s “most important growth vectors,” including software-defined data centers, hybrid cloud, converged infrastructure, mobility and security – and are “positioned as a leader in an amazing 22 Gartner Magic Quadrants.”

If Dell and EMC are already leaders in all of these large and/or expanding areas, then the question is where will further growth come from? It appears that the combined entity is banking on the benefits associated with increased customer account presence. In particular, Michael Dell noted that “as the data market moves to a compute-centric, converged model, Dell’s server franchise is a natural fit with EMC’s strength.” The theory appears to be that by combining EMC’s prowess at selling to enterprise accounts and Dell’s broader compute portfolio the company can increase share of wallet within major accounts; there is also some opportunity for using EMC to drive increased storage presence within Dell’s “growing commercial infrastructure franchise” in the SMB base, but this is likely to be a secondary consideration.

Security, Converged Infrastructure, Mobility, Big Data

Dell has been investing heavily in building a comprehensive security portfolio, assembling advanced threat identification services firm SecureWorks (acquired by Dell in 2011), firewall/unified threat management from vendor SonicWALL (acquired in 2012), backup software specialist AppAssure (2012) and identity monitoring and management software vendor Quest (also acquired in 2012), plus related capabilities sourced from thin client vendor Wyse (purchased by Dell in 2012) and from work done by Dell’s own engineering team. With the latest acquisition Dell adds encryption pioneer RSA Security (which became a division of EMC after being acquired in 2006) and enterprise mobility management supplier AirWatch (acquired by VMware in 2014), thus diversifying the portfolio even more. Dell has been positioning end-to-end security as a differentiating feature of its infrastructure portfolio for some time and with the acquisition Dell’s security story becomes even stronger, and even more distinct from the approaches of competitors like Lenovo, HP and Oracle.

Although it is tempting to look at a Dell/EMC/VMware combination as a means of consolidating a converged infrastructure offering capable of competing with the Cisco-led Vblock (Cisco, EMC, VMware) and FlexPod (Cisco, NetApp, VMware) offerings, it appears that Dell’s vision is broader and more strategic.

The acquisition also gives Dell a foothold into the big data deployment market opportunity where the enterprise spending is still hardware driven rather than software and analytics uptake.

And with AirWatch in the mix, Dell finally gets a mobility story in place beyond just the mobile devices.

Move to cloud

Michael Dell believes that “the combined company is very well positioned to address the move to the cloud,” both by providing infrastructure to public cloud providers and private cloud operators and through VMware’s ability to enable hybrid cloud. But in his remarks, he went further, observing that “I think what you’re seeing with the Software Defined Data Center is an ability to take the benefits of the public cloud and bring them into an on-premise data center.” He considers the complexities associated with connecting compute, network and storage as a major demand driver for public cloud, and virtualization and converged infrastructure as a means of delivering greater simplicity in on-premise environments, allowing firms to focus on optimizing for “the application user, quality of service and security.”

But Michael Dell is not satisfied by simply focusing on leveling the terrain between cloud and on-premise infrastructure, his vision is to supply infrastructure across different environments (public clouds, SaaS, hyperclouds, private clouds), providing common, connected and secure platforms to customers of all sizes, wherever their IT workloads reside.

Financial challenges

A lot has been said and written about financial challenges but due to the enormity of the deal size it is worth another read, from our point-of-view. The cost of debt may have an impact on the overall cost of operating the newly-expanded Dell entity. Dell was thought to have about $12 billion in debt prior to this deal; clearly, this figure will increase substantially after the acquisition. Michael Dell did state that observers could expect “a significant deleveraging” resulting from cost savings, increased revenue and cash flow management improvements that come with being a private company, but $67 billion represents a very high hurdle for these activities. Obtaining the funds themselves is not an issue but it seems likely that the costs associated with debt service may affect product prices and margins, and it is difficult to boost either in many of Dell’s core hardware markets. It might well be that asset sales become important to enhancing corporate profitability by reducing the cost base of the company.

Should debt reduction become a priority, the newly-expanded Dell would have a few options, starting with VMware. Although there was no mention of selling VMware as part of this deal – indeed, VMware CEO Pat Gelsinger was described as having a “very bright future” in the new organization – EMC’s 80 percent stake in VMware is worth more than $26 billion at current valuations. It will be very tempting to convert this equity into reduced debt to help the competitiveness of future hardware products, though this would be at the cost of an ownership position that (as per the terms of the Dell deal) accounts for 40 percent of EMC’s overall value. There are other avenues Dell could pursue – for example, it could combine its in-house security assets with RSA, and perhaps AirWatch, to create a stand-alone security business that could be monetized via issuance of public market shares – but a VMware sale is clearly the most direct means of raising capital to reduce debt.

Go-to-market challenges

An often-overlooked ingredient in a merger is the extent to which go-to-market staff and strategies can be melded in a single organization. This will likely be a significant issue for the expanded company. Dell and EMC customer-facing staffs have very different skills and compensation levels and may not be neatly amalgamated into a single sales force. The channel strategies of the two firms are different as well. Because EMC has focused primarily on large deals within large accounts and Dell has been more SMB (and consumer) focused, it may be that the sales staff and channel strategies can be aligned by sector but that will not erase the GTM discrepancies.

EMC sales staff work large, high margin deals, and are among the best compensated reps in the industry; Dell certainly cannot afford to reduce EMC-classic rep compensation (which would trigger a mass exodus to competitive startups) or to pay EMC rates to Dell-classic sales staff (which would consume more than 100 percent of current margins). From a channel and alliance perspective, EMC is a strategic partner to its enterprise-level services and software partners; Dell is primarily a tactical resource for SMB-focused VARs and integrators. These approaches target different partners with different programs and are delivered in different ways. Again, it is possible to align strategies by market sector, but many partners are likely to try to “shop” across programs to “Frankenstein” together blends of services and compensation structures that optimize the supplier benefits that they derive from the new Dell, and some – notably, Cisco, which is an EMC ally via Vblock – will find a Dell partnership untenable.

Final Take

While there are reasons to admire Dell’s strategy, it is very rare to find successful examples of a merger yielding a combined market presence that eclipses the individual positions of the firms involved. However, these are still early days, and the hard decisions will not be made until mid-2016, but there are still many operational issues to be ironed out between now and then. Even though Dell is not a public company, it will need to explain its expectations of “revenue synergies” to customers, analysts and the press, and Silver Lake will likely need to do the same for its current and potential investors.

There are reasons to both admire and to question the Dell/EMC deal. The answer to the $67 billion question will be found in the opportunities for “revenue synergies” that extend well beyond today’s converged infrastructure SKUs, and into the cloud and the core operating models of customers ranging from EMC’s traditional public sector and large enterprise accounts to Dell’s SMB buyers. If Dell can extend its reach across the full spectrum of IT/business infrastructure, it may build a position as the behemoth HP believed it would become, before it was bifurcated into two distinct business units. If it does not, it may more closely resemble Oracle, trying to assemble a coherent vision from a series of mismatched pieces.

The real winner though is Silver Lake. It has positioned itself as a central force within the technology industry, an unusual position for a private equity firm, and may signal that excellence in financing is joining excellence in inventing technology and excellence in technology marketing as paths to the industry’s pinnacle.

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Indian IT Hardware Retail – Shifting Landscape

India is witnessing unprecedented growth driven by favorable demographics, a young working population, rising income levels, urbanization and growing brand orientation. India’s retail industry has emerged as one of the fastest growing industry and is projected to grow almost to US$1 trillion by 2020 from the present market size of US$600 billion in 2015 driven by income growth, urbanization and attitudinal shifts.

However, it must be said that Indian retail is still dominated by unorganized sector. Organized retail penetration is just 8%. The biggest challenge facing the Indian retail sector is the lack of efficient supply chain. Within retail, India's IT hardware market includes many product segments such as desktops, laptops, phablets, tablets, printers, and other peripherals.

Techaisle team has been tracking the channel market and specifically sales out of various IT products in India for a decade. At last count, Techaisle India channel census data shows that there are over 30,000 channel partners in India. Supporting this vast channel network are eight national distributors and 159 regional distributors. Techaisle research shows us that there are typically four types of retailers.

With a country so large with varying maturity of IT adoption and number of distributors and retailers/resellers it is but natural to see a very complex PC distribution flow. Techaisle team tracks the percent units that flow through various intermediate channels from the OEM to the end-customer.

techaisle-complex-pc-distribution-flow

It is common knowledge that India’s e-commerce market India is still in nascent phase, yet it is growing rapidly but IT hardware sales through e-commerce websites or through the company's own website are still in the single digit-range as percentage of total sales because most of laptops, desktops, and tablets sales are still sold through bricks and mortar shops. In order to expand in India, large technology companies have been increasing their focus on smaller towns and non-tier 1 cities. For example, by end of 2015, Dell plans to more than double the number of its stores (named Dell Exclusive) in India to 825. In 2014, Dell had already doubled its number of stores to 400 from 2013.

Organized retail started more than a decade ago and significant growth has been achieved. However, most of the retailers have struggled to achieve a desired level of profitability. Leading retailers are now putting profitability at the top of their agenda. Croma was the first multi-brand store to sell consumer electronics among other retail products. Today, major retail players include Reliance Retail (Reliance Digital – 151 stores), Pantaloon Retail Ltd (eZone – 92 stores and Electronic Bazaars), Videocon (Next Retail Ltd – 144 stores), Tata Sons (Croma – 101 stores), Sumaria Appliances and Vijay Sales (54 stores).

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Table of Contents

  • Indian IT retail landscape
  • Major IT retail hubs in India
  • Distributor and Retailer count
  • Increasing focus on OEM branded stores
  • Leveraging distribution and sales networks through strategic partnerships
  • Types of Retailers
  • Complex PC Distribution Flow
  • Pain points of smaller retailers
  • Explosion in E-commerce and M-commerce retail channel
  • Overcoming inefficient supply chain management
  • Overcoming logistics and warehousing challenges of Indian e-commerce
  • Organized retail sector competing with online retail
  • Brick-and-mortar retailers warming to E-commerce

techaisle-india-it-hardware-retail-pov

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