Going Direct Is an Option

As cost pressures mount, vendors are looking for places in their go-to-market chain to reduce expenses and preserve margins. Channels are an obvious target for cutting.

By Larry Walsh

Recently, Dell captured headlines following revelations that it’s cutting channel support resources and shifting more PC sales direct to capture market share and trim go-to-market costs. While news that Dell is going more direct comes as little surprise to most, given its long-muddled history in the channel, the shift direct overall is happening across the industry.

As CRN reported, Dell is cutting its partner account manager (PAM) ranks by as much as 30% while also directing its direct-sales team to increase efforts to win business and capture market share – even at the expense of partners. CRN chronicled how the strategy shift isn’t sitting well with partners, as it’s introducing channel conflict by making them compete with underpricing direct salespeople.

Dell isn’t alone. Many vendors are quietly shifting more sales direct, selling more products through marketplaces – which has the same net effect – or culling their channel ranks by increasing standards for partner participation.

The driving cause behind this direct shift: costs. And PCs are the perfect example of this trend.

In 1991, a notebook computer cost about $2,300. A business-class desktop PC was priced as high as $3,500. In today’s money, those same PCs would cost $4,600 and $7,000, respectively, but, instead, their much more powerful and capable equivalents cost a quarter as much. The reason: innovation.

Traditionally, technology vendors contain costs and maintain profit margins as components become more high-performing, more available, and less expensive. In the early PC era, each product generation wrung out significant costs that came with evolving components, allowing manufacturers to maintain healthy margins while either keeping costs in check or reducing them.

That trick lasts only so long. Eventually, product manufacturers run out of ways to extract costs from the product. When looking for places to cut costs to preserve margins, vendors have two choices: operations and channels. Unfortunately, the latter is the easy target.

This blog continues on Channelnomics Brainstorm, covering the following topics:

  • How channel partners make the case for going direct
  • Percentage of deals originated by partners
  • Number of channel deals that receive special pricing
  • Pros and cons of cutting channel costs
  • Channel chief sentiment toward going direct

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Larry Walsh, The 2112 GroupLarry Walsh is the CEO, chief analyst, and founder of Channelnomics. He’s an expert in the development and execution of channel programs, disruptive sales models, and growth strategies for companies worldwide. Follow him on Twitter at @lmwalsh_CN.