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Viewpoint June 1,=20 2007, 12:01AM EST

What's Dell Doing at Wal-Mart?

The author, president of Endpoint Technologies = Associates,=20 wonders whether the computer maker's latest experiment will work=20

by Roger L. = Kay

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Last week, Dell announced that it would begin selling two Dimension = desktop=20 computers through Wal-Mart Stores. It was a watershed moment. For years, = Dell=20 embraced the tagline "Be Direct," a phrase that highlighted one the = company's=20 main differentiators: It sells directly to consumers rather than by way = of=20 retailers. The Wal-Mart deal, limited as it is, represents the most = visible=20 departure from the company's hallowed mantra.

But the change is at least as much talk as substance. For example, = Dell (DELL) = recently came=20 clean about its indirect commercial operations. In the course of = publicizing its=20 intentions to step up its indirect business, Dell disclosed that it = already sees=20 about $4 billion in annual revenue from indirect sales in the U.S.

A Public Shift

The company has four groups that sell indirectly: Solution Provider = Direct,=20 which sells to VARs of all stripes without going through a dealer such = as=20 Ingram; Global Alliances, which sells to large systems integrators like = EDS (EDS) and = Accenture (ACN); = Industry=20 Solutions, which sells hardware to other vendors that jigger the = technology in=20 some way (e.g., adding a GPS system) before reselling it; and a branch = that=20 sells to VARs that service the federal government. That's a lot of = indirect=20 business for the Be Direct company.

However, the Wal-Mart announcement represents a public shift in = philosophy=20 and has therefore set off a round of tongue-flapping and finger-wagging = among=20 the digerati. Despite the noise, there's a good explanation for what's = going on.=20 Dell is going through a transformation akin to the one the U.S. went = through=20 under Franklin Delano Roosevelt during the Great Depression.

When FDR took over in 1932, he undertook a series of rapid-fire = legislative=20 moves. Passing one bill after another, he set out to fix what was wrong = with the=20 nation, and when something didn't work, he'd rescind it. The key to the=20 Roosevelt administration's success was its willingness to try things. = Rather=20 than be paralyzed by fear of a plan not working ("=E2=80=A6fear = itself!"), FDR threw=20 lots of pasta at the wall, fully willing to discard those strands that = didn't=20 stick.

With Both Barrels

In the same way, Michael=20 Dell is guiding his company forward by trying different things. = Distribution=20 through Wal-Mart is one of them, but, as the company has made abundantly = clear,=20 not the only one. This small deal could get larger or go away, depending = on its=20 success. In any event, Dell is going to expand its distribution in = numerous=20 ways, and part of the formula is to shake things up through rapid = decision=20 making.

For those of us who thought that Best Buy (BBY), Fry's,=20 or Circuit City (CC) would have been better matches for Dell, stay = tuned. The=20 company has signaled that there will be many moves, including a = reconfiguration=20 of its kiosks, perhaps more company stores, and other retail = arrangements. Dell=20 has been courted by every retailer in the world. As a highly desirable = supplier,=20 it can pick and choose partners. Look for a Gatling gun approach to = distribution=20 in the future.

The deal with Wal-Mart does bring up a question, though, about what = kind of=20 image the company is trying to convey. Wal-Mart (WMT), as a = general=20 merchandiser, is pretty down-market. Recently, Wal-Mart made big news = for being=20 unable to sell a line of designer clothing. Its core customers prefer = jeans and=20 T-shirts. This type of thing doesn't square with Dell's efforts to = polish its=20 brand image.

Plenty of Company

The good news for Dell in shifting toward indirect sales is that the = company=20 finds itself at the right end of a one-way street. A vendor that moves = from=20 indirect to direct sales can irk existing distributors, angering some = enough to=20 switch to rival suppliers. This factor kept Compaq from using direct = sales to=20 compete against Dell in the late 1990s. But when going in the reverse = direction,=20 from direct to indirect, the only players who suffer are internal = salespeople.=20

One thing is for sure: Dell won't have Wal-Mart all to itself.=20 Hewlett-Packard (HPQ), Gateway (GTW), Acer,=20 Toshiba,=20 and Lenovo,=20 among others, all sell through the big retailers.

In some cases, Wal-Mart bends its suppliers to provide custom = packaging and=20 is known for dictating terms, such as "Thou shalt keep inventory in = warehouses=20 near our distribution points." But Dell does the same to its suppliers. = It will=20 be interesting to see which company in this new relationship gets to = hold the=20 whip handle and which feels the business end.

Kay is the founder and president of Endpoint = Technologies=20 Associates (www.ndpta.com), a market research firm.

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