Dell Sees Red Light for White Boxes

PC maker ends its white-box program, but will still use resellers to reach small businesses.

Tom Krazit, IDG News Service

Dell has decided to cut the cord on a program that provided low-cost unbranded PCs to resellers, a company spokesperson says.

The Round Rock, Texas, company first announced its plans to enter the "white box" market in 2002. White boxes are PCs that are distributed without a well-recognized brand name to local distributors or resellers, and are then usually packaged along with services for small-and-medium-size businesses.

Dell is the world's largest PC vendor. While it had originally thought that low-cost unbranded PCs would help its reseller partners win new customers, the company found the Dell-branded systems were more attractive to its partners than unbranded systems, says Roe Thiessen, a company spokesperson.

Dell walks a fine line in dealing with partners and resellers. The company's famous direct-to-market strategy eschews the traditional sales process that passes a piece of the profits along to each channel partner, as is common with more channel-focused companies like Hewlett-Packard.

This allows Dell to keep more of the profits for itself. Dell is the lone company among the PC heavyweights like HP and IBM that has consistently posted profits selling PCs over the last few years.

Setting Up Shop

However, small-and-medium-size businesses often prefer to work with local IT shops that can sell them, configure, set up, and maintain their PCs. Industry analysts believe these customers will be a growing source of revenue for major IT vendors, and Dell has set up its Solution Provider Direct program to attract resellers that work with those customers, Thiessen says.

Dell had hoped to build relationships with its partners through the white-box program by giving smaller resellers a chance to build their own brands within their local communities. However, it's simply easier to provide those partners with Dell-branded products, which many small businesses demand from their resellers, Thiessen says. Despite the end of the white-box program, the Solution Provider Direct program will remain intact, she says.

At least one reseller agrees that while white boxes help some smaller companies offer hardware they couldn't afford to assemble themselves, demand is greater for Dell-branded products.

"My customer base always asks for the branded product," says Tracy Castro, vice president of sales with American Data & Computer Products, a Tampa, Florida, reseller that deals with the U.S. government and the defense industry.

Some resellers can make money just on hardware sales, but usually more profits are generated by adding services or support to purchasing contracts, Castro says. To that end, it makes more sense to attract customers with a familiar brand name and tack on services once those customers decide to buy the products, she says.