Techaisle Blog

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”.

Look back

As is the case in each year’s SMB research, Techaisle SMB survey respondents are asked to detail their plans for acquisition of different types of client devices. Two of the major categories investigated by the surveys are desktop PCs and notebook PCs. To establish a baseline understanding of PC use and demand, Techaisle asks SMB respondents to specify the number of endpoint devices that are currently in use within their companies, and then asks them to specify the quantity that they are planning to buy over the next twelve months. To provide actionable insight to our clients, the question asks separately about desktop PCs, notebook PCs and tablets. While 2016 survey is in the field it is worth looking at the trends of last two years. In 2014, both the US small and midmarket businesses were bullish about new desktop and notebook purchases. But in 2015, the percent of US SMBs planning to buy PCs had dropped by 40% from 2014 for both desktops and notebooks. However, although the average number units of desktops planned to purchase dropped from 2014 to 2015 the average number of notebooks planned to purchase increased substantially from 2014 to 2015.

Many desktop buyers were motivated to replace existing units because they were reaching end-of-life and take advantage of Windows XP upgrade path. Desktops are also more of a planned/budgeted item than other client form factors (notebooks, tablets), meaning that desktop acquisitions are more likely to appear in formal purchase plans than the mobile units, and less likely to be acquired on an ad hoc basis. Notebooks are usually ad hoc purchase items – meaning that they would be underrepresented in research of this sort relative to desktops. Additionally many users upgrade their notebooks over time (to replace damaged units, to get features like touchscreen, to obtain lighter or smaller products, etc.).

However, corporate purchase intentions do not provide a complete perspective on mobile device acquisitions.

Potential Impact of BYOD on US SMB PC Purchases

Figure below presents a perspective on corporate purchase plans and the impact of employee purchases of notebooks. The top two sections of the table, shaded in green, illustrate the proportion of businesses by employee size reporting desktop and/or notebook purchase intentions, and the number of units that they plan to acquire. These figures are used to prepare a “net increase” figure – the average number of new units expected to be deployed by businesses in each employee size category. These two grey sections are followed by a line of percentages, shaded in purple, which shows the ratio of corporate desktop purchases to corporate notebook acquisitions. It shows that microbusinesses with 1-9 employees are much more likely to be buying desktops than notebooks, and that other SMBs are planning to buy 25% to 99% more desktops than notebooks.

The next section of the table, shaded in blue, begins with the BYOD penetration statistics that appear at the bottom of the figure. It then calculates the impact on notebook purchase intentions if this ratio is fully reflected in notebook purchases (the “at 100%” line) and if employees were to buy notebooks at half of the BYOD penetration rate (“at 50%), showing both corporate and employee purchases of these devices. These revised figures are used to calculate the desktop to notebook PC purchase proportions shown in the second set of purple-shaded cells. Here, we see that if employee purchases of notebooks are equivalent to current BYOD penetration levels, new notebook units would be about equal to new desktop purchases in most employee size segments, while a 50% scenario would result in ratios ranging from about 1:1 to 1:6 in all but the smallest employee size category.

 

As is the case in each year’s research, the 2015 Techaisle SMB Mobility Adoption Trends survey asked respondents to detail their plans for acquisition of different types of client devices. Two of the major categories investigated by the survey were desktop PCs and notebook PCs. Here, as was the case last year, Techaisle finds stronger purchase intentions for desktops than for notebooks: 30% of US small businesses and 75% of US midmarket companies are planning to buy desktops in 2015, as compared with 18% of small businesses and 63% of midmarket firms reporting notebook purchase intentions. Projected volumes of purchases are also generally higher for desktops than for notebooks.

However, corporate purchase intentions do not provide a complete perspective on mobile device acquisitions. While one can assume that all desktops connected within a business are company-owned, both data and experience suggests that some of the notebooks used within a corporate environment are employee-owned. By including potential employee purchases of notebooks as a factor in the expansion or refresh of corporate notebook fleets, the SMB PC acquisition outlook for 2015 gets altered.

Yes - Netbooks are all the rage right now but we at techaisle don't believe in the doom and gloom scenarios pointing to the demise of notebooks. This is akin to a donut shop that starts selling bagels. Yes there will be people that come in and but a bagel instead thereby cutting into donut sales or maybe the better analogy is of a shop that sells donuts and mini-donuts. Same product shrunken in size.

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But is the netbook now the new notebook? Should PC makers be concerned about cannibalization? Conventional thinking might suggest that to be true. After all, digital music cannibalized (and pretty much destroyed) CD sales, DVDs cannibalized VHS tapes and the list goes on. In all those cases however the new technology delivered a different and unique experience that older technology could not deliver - ability to create your mixes in the case of digital music, buy one song at a time and better viewing experience with DVDs. Cannibalization = replacement but for that replacement to happen, the product has to offer something unique. This is clearly lacking among netbooks whose only claim to fame is being a cheap, lightweight and small device.

So why are netbook sales increasing. We believe two things are happening:

1. Highly price sensitive customers are taking advantage of lower prices sacrificing computing power, screen size, gaming ability etc.

2. A new segment of mobile device buyers are entering the market expanding the market for mobile computing devices.

This is perfectly logical looking at the evolution of the PC market which has increasingly fragmented over time as user needs evolved

1. Early desktop market - Homogenous needs/users - primarily business use. all desktops nearly equal in capability. Minimal price variance observed

2. Continued evolution of desktops - greater price variance, home and small business markets start opening up, growth in ISV base, hardware options, geographic markets

3. Emergence of laptops - addresses latent mobility needs. Few laptop suppliers, premium prices and limited adopters driven by mobility trading off desktop capabilities for mobility

4. Expansion of laptop/notebooks -  better hardware, greater price ranges observed for notebooks. Consumer, SB notebook market emerges. Mobility remains the primary driver but better price performance drives cannibalization of desktops. However, not all desktops will be replaced (at least over any reasonable forecast period). desktop replacement by notebooks will hit a wall at a point where the desktop value proposition exceeds that provided by notebooks

5. Expansion of mobile computing - Mobile computing becomes pervasive through a multitude of devices, netbooks being one of them. Inclusion of phones as viable mobile computing devices expands available price points, user experiences and user needs/behaviors

So while netbooks have been able to expand the market today by attracting new buyers and addressing latent mobility needs (need for small, lightweight device), market expansion will be limited by what we call the "value proposition differential" - the subjective and objective differences in user experience between products. This is a concept that Apple understands very well as evidenced by the success of iPods and iPhones

In other words, while pricing and weight got the market started, it will not be enough to sustain the growth of netbooks.