For the 8th annual CDN channel roundtable, channel managers from hardware and software companies along with solution providers came together to have a frank discussion about margins and channel management.
The panelists: Daniel Duffy, president of Mid-Range Computer Group of Markham, Ont., Omer
Gagnier, channel manager, Canada for Veritas Software (Canada) Inc. of Toronto, Gary Isaacs, general manager, corporate channels for IBM Canada Ltd. of Markham, John Kvasnic, co-founder and CTO of Navantis Inc. of Toronto, Dave Rumer, senior director, marketing for Oracle Canada of Mississauga, Ont., Derek Smith, vice-president of channel sales for Hewlett-Packard (Canada) Ltd. of Mississauga, and, Michelle Warren, market analyst at Evans Research Corp. of Toronto.
The panel all agreed that margins, or increased margins, will be an important aspect of sustaining the reseller business. More importantly, however, the panel thought that working collectively as one voice to the customer would ultimately show more success.
CDN: In the past, channel partners basically had to add value or be slashed from a vendor’s authorized partner list. Vendors began dropping partners at a significant rate. This year companies such as Cisco, one of those vendors who chopped their authorized reseller list dramatically over the years, and Computer Associates have developed new channel programs that pay out bigger margins to those resellers who commit to their companies. The idea behind both plans is simple: Help your channel partners remain successful and in turn they will continue to sell your product, over a competitor’s, because they will make more margin. Will this kind of channel plan become a trend for 2004?
Dave Rumer: Margins are extremely important to the channel in Canada, but to view that as the driving factor for all channel activities is short-sighted. It is very important that vendors and the channel have a symbiotic relationship and that they go to the customer together. Things such as education, joint marketing, and having a trust between the two is more important I think than the simplistic view that margins will drive everything.
Daniel Duffy: I agree, but the margins and the profitability of the business models have to be sustainable otherwise resellers will look to other places or do other things. There has to be a balance. It is tuning it rather than breaking it. If there is no money in it, resellers are not going to hang around for very long.
Gary Isaacs: We recognize that margin is very important to our partners. They can’t stay in business if they are not profitable and continue to invest in the areas of education and co-marketing efforts. The secret is to help partners to gain and make margins in areas where vendors or manufacturers are interested in going. What we are seeing is that manufacturers are offering more margins in part of the market where they see growth or opportunities. And, when you can get that you will have a win-win situation that will work for both.
CDN: Are utility computing and autonomic computing growth areas for 2004?
Isaacs: Yes, but a very popular one at the moment is SMB. Most manufacturers see themselves trying to grow their business in SMB so they are offering higher margins for partners to invest in that area, for example.
Derek Smith: To add on to what Gary is saying I think it is important for our partners to invest in areas where we want them to grow and were we see some opportunities for us as well. SMB is certainly a key focus for Hewlett-Packard (Canada) moving forward into 2004.
Rumer: When you look at the opportunities moving forward, the SMB is certainly one where partners and vendors are going to be investing their resources, their time and their commitment to going after it. It is a tremendous opportunity for us in Canada and for the partners.
John Kvasnic: If you look at the programs you have to look at the qualitative and quantitative aspects. We are a small firm so we want to take advantage of any marketing opportunities such as going to market together, joint planning sessions, education, and recognition is a really big one for us because we have a small marketing department internally.
Omer Gagnier: I concur with Dave (Rumer) that driving relationships collectively and having one voice to the customer is really important. Margins, certainly from a partner perspective, are how they live and breathe. As the solutions get more complex vendors are looking for a higher investment from partners and to accommodate that you have to protect them from a margin perspective. Having strategic value and leveraging the relationships when you can within the CEO at these partner levels and then going collectively to the customer is the best approach.
Isaacs: One of the other things your question implied was do we see vendors working with fewer partners. I think that is a trend we will see. Most manufacturers are starting to say if there are partners who are making an investment and are expanding then those are the ones we want to work with. If you look at IBM, our strategy is not to recruit hundreds of new partners. It has been to focus on the ones who are doing the right things for us. In some cases, there are pockets of recruiting we have done but not to grow the total number.
Duffy: One thing I think Dave mentioned was the channel is a little weary of this top-line-revenue-growth-at-all-costs model that seems to come from some of the manufacturers. The partners are looking for profit. What they don’t want is manufacturers dipping into the partner space on a quarterly basis just to satisfy Wall Street.
Michelle Warren: What we are seeing is the resellers offering something to the clients. They offer service or value-add, but profit drives the purchase.
Duffy: The vendors do stay loyal, but especially the SMB resellers they are looking for something for the loyalty. And that something is loyalty.
Rumer: Consistency of trust, if you look at the SMB market, it is high touch. Relationships play a critical role. This is very interesting to talk about as a vendor with the channel. When we get right down to it, who’s going to drive our behaviour? It is going to be the customer. It will be the market out there. If they are looking to a partner to help them move into a particular space — or the vendor — it is a situation where you will have two sides driving both.
Gagnier: All of the partners in the community kind of can hang their hat with one vendor whether it would be a platform vendor or a software vendor, but as you look to some of the larger partners — and they really have the trusted advisor status within a lot of the tier one accounts that our end-user reps call on — they need to have that universal relationship amongst a lot of different vendors in order to ensure that trusted advisor status within the customer community. There are two different dynamics: The dynamics of volume-based partner and those of a value based partner. As you move up the chain, typically based on size of the investment and of the infrastructure inside those tier one accounts, you will find there is a quite a difference.
Isaacs: Sometimes we think of solution providers as single manufacturers because the only infrastructure products they carry is either IBM or HP. But even those partners have chosen to be a single infrastructure reseller there is no partner in the country that does not sell different software packages or options from other manufacturers.
CDN: Gary, isn’t the pitfall of this kind of plan from Cisco or CA with the customers? They might require a Nortel solution over a Cisco solution. It just makes for a better fit. The reseller may want to sati
