5 min read

Solving Channel Program Puzzle

Small- and medium-sized businesses are changing the partner program rules as vendors scramble to enhance benefits, keep VARs loyal and capture revenue in a growing market segmentrn



A tough economic climate. Slack demand. Intense competition. Threats from direct vendors. None of this is news to resellers. But it’s forcing major structural changes in channel programs from both vendors and distributors that will affect resellers in the years to come.

Simplified channel programs,

alignment with vertical industries, points-based rewards systems and a shift from volume to value are some of the biggest trends.

Customers are increasingly demanding solutions as opposed to point products, says Michael Haines, a principal analyst with Gartner Dataquest, which is changing the nature of the way vendors go to market, particularly in the SMB space.

“”It is such a big focus area for all kinds of vendors today to figure out how to most effectively get to the massive but fragmented SMB market,”” he says, “”so they have to change their channel programs in order to help their channel partners effectively get to that market.””

Channel companies are changing too. Where VARs were traditionally resellers of hardware and software, they’re now “”morphing”” into service providers. This means channel companies increasingly represent multiple parts of a vendor’s business.

The big play

The big players have big channel programs and offer numerous products and services. In the past, they had different channel programs for different products and services. That meant channel companies had to have separate relationships with the same vendor, says Haines. “”They had to be involved with different programs with that vendor — and oftentimes didn’t get recognized for their aggregate contribution to that vendor’s success.””

Vendors are starting to simplify their channel programs, collapsing multiple components into a single program. They’re also starting to look at the way they measure and position their VARs within those programs, says Haines. Traditional strategies promoted partners based on revenue. Now, more vendors are looking at a value model instead of a volume one.

“”One of the ways I’m seeing change is in the way they organize, reward and categorize their channel partners,”” he says. “”It starts to be a system that rewards (partners) based on points.”” This means partners earn points not only for volume, but for other areas of value, such as certifications, specializations or presence in a certain market — meaning smaller VARs can attain a higher, more strategic level within the channel program, says Haines.

He points to three vendors in particular that have made big changes in these areas over the past couple of years: Cisco, IBM and Microsoft. “”The good news is a lot of vendors are headed that way, including HP and Sun — they’re just not as far along with the process yet,”” he says.

Cisco moved to a value model three years ago and is focused on partner profitability. IBM is consolidating its channel programs under the PartnerWorld umbrella and is providing solutions that target the SMB market. Microsoft is also consolidating its programs and helping to foster partnerships among partners. This is another trend Haines sees: Investing in tools that foster collaboration among partners as they develop more complex solutions for customers.

Investment

In January, Microsoft officially launched its revamped channel program, the Microsoft Partner Program (MPP). The vendor also announced an increased investment in its channel programs — from US$1.5 billion to $1.7 billion — for fiscal 2005. Haines says this is significant because of where the investment is going: additional field specialists, training and marketing support and services.

Another major change in the vendor’s channel strategy is switching to a points-based reward system. “”Partner points are sort of like a thermometer where you can see where a partner scores — it’s activities that the partner will do that represent success in the marketplace that we give points for,”” says Darren Bibby, partner development manager with Mississauga, Ont.-based Microsoft Canada.

“”We can now see and tailor the benefits, tailor the information we give to them based on what competency they’re in.””

Microsoft is also rolling out a channel builder tool where partners can find other partners with complementary solution skills. It’s designed to encourage partners to team up and win bigger, more complex business deals.

“”The online portion is a little bit like Lavalife where you have partners finding partners. It’s a way for partners to list programs they’re working on, to find each other (and) see if there’s any synergy there,”” he says. “”The other piece is a little bit like speed dating where we have events where we talk to partners about what it takes to partner together.””

Partner umbrella

Like Microsoft, IBM has streamlined its channel programs under the PartnerWorld umbrella to simplify the process for channel partners who, previously, had to deal with IBM under four different technology tracks.

“”It was confusing for customers and it was confusing for our partners, so we’ve taken those four tracks out and we’ve said, ‘if you meet this set of criteria as a business partner, you are an IBM Premier Business Partner,'”” says Gary Isaacs, director, business partners, Canada, with IBM Canada.

IBM is also offering reseller protection with its Bid Certification program, which means that when multiple partners are competing for the same customer, they’ll have to apply through the vendor program to request special pricing for that customer. The partner who has worked hardest on that opportunity will get the best pricing.

“”I think there’s a feeling among some of our partners that in some situations they get what we call stacking — we get multiple partners in the same situation,”” says Isaacs.

The Bid Certification program is designed to reward partners who are pro-actively supporting IBM. “”The real issue is, if a partner invests in an opportunity and really works with the customer and then loses it in the end because someone who’s made no investment in the opportunity can probably go in at a lower price — because they haven’t made that up-front investment — obviously that’s not supporting the behaviour we want,”” he says. “”We really are supporting the partner who has done the majority of the work.””

Changing programs

Vendors — especially those with numerous channel partners — face a number of challenges when upgrading their channel strategies.

Collapsing multiple programs into one, for example, means that effective coordination and communication are necessary so channel partners aren’t confused, says Gartner Dataquest’s Haines. If there’s any confusion during that time, he warns, vendors are susceptible to losing some of their partners to the competition.

When changing the program stratus, certain partners who were at one level of the program may find they’re not there anymore — and might get disgruntled, says Haines. It’s important, he says, if they drop down, vendors show them how to get back up to the next level as quickly as possible.

Channel strategies are shifting in the distribution world as well, reflecting changes in both vendor programs and the focus of their reseller customers.

Post-Y2K, says Greg Myers, vice-president of marketing with Tech Data Canada, revenue growth has been difficult to achieve. “”There have been more focused areas within technology, things such as IP telephony or SAN/NAS or security that have experienced growth,”” he says, “”but for most resellers, even if they were growing in those areas, it’s been difficult to maintain revenues in a fairly slack demand environment — particularly if you’re calling on the enterprise space.””

Tech Data’s emphasis is now on strategic business units – made up of a specific set of vendors and a specific set of r