On The Record

The Cloud Solution Spin

April 20, 2012

In a recent interview with CRN, Rob Lloyd, Cisco’s executive vice president, worldwide operations, took a shot at HP and Huawei, essentially questioning whether the channel can trust his competitors.

Maybe it’s just because what promises to be the nastiest presidential campaign in history is heating up that I’m more cognizant of these types of statements, but the reality is we are going to see more of this as we move along the cloud solution path.

Personally, I don’t see anything wrong with Lloyd’s comments, which you can read on our Web site at www.crn.com. Any time a company has a chance to define itself by contrasting how it does business vs. its competition, it is fair game, in my opinion. In some circles, it’s called “position marketing,” or “spin.”

Whether or not what Lloyd is saying is true is open to debate and, frankly, something every partner needs to decide on his own. These kinds of statements were prevalent in the early days of the industry when standards were unheard of and all the titans were jockeying for competitive advantage.

My real point here is that when a solution provider sells a cloud solution, very few customers are really going to care about the underlying brands that make up that solution. As a result, position marketing to partners is going to become increasingly important to vendors as a point of differentiation.

Historically, the majority of position marketing spend has been toward end users and remains so today. Lloyd may not even have realized it, but with his statement he is positioning Cisco to the channel. It’s something I think will become more common due to the future loss of brand identity to the end user as a result of the cloud.

If the line-of-business manager isn’t concerned about the underlying brands that make up a cloud solution, then vendors are going to have to work harder to convince solution provider partners to select them as the solution recipe.

This is going to require a different approach to marketing at many levels. Through partner marketing, the emphasis will need to be on solutions, not product. Partners left the single product sale behind many years ago in favor of solution-selling, but to date solution-selling has still often come with an emphasis on the technology and brand makeup. That is going to dissipate as the line-of-business manager gets more involved in the buying decision and bases it on the problem being solved.

An example may be a partner that is building a practice in reducing storage costs for midsize enterprise companies, allowing a company to launch new products more quickly and cost-effectively by not having to build out storage infrastructure and buy storage beyond its needs.

If the customer’s products are storage-intensive, bringing a new product to market means that it has to add storage before it can begin selling it. But if the customer buys storage as a service and has a contract where it pays for what it uses, then a product can be launched and sold before adding costs.

The line-of-business manager is concerned about his costs because he has to return a profit. He is unlikely to care as much about the brand makeup of the solution because he is buying it from a solution provider that is guaranteeing the service.

My point here is that positioning to the partner base is going to become even more important in the future, and Cisco’s Lloyd may already inherently understand why.

BACKTALK: Make something happen. Robert Faletra is CEO of UBM Channel. You can contact him via e-mail at robert.faletra@ubm.com.

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Cloud Is About Cost Transfer

March 23, 2012

The future of computing is increasingly going to see bigger efforts to transfer costs up the sales chain with the channel likely to see its fair share.

Cost shifting is an old game but it’s something you have to watch carefully and adjust your model to manage properly. In some cases, whoever bears the cost is just a function of who has the leverage.

As an example, suppliers that have a highly sought-after technology that is easy to sell have more leverage to push partners to accept costs that they might otherwise push back on. Take a look at who charges solution providers for certification training. Oftentimes, it’s those that have a hot commodity.

On the other hand, suppliers that are in a highly competitive area with lots of viable alternatives use free certification training as a carrot and recruitment technique. Top-tier suppliers that understand having lots of certified partners is a competitive advantage in the market also accept the costs on their own balance sheet more readily.

There are other examples here as well. Demo units come to mind.

But now we are seeing a lot more cost transfer because it’s a fundamental piece of the new cloud computing model. When I take on costs, especially costs I need to capitalize, my risk is high. But if I don’t have to capitalize a technology deployment because I’ve transferred those fixed capitalized costs onto someone else, my risk goes down.

The reality is this is a huge selling point to the end user but it’s also going to become a significant selection point on the part of the channel.

One significant decision point for partners building a cloud model is where do you transfer the costs. Are you going to transfer them onto your balance sheet by building out hosting services and data centers and offering them for rent? Or are you going to find hosting suppliers that give you the capability to offer their package as part of your underlying solution? Both models can work, but clearly the former is a more risky proposition, albeit it likely means greater reward if you’re successful.

In the old model, suppliers that were focused on shifting from a direct to an indirect sales model did so to transfer sales and support costs to partners, and hopefully sell to a wider audience that can’t be effectively met directly. But the old model also meant the infrastructure costs ultimately got transferred to the end user at some point.

Now we are heading toward a model where those costs are either going to sit on the suppliers’ balance sheets or on the solution providers.’ With that comes increased risk because customers can cancel, go out of business, get bought and an untold number of other things that can mean a loss of revenue. The new model, therefore, requires diversification of that risk by increasing the number of customers with whom you do business.

It’s necessary in any case because when the revenue generated by a sale is paid out in monthly fees rather than a one-time big check it requires you to have more customers to obtain a similar cash flow.

Ultimately, the more risk you take on by allowing costs to be transferred onto your balance sheet, the higher your margin needs to be. For large hosting companies and cloud-service suppliers there is obviously a tipping point where the risk is spread across so many customers that the next customer on board barely moves the risk needle. But you need to decide where the cost will be before you can make long-term supplier selections.

BACKTALK: Make something happen. Robert Faletra is CEO of UBM Channel. You can contact him via e-mail at robert.faletra@ubm.com.

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Picking Up The Pieces At HP

February 20, 2012

HP CEO meg Whitman is still shy of four months in her new role, and we are beginning to see signs she is on the way to fixing much of the disaster created by Leo Apotheker’s 11-month stint.

But there are some big issues facing the very capable Whitman, some of which are of Apotheker’s making and some of which are not, that need fixing and will take months and, in some cases, years to fix.

Making sure HP is never in a position where there isn’t a list of serious CEO contenders in waiting within the company is paramount. For a company of HP’s stature to not have a plan and a program to be constantly grooming its future leaders is hard to imagine. But after having brought in four successive CEOs in a row from the outside, Whitman has to fix this by making sure she is the last outsider. Contrast HP’s record with that of 100-year-old IBM’s, which appointed just one CEO from outside its ranks, and it becomes clear something needs to change.

Start by building a world-class board of directors that no one hears about. I can’t think of a single public company board in any business that has had more drama surrounding it over a longer period of time than HP’s. While I’m a big believer in the independence of a board and generally don’t believe the chairmanship should be held by the CEO, in HP’s case Whitman has to build a stronger board that isn’t prone to bad decisions. Fix the silos and develop an organization that supports the way the customer wants to buy. This is a hugely complex problem no doubt, but over time Whitman has to figure this out.

A company with as broad a product line as HP’s, and as large as it is, needs to be organized divisionally. The issue is that the customer doesn’t want to buy that way, and the indirect sales channel doesn’t sell that way. Divisional structures are necessary in order to drive focus on product. The challenge is to find out where in the ultimate go-to-market chain the divisional structure gives way to a streamlined sales and delivery structure.

The four divisional heads naturally evolve their own businesses differently, with similar, but at times conflicting, interests. A division driving toward a quarterly number isn’t going to naturally adjust for other divisions’ needs. Adding to the complexity is that each builds out a structure to support its needs and further adds to confusion in the market. This is one of the reasons no one can point to a single channel chief for HP. It’s an even bigger issue for the HP channel in the field. With different divisional sales structures driving individual agendas, some partners feel like a ball in an old pinball machine that gets banged around in different haphazard directions.

Whitman and HP need a single face for the channel -- someone that has the power and jurisdiction to corral all HP’s needs and build a strategy that pulls the various interests of the company into a go-to-market strategy. That needs to come along with a doubling down on communication around product and programs. Whether or not HP is in or out of the tablet market is just one of the issues that should be communicated.

Whitman also needs her own independent advisory team -- a group of people from outside HP and independent from the board who is going to tell her what’s going on in the market regardless of what’s going on inside the HP hallways. The great news is that Whitman has already brought stability and solid management to a company enormously important to the channel, but her job is far from over.

BACKTALK: Make something happen. Robert Faletra is CEO of UBM Channel. You can contact him via e-mail at robert.faletra@ubm.com.

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High Tech's Toughest Job

January 20, 2012

We are only a few weeks into the new year and already there have been several channel chiefs exit their positions and new ones come aboard.

I don’t generally keep a scorecard on these things, but if I did I’m certain we would see on average nearly two changes a month across the top- and second-tier companies in high-tech and many more if we included smaller companies. All in all, without checking the data I’d guess as much as 20 percent of the channel chiefs in high-tech change each year. At the very least, there is more movement here than in other high-profile sales and marketing roles.

It happens so often because it’s one of the toughest jobs in high-tech. When things are running like clockwork and a company is experiencing growth in sales through partners, everyone inside an organization is taking credit. Product development, corporate marketing, sales, executive management -- they all want credit when things are going well.

But when sales are waning, perhaps because the product set is subpar, the channel marketing budget isn’t what it should be, or management hasn’t completely bought into a channel commitment, then things are different.

Suddenly, not funding the heads in channel marketing that are required to actually meet aggressive targets is forgotten. The fact that the product lineup is below par is ignored. The lack of funding for channel support and operations doesn’t matter. Going completely dark on the channel advertising front isn’t mentioned.

I’ve sat across the table from hundreds of channel chiefs over the years and watched them try to put a positive spin on a corporate decision that we both knew was detrimental to the partners, but which they had to follow through on without showing disagreement. They knew it and I knew it.

I’ve also sat across from a bunch of channel chiefs that were not capable or were merely passing through the channel and had no deep understanding of the indirect nuances necessary to move the needle. They actually agreed with the stupidity.

But regardless, when things go south and it’s time to find a fall guy to deflect the overall corporate responsibility, more times than not the channel organization gets fingered.

Working in the indirect channel is hard. Unlike running a direct sales organization, you can’t slam your fist on the table and say do it. You have to build a program, make it profitable for both sides, advertise the benefits to drive awareness before you can close the deal -- all while supporting the partner. If the benefit isn’t there, or the channel partner isn’t aware of it, you are not going to get the sale.

To be successful in the long run, you need to be very good at internal politics. Maneuvering the hallways to get adequate budget is critical. Being able to educate senior-level executives on necessary investments is paramount. The ability to hire talent and get on the road constantly, press the flesh in the market, is necessary. Dealing with the press and longtime channel watchguards like me that are looking for flaws in your strategy all while staying close to the numbers is flat-out difficult. The scrutiny and grind of it all is comparable to a presidential campaign that never ends.

But once you figure it out, it’s rewarding and fun. Channel chiefs who truly have the channel in their blood wouldn’t have it any other way. But from where I sit and for as long as I’ve been watching this play, there’s no doubt it’s the toughest job in high-tech.

BACKTALK: Make something happen. Robert Faletra is CEO of UBM Channel. You can contact him via e-mail at robert.faletra@ubm.com.

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Cloud Spawns New Type of Supplier: a 'Vendorgrater'

December 09, 2011

For a few months now I’ve had a question rolling around in my head about the long-term viability of this business experiment called VCE -- the joint effort of Cisco and EMC that also has investments from VMware and Intel.

The way I see it is that there are so many issues surrounding this experiment and so many potential different interests that it will be worthy of a Harvard Business School case study if those involved can make it work.

The theory behind the joint venture is that VCE can deliver an integrated product that leverages the best technology from Cisco, EMC and VMware via its Vblock offering. There is no doubt that Vblock is a solid product that is well-positioned, and I dare say may even have the advantage of being well-timed, for a market that is moving toward more cloud deployments.

But while that is all true, VCE has both advantages and challenges that no other competitor in the market faces, and it is trying to build a company built on others’ technology in a way no other has ever attempted.

On the advantages front, it does have a special relationship with the three most important contributors to the venture. Cisco, EMC and VMware all have a vested interest in its success. In fact, with Cisco and EMC each having invested hundreds of millions there is no doubt senior management wants a return. The best way to get that return is to help VCE sell lots of Vblock laden with technology from EMC, Cisco, VMware and Intel. So we can expect that VCE will have the inside track on technology and business decisions coming down from its investing parents.

The management challenge, of course, is that while all parties involved want a strong, successful VCE, the success of their respective independent company is most important and has to take precedent. So there are decisions that will undoubtedly be made by the investors that mean VCE gets no more of an advantage than its competitors. If it makes business sense for one of them to do a deal with a competitor, you can bet it will happen.

While VCE has built in Vblock, a robust private cloud platform, there are competing offerings out there, some of which use much of the same technology. Fundamentally, VCE’s value, at least right now, is really that of being a systems integrator of others’ technology but carries with it a brand of its own.

This arrangement makes VCE neither a pure-play vendor nor systems integrator. While it is integrating other suppliers’ technology, it’s not doing so independently. To make it even more interesting, VCE is taking advantage of the channel of its investing parents as well as building its own channel.

All this puts VCE in a class by itself and makes the company a “vendorgrater” -- a word I’ve made up to describe what could be a new category of supplier as we further journey to the cloud.

This arrangement comes with a multitude of challenges. VCE is constrained in its integration efforts because if it were to incorporate technology from competitors, I can’t imagine its parents would be thrilled. As such, it’s unlikely to be seen as an independent integrator. So the company needs to turn this to an advantage by positioning itself as having built a better mousetrap with technology available to others. If it can do that, and build a world-class support system around it, this experiment could work. It’s a management challenge with high risk and high reward and it certainly will be fun to watch.

BACKTALK: Make something happen. Robert Faletra is CEO of UBM Channel. You can contact him via e-mail at robert.faletra@ubm.com.

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