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By Robert Faletra

HP's Whitman: The Right Attitude For Driving Channel Growth

May 27, 2013

A few weeks back I had a private lunch with HP CEO Meg Whitman and Chief Communications Officer Henry Gomez. The agenda was simply to talk about the channel and HP's position.

The discussion was off the record so I'm not going to reveal details here, but I will mention attitude and, in my opinion, attitude is everything in channel growth and management. HP is arguably the most important vendor to the solution provider channel. Its brand is well-regarded and its product line so vast that it's always a consideration when building a solution. More partners have strategically aligned themselves to HP than any other vendor.

But it's no secret that HP has had its difficulties over the past few years and, in particular, was set adrift by Leo Apotheker. But that was then and this is now, and I feel Whitman has the right attitude.

So what do I mean by the right attitude? First and foremost, she's focused on the channel for the right reason. She understands its importance to HP's success.

When a CEO of an organization believes the channel is important to the future of the company, things happen. They don't just happen in the executive suite, they happen throughout the organization. Everyone inside an organization wants to please the captain, and Whitman has made it clear she wants the HP channel fixed. That type of attitude sets direction. It gives employees a sense of purpose and it helps everyone inside the organization understand how to make the right decision.

When it's not clear what the CEO wants in its channel, as was the case during the Carly Fiorina and Apotheker stewardships, the organization vacillates and is incapable of making the right decisions. Whitman has changed that, and I found it not only during my meeting with her and Gomez but also during a series of meetings with other business leaders at HP. More importantly, this attitude adjustment is being felt by the partner base that is seeing the change and hopefully it will continue.

What's also clear is that Whitman isn't blind to the problems. She understands she can't just say something once and expect it to happen. She clearly isn't buying everything she is being told, and she is committed to tweaking the program and execution to continually improve it. Again, to me this is the right attitude.

I don't think we in the channel can expect everything to go perfectly. I do think we can expect to see steady improvement as the new partner program rolls out, and as Whitman's attitude becomes ingrained throughout the organization we should expect that ease of doing business with HP should improve.

Thankfully, Whitman understands the challenges better than most CEOs. But her history as former CEO of eBay helps. eBay is the ultimate channel company, built on the concept of taking a fractured channel that had no way of reaching a large customer audience, then giving it a way to publicly put its wares on display. While individual sellers were important to eBay under Whitman's reign, it was those that made a living on eBay that became most important. The HP channel may be more sophisticated and complex, but Whitman is no stranger to building a large business with partners.

In the end, it's her attitude that is most important. It's what I think partners should feel very good about because the signal is this is the direction she wants to go and believes it is necessary. That attitude from a CEO is the fastest way to change an organization and that is certainly happening. So long as Whitman remains consistent and doesn't vacillate over time, the HP channel is only going to become better and more lucrative.

Robert Faletra, CEO of UBM Tech Channel, writes a monthly column on CRN.com. You can contact him via email at robert.faletra@ubm.com.

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The Cloud Model: Why The Channel's Future Is Shining Bright

March 25, 2013

Those who follow this space regularly know we spend a lot of resources on researching and understanding the channel so we're able to help solution providers and vendors alike make the best possible decisions for future growth.

We recently updated a study around the emerging cloud business model. I've personally been encouraging partners to move away from the traditional vintage model of selling one-off solutions and billing for time and materials. Fortunately, the number of partners operating in the vintage model has dropped 40 percent in three years and now makes up just 11 percent of the North American partner base.

The progressive model we have been advocating as a transition to a pure cloud or transformative model now makes up 71 percent of the partner base, having grown 15 percent since 2010.

While on-premises infrastructure deployments still make up the largest opportunity in the market, with 41 percent of sales in that environment, it has shrunk by 11 percent, while pure-cloud deployments, off-premises hosted and on-premises hosted have all increased.

Most importantly, the decision-making process is becoming democratized with many line-of-business executives increasingly making the decision. The best advice I can give partners is to step up the sales and marketing skills and understand you now need to get to know the CMO, HR director, CFO and virtually any other executive. This is a good development strategy, but it also means it is more important than ever to not only understand a customer's business but also the challenge of the particular business units within the overall business. When we look across the market, the vast majority of the growth in solution provider businesses at 8 percent is coming from the services component. Hardware is declining to the tune of 5 percent and software sales growth is a meager 1 percent.

While services is a big category, the managed services category is really where the action is. We are projecting that managed services revenue is already at 36 percent of partner sales and will grow at a 25 percent clip over the next two years, accounting for nearly half of all services revenue by 2015.

All this growth around cloud is clearly an opportunity for both the vendor and the partner community, but it is also going to follow the path of every other major trend we have ever seen in this industry. That means the margins that are being captured today are as high as they are going to be. Simply put, the mystery around cloud and managed services is already clearing. With 54 percent of partners already offering some cloud deployment and cloud revenue at 20 percent of total revenue climbing to 28 percent by 2015, we are going to see price and margin begin to decline.

As that happens, the channel will change significantly. This is just my opinion, but I believe we'll see the birth of many more billion-dollar-plus solution providers. This is already happening judging from the amount of merger and acquisition activity in the market. The large players will force smaller partners to become more specialized in order to gravitate toward higher margin areas. In the end, the size of the channel will stay relatively constant with new partners coming into the market as others merge. We saw something similar in the early 1990s.

I've never seen more opportunity and a brighter future for the partner community, but it is going to take work and a commitment to build great marketing and sales skills. In the past, the best attributes were technical skills. The future is all about sales and marketing.

Robert Faletra, CEO of UBM Tech Channel, writes a monthly column on CRN.com. You can contact him via email at robert.faletra@ubm.com.

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3 Keys For Vendor Assessment In Today's Channel

February 25, 2013

A decade ago in this column I discussed 12 steps that needed to be taken to construct a successful channel. In essence, it was a model for solution providers to assess the channel leadership, commitment and acumen of a vendor as it pertains to the channel.

The world has changed a lot over the past 10 years and the new model emerging as we morph more completely to the cloud is much different. So what is the new criteria you should use to assess a vendor you are considering throwing in, or with whom you already have a relationship?

First and foremost let's not forget the underlying principle that no vendor does business with you because they think you are nice. The only reason to engage is an economic one, and when the economics change, so do relationships. It's like politics-once you are out of office and unable to deliver on a constituent's request, there's little reason to engage.

With that as a backdrop, there are three overriding themes I think you should look for when evaluating vendors.

First is cost transfer. Is the vendor expecting its channel to take on costs that arguably should be borne by the supplier? In the simplest form, this starts with training. Vendors don't charge members of the direct sales team for training but often attempt to charge the channel partners. Interestingly enough, this is most often the case with the larger suppliers that have more leverage with partners, while smaller suppliers more often bear the training costs themselves as an incentive for partners to engage.

But moving forward, there are other costs that need to be considered. A cloud sales model when bundling in services provided by manufacturers is causing, and will cause, cash flow issues given the payment is piecemealed out over a year or more. This is forcing, and will continue to force, some partners to consider selling receivables as part of cash-flow management. Whether vendors should bear some of the cost of this is debatable, but I think it's worth a discussion and those vendors that solve this in some way are going to be better placed and more desirable.

The other theme that I believe bears watching here is the motivate vs. mandate approach to the market. Clearly, vendors can mandate how their own direct sales force goes to market. In fact, the hardest thing for many companies that move from a direct to an indirect model to deal with is that partners can't be told what to do the way a sales team can.

In the channel, some vendors with dominant positions in a product category do have enough leverage to mandate in some cases. This can take many forms, some of which are absolutely legitimate like requiring certifications to carry certain products to market. It can also mean not allowing certain products to be sold by partners at all-a recent example being Microsoft's tablet, which it only sells direct.

In the end, it's not hard to identify programs that are built with an understanding that the channel partners need to make a profit. Programs that pay margin on dollar one vs. those that require a certain threshold to be hit first are more lucrative as an example.

The last general category is, does a vendor put resources behind channel development or take an approach of putting all the resources behind channel sales management? Channel account managers spend their time working with partners to drive sales. That's relatively straightforward. Channel development is a longer-term play where the vendor works with the partner base to position the partner and the vendor for a longer-term objective by driving that into new verticals or building out new growth strategies.

Robert Faletra, CEO of UBM Tech Channel, writes a monthly column on CRN.com. You can contact him via email at robert.faletra@ubm.com.

PUBLISHED FEB. 25, 2013

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Private Dell: A Positive Move

January 26, 2013

The recent news by Dell that is driving toward a potential private equity deal that will take the company private could be a good thing for the channel as well as for Dell.

A private Dell can focus on long-term value rather than the quarterly cadence that a public company is forced into as a result of the investment community.

Dell is in the middle of a historic transition that requires taking gambles in some cases and making long-term bets in others. It also is still in channel-building mode.

When Dell came forward about five years ago and stated that the former direct-only sales model was a strategy and not a religion, it opened its sales model to the value-added channel in a meaningful way. The truth is, it was already selling through partners but its program was minimalistic and not terribly profitable for partners.

Since then, the computing giant has not only invested in the channel and built a strong team around it, it also has had to race to a larger strategy that goes far beyond PC sales. Now with dozens of acquisitions under its belt and a formalized channel, it is battling the decline of the PC on a worldwide basis.

The solution provider channel is morphing faster than many of the suppliers in the market to a cloud sales model. Fortunately for Dell it has a channel it can leverage, but it needs to invest more heavily and build a cutting-edge partner base equipped at finding the new decision-makers inside of the midmarket and high end of the small-business market that are embracing cloud deployments.

The Wall Street quarterly performance treadmill is an inhibitor to Dell's transition path, in my opinion. A private equity play that takes Dell off the public market means a longer-term business horizon and an ability to invest in such a way that the immediate bottom line need not be a consideration.

UBM Tech Channel data shows that time to revenue from new partners can be shortened considerably but it takes up-front investment. We've built programs that suppliers use to drive demand for partners even as they are being recruited. These make sense because coming out of the gate quickly with sales results in a higher percentage of enabled and engaged partners.

Generally speaking, when a vendor brings on a newly acquired partner it tends to be at least 12, and more likely, 18 months before the partner is generating enough sales for the vendor to begin making a profit beyond the cost of recruiting, enabling and supporting the partner.

Historically, Michael Dell has been able to focus on the details of making his model work. He and his team mastered just-in-time delivery and realized that with component pricing, meaning historic pricing trends continually became less expensive, that fact could be leveraged. In the industry's early days, Dell won many competitive bids by pricing its product on a cost base that would be achieved in future months. Its sourcing and manufacturing discipline became an advantage in the market.

As long as Michael Dell stays engaged in the business after the privatization and we see an investment in its channel strategy, I think we should all view this as a positive for Dell and its channel. Moving away from a PC-centric world and toward a services-driven cloud model is difficult for any company, let alone one the size of Dell, with the pressures of returning quarterly earnings and meeting expectations.

Dell needs to be able to invest for a longer-term return and build out a stronger channel and, in my opinion, a private structure is better suited for that at this juncture.

BACKTALK: Robert Faletra, CEO of UBM Tech Channel, writes a monthly opinion column. You can contact him via email at robert.faletra@ubm.com.

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Back To The Future Channel

December 14, 2012

Get ready for a year of accelerating consolidation in channels and the industry as a whole in 2013.

There are many reasons why 2013 looks to be a year of heavier-than-usual action. From a channel perspective there are a number of factors. First and foremost, many partner organizations that are in the $100 million range and above have a large appetite to acquire. Many of these players believe they will gain significant advantage in the market as more businesses move to the cloud. While that may prove to be true, the more important driver here is expertise acquisition. Specialization gained through mergers can help accelerate organic growth.

Some manufacturers are even encouraging these rollups and, in some cases, helping them along by either bringing the right parties to the table or helping them with funding.

Another factor for the acceleration is being driven by a generational shift. Some very solid partner organizations in the $25 million to $50 million range are owned and run by people approaching retirement age, and unless there is a family member with a desire to take over the business then a transition has to take place. This is just a reality of the industry.

Personally, my belief is that we are seeing a bit of back to the future in channel makeup right now. When the indirect sales channel was first born in the late 70s, it was made up of a lot of small players that got the model right, making them huge players in the market. That happened in a few different ways via both the franchise model and company-owned model.

Looking ahead, the channel makeup will be different in that we will have many more larger partners in North America. At the same time, we will see thousands of newly formed partners move into the market with born-on-the-cloud models that are very different than many of the partner business models of today.

Born-on-the-cloud partners sell business-solving solutions and more often than not avoid a bill of materials in the sales proposal. The reason for this is that they want to focus on the solution and not be shopped based on product set.

It's an excellent model that from my experience is showing higher margin and resulting in rapid growth. In short, I believe it's the preferred sales model of the future for solution providers.

At the same time that this is happening, the DMRs are seeing the same pressure and many are trying to remake the business for solution sales. Some will make the transition, and those that already have a services arm are better positioned to do so. In the end, those DMRs that cross the chasm will be more profitable. Those that don't and remain in the volume game will become less so.

While all this is happening there are new competitors and suppliers to the channel. Amazon.com is highly likely to make a more concerted effort to get the partner community to sell its hosting services in the future and is looking to build out a channel team to do so. The service providers are clearly getting more serious about building the data channel.

A few years from now, the strength of the billion-dollar channel players will be able to push vendor thinking in directions we don't see today. All this is not being lost on the supplier community, the brightest of which are already preparing different go-to-market plans with partners.

It's going to be an exciting time in the channel, and the opportunity to get the new model right and build a stronger business is high.

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

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