Shocking Channel Experiments

For some vendors and distributors, it means going

back to revive things that worked before. For many others, it's on to ideas never before tried. At present, there are so many experiments going on in the channel that it's a wonder a white lab coat isn't the official uniform of executives everywhere, including those outside traditional channel management. Take Willy Donahoo, for example, BMC Software's vice president of business development for the Houston-based company's Enterprise Data Management group. Donahoo's challenge at BMC is to find new ways to build a following for BMC's Smart DBA family of products, which often compete head-to-head on database platforms with tools made by platform developers. After careful market analysis, Donahoo,who has no official channel sales duties at BMC,nonetheless decided the company could benefit from a little more breadth in the field. So, he set out to recruit new partners. Lots of them. His goal: increase the number of partners involved with BMC's enterprise data-management products from 60 to 600 within one year.

"If we are going to make further inroads into the Oracle, IBM and Microsoft worlds, then we are going to need the partners that dominate in those spaces," he says.

Of course, making all that happen at a company not known for its vast channel depth wouldn't be possible without some fortuitous timing and creative thinking. About the time Donahoo was formulating his experiment to recruit a legion of new partners, for example, the company reassigned its top sales executive from Europe to oversee worldwide sales. Turns out, the executive, Darroll Buytenhuys, senior vice president of worldwide sales, services and marketing at BMC, is a big believer in channels, Donahoo says. Meanwhile, Donahoo, who worked at Novell when it enjoyed great channel successes in the early 1990s, goes mountain biking nearly every weekend with a friend who is a vice president at SBI, ranked 364 on the 2001 VARBusiness 500. The biking companion provides immediate feedback on channel ideas every time the duo hits the trails, Donahoo says.

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"For me, it's like back to the future in building a business around channel partners," he adds.

For others trying to reinvent their companies with channel experiments, it's more like a brave new world. At San Diego-based Iomega, longtime channels veteran Kerry Brock has launched the company's first VAR program. Like Donahoo, Brock, too, is in recruitment mode, trying to convince VARs and solution providers that the company known foremost for removable personal storage is also a good bet for network attached storage. It's not an easy sell, given that VARs don't generally get involved with Zip and Jaz product sales. But Brock is convinced the new Iomega NAS A300U, which lowers the price point of a 120-GB NAS device to $1,000, will persuade them to reconsider Iomega. A channels veteran who built programs for Artisoft, Caldera, Novell and WordPerfect, Brock believes the benefits package he's put together for Iomega VARs is as complete and competitive as anything he's ever done. But, he acknowledges, the entire VAR program is a gambit. After all, VARs simply may not sign up in numbers sufficient to justify the $1 million-plus he sank into building the program. So far, Iomega has signed up more than 1,000 VARs since launching the program six months ago. "We're rockin,'" Brock says.

Experiments Under Way

Across the broad channel landscape, companies of all shapes and sizes are experimenting. Some, like Iomega, are trying to add or coalesce partners around a particular initiative or set of products. Palo Alto, Calif.-based HP, for example, has launched its first VAR program for "imaging" partners in years, according to Tami Beach, channel program manager for HP's multifunction peripheral (MFP) products. The goal: create a program that will attract those VARs who can sell both to IT customers who need laser printers and business users who rely on copiers. It's tricky, she says, because copier customers often pay for their products via service contracts that charge them a usage fee for every copy they make, while IT customers are more accustomed to paying for devices outright. Finding a partner with the requisite technical skills to sell, install and maintain multifunction peripherals is tough enough, she adds, but finding one who can devise service programs to meet the needs of individual users can be doubly difficult. Undaunted, Beach has set a goal of finding 125 new partners by year's end to join her company's new MFP Value Incentive Partner (VIP) program. Already, she has signed up 52, including Ikon Office Solutions, ranked 86 on the VARBusiness 500 and Print Inc.

Other vendors are also experimenting with new ways to recruit and attract partners. Storage device-maker Maxtor, Milpitas, Calif., for example, launched in May a pilot program to recruit partners with select skillsets in vertical markets. In this case, the company has set about to find partners who can take it deeper into the engineering and architectural-design fields. That's where Rachel Forke, director of channel marketing, believes the Maxtor 4000 series is an ideal fit. To show these partners she can help increase their sales, she's launched a pilot program that lends her company's inside sales team to VARs. The only catch: VARs must come forward and provide Maxtor customer names for the company's salespeople to call. Maxtor has identified 200 select partners with which it will help close business. If successful, Forke says she'll likely expand the program and offer similar help to resellers who target other select markets Maxtor hopes to penetrate. She may also broaden the program to allow Maxtor salespeople to accompany VARs on sales calls.

While many pilot projects revolve around recruitment, a great many emphasize other areas, says Don Bush, vice president and general manager of Aspen Marketing Services, a Chicago-based consulting and execution company that provides advice and counsel to all types of IT vendors. Because most channel experiments are designed to help get more out of existing partners, vendors and distributors tend to concentrate on increasing the sales capabilities of existing partners. But companies are also experimenting with programs that try to mitigate channel conflict, improve training and communication, foster partnerships, cut costs and finance expansions.

"We're seeing experiments in nearly every facet of channel building, but sales growth is where a lot of companies are putting their emphasis," Bush says. The tighter the market, the more creative the trials companies are willing to run. For one customer, a network interface card (NIC) maker, Aspen created a rebate program that rewarded partners who simply included the NIC vendor's products in bids for work. Partners loved the program, Bush says, because it helped defray the cost of assembling a bid, which is often expensive, and VARs are typically not successful at getting reimbursed for this expense. The vendor loved the program because it soon made its NICs more popular. After several months, the number of requests for quotes that included the vendor's NICs jumped up by 14 percent. Moreover, sales rose by nearly 10 percent after the program launched.

It's precisely that kind of return that ATG and others are hoping for with new pilot channel projects under way this month. Any day now, corporate IT professionals who rely on ATG's Dynamo e-Business solutions software, for example, will receive an ambitious direct-mail package reminding them of all the reasons they should upgrade their software to the latest version of Dynamo, release 5.5. Included in the package are technical spec sheets, descriptions of product enhancements and several case studies on Fila, JCrew and other corporate users. Also included in the promotion are the exact names of partners these customers should call in the event they would like to find out more information.

The experiment is a change of pace for a company that only began allowing partners to resell its products in January. But the evolution is absolutely necessary for ATG to thrive, says Al Stoddard, vice president of channels and alliances, at the Cambridge, Mass.-based company. He firmly believes that enlisting partners to sell ATG products will help convince customers that the ATG product suite is in their best interests. But he's going to have to prove his hypothesis with fewer partners than his predecessor. Instead of going to market with 300 partners, ATG now counts just 50 among its base, Stoddard says. Although he'll likely add another two dozen or so before the year is out, budget constraints and channel turnover have prompted him to focus on his best-performing partners. For example, the pilot direct-mail project, which he has dubbed "Maximizing Your ATG Solution," includes just 15 select partners at this juncture. Each has had to send a technician and a sales professional to extensive, in-person training and sales coaching. Partners already on board with the program believe it's exactly what the market needs now to spur sales.

"We've already done several upgrades and expect to see a wave of interest after the campaign takes hold," says Tom McFadyen, president and founder of McFadyen Consulting, a Vienna, Va.-based VAR that specializes in ATG solutions. "Then, it will be up to us to go and close some business."

The company, which has sold more than 35 different customers on the ATG platform, says most enterprises are unaware of the real benefits, including portals or scenarios, they will get from updating their software. "Because the ATG technology is rock-solid, it's unlikely that any customers are going to rip it out. But getting people to invest anew is always tough," says McFadyen, who nonetheless has hired six new people to help with anticipated Dynamo upgrades.

Like many, Cisco Systems, San Jose, Calif., too, is focused on helping partners increase their sales. But its highest priority, according to Paul Mountford, vice president of worldwide channels, is partner profitability. With more than 10,000 companies now selling Cisco products in North America to customers of nearly every size, Cisco is wrestling with ways to overcome margin erosion that is the direct result of over-distribution. It's tackling the problem in several ways. As a stop-gap measure, the company has demanded that one of its largest resellers, MCI/WorldCom, stop dumping product on the market,in some cases, for as much as 45 percent off list price. That's several points below what some of the company's best partners pay for Cisco products. Long-term, the company must devise more ways to stratify its channel partners and reduce overdistribution, says Edison Peres, vice president of emerging technologies for the worldwide channels organization. One way the company will continue to limit distribution is through its Advanced Technology Providers (ATP) initiative, which is open to only a select group of partners. Only four ATP partners are certified to resell the company's optical long-haul products, for example. Future efforts will further limit who can sell what within the Cisco line, he says.

"Restricting distribution is not something we are familiar with, but we are learning," he says. For example, we had an oversupply of IP telephony specialists because we made it too easy to become a specialized partner. We then had too much supply, so we raised the bar." Future experiments will examine other ways in which Cisco can reduce conflict among partners.

One of the more radical experiments currently under way is one being advanced by Intel. Unlike others who are trying to reduce the number of tiers in the channel, Intel is considering adding one. By the end of June, the company will evaluate how successful its pilot program to recognize five companies as Intel Channel Suppliers (ICS) has been. Launched earlier this year, the initiative was devised to help white-box and other systems builders, some of Intel's fastest-growing customers. Today, the company has approximately 20,000 partners in North America. Most source their products through distribution and various product brokerages. But Intel believes they would benefit from funneling purchases through ICSs, which, in turn, would buy from traditional product distributors. Intel promises to provide these ICSs specialized training and support specifically designed to help their white-box-builder customers.

"It's a way for us to formalize our white-box channel and distinguish who in that space has made a real commitment to Intel," says Steve Dallman, general manager of North America channel sales at Intel.

Another company trying to align partners with market trends is Sun, which has been stung by partner bankruptcies and sales shortfalls. Sun executives say they are close to rolling out plans that will amount to some of the biggest new channel initiatives in years.

Cheryl Kelly, global director of Sun iForce Community efforts, says the company is particularly focused on delivering programs that foster collaboration between channel companies and ISVs.

"We are beyond information-gathering and at the proposal-floating stage, getting feedback and fine-tuning our thinking," she says. Specifically, she is working with counterparts inside her company to identify the ISVs that develop solutions around the Solaris and Java platforms. To that end, she is trying to make sure that their respective channel partners become better Sun partners.

"It means looking at who the leading supplier of retail solutions is and making sure that company is onboard with Sun," she says.

What It Takes To Succeed

Of course, no effort can succeed unless partners themselves succeed. Recognizing that, a number of companies have focused on helping partners better manage their own businesses. That includes top distributors such as Avnet Hall-Mark. There, Steve Tepedino, president of North American Operations, is taking a personal interest in a new pilot project that will see Avnet Hall-Mark take over collections for partners, thereby improving their cash flows.

"We've looked at many, many ways in which we can step up and provide nontraditional financial assistance," Tepedino says. "What we've come to understand is that resellers are great entrepreneurs and often good at managing their income statements. But many could use a little help when it comes to capitalizing their businesses and managing their balance sheets. That's where we, with our vast financial resources, can help out."

For a fee much lower than what local lending institutions would charge, Avnet Hall-Mark will float VARs some money, and then take over some of their receivables. Avnet Hall-Mark will then proceed to collect payment from customers on a VAR's behalf, all without compromising the relationship a VAR has with a particular customer. The idea for such a pilot program came from one of the distributor's VARs, who spoke up at an advisory council meeting about his difficulties with financing. That prompted Tepedino to begin looking at what the company could do and then designing some online tools to make the collections process easier. VARs gearing up to try the system say it will likely ease their burdens.

"It's exactly what we need at this time," says Geoffrey Lilien, CEO of Lilien Systems, an HP systems reseller in Mill Valley, Calif.

While Avnet Hall-Mark has deep pockets, others are having to launch new experiments with little or no new money. When Maxtor wanted to launch its vertical market partner drive, for example, the company had to pull money from its existing budget. Only if some sort of return on investment is evidenced will it be able to go back to its corporate budget planners and request more money be allocated to build on the pilot project.

Channel managers are not only becoming more creative in their financing, but also in their management styles. Before HP launched its latest peripherals program, Beach and her colleagues recognized they needed their own company to work together in ways not attempted before. Beach was determined, for example, to get HP's financing, supply-chain, order-management and engineering people on the same page. So she and her colleagues did something they never did before: They visited customers and partners together. The company mandated that all parties who had a hand in the success of the program make at least five visits to either customers or partners, or both.

The result? Details that normally upend execution were thoroughly addressed before the program was officially launched this winter.

It's not rocket science, but sometimes it sure seems that way.