The Agent Factor

But he only got part of the deal.

"We educated them through the whole process and were about to get an order when they said, 'We want to work with you and use your services, but we're buying the equipment from a mail-order warehouse," Goldstein says. While he's pleased with the service contract, the deal was not as lucrative as it might have been. And it's not the first time that has happened.

That predicament, however, could become a thing of the past. Looking to boost revenue opportunities for channel partners hurt by the ongoing slump in technology sales, IT vendors are offering new programs to reward "agents",channel players who don't necessarily resell products and services but influence their sales. With an agent program paying a percentage to select partners, "we don't feel the pressure to make the sale," Goldstein says. "We still get something back."

For VARs, agent programs offer opportunities for more business, at a time when margins for hardware, software and networking equipment resales are extremely thin, by providing services such as consulting and technical support. The programs also allow channel partners to conduct sales without having to take ownership of products. "I think we'll see a lot of [VARs] leaning toward this," Goldstein says.

Agent Awareness

Agent programs have emerged in the past 18 to 24 months, as major vendors looked for new ways to help spur channel sales and maintain strong relationships with their most lucrative or strategic channel partners. Smaller hardware and software vendors are likely to unveil their own agent programs to stay competitive in a weak market as well, says Julie Giera, a research fellow at Giga Information Group. "I expect to see some of the tier-two and tier-three vendors follow suit," Giera says.

Cisco Systems, Hewlett-Packard, Microsoft and Novell have all launched, or are in the midst of rolling out, formal agent programs. Goldstein, for one, participates in Novell's Demand Agent Program. "We like the program because it gives us the ability to get credit for doing something toward the sale, whether we close the deal or not," he says.

Novell introduced Demand Agent in December when it announced its PartnerNet 2003 program. Demand Agent provides commissions and rebates to partners who help drive new business for Novell, particularly beyond its current base of customers. The program, which took effect Jan. 1, is one of Novell's top three initiatives for 2003, as the company tries to bolster its channel efforts and boost profits, says Nancy Reynolds, vice president of Novell's North American channels. "We want to identify who's actually creating the sales and helping Novell sell products," she says. "Margins on software products are incredibly thin."

Reynolds says the program applies to Novell's 150 to 200 elite, or platinum partners, who warrant that distinction based on their competencies, sales capacities and their commitments to Novell. The partners are all in what Novell designates as the midtier range, bringing in between $25,000 and $250,000 in revenue for Novell annually. Partners can earn 5 percent rebates if they are instrumental in getting existing Novell customers to purchase renewals, upgrades and new products, or up to 15 percent if they influence sales to new customers. The program applies to all Novell products and does not require that partners take ownership of products as part of a transaction. As of last month, partners are now able to track the progress of a transaction that they influence via the Web, Reynolds adds.

From a VAR's standpoint, LAN Associates' Goldstein says he contacts Novell to let the software company know he has a prospective customer. If Novell makes the sale, Central Islip, N.Y.-based LAN Associates receives a commission based on the product and whether it's a new or existing Novell customer. Goldstein, in fact, expects to make at least $100,000 in additional revenue annually from the agent program, and believes Demand Agent will strengthen Novell's ties to its partners. "This is Novell coming back to us," he says. "This program will make us want to sell their products."

Cisco's eAgent

For its part, Cisco has been offering an agent program, called eAgent, to its 1,100 Gold, Silver and qualified Premier-certified channel partners in the United States since March 2001. Cisco handles the hardware transaction with the customer, while the channel partner focuses on delivering value-added services, such as consulting and technical support, according to Surinder Brar, Cisco senior director of marketing for worldwide channels.

"Our entire base [is moving to] the new program," Brar says. "A lot of the value-add comes from the services [partners] provide. Partners make the lowest margins when they're just buying and selling hardware. The agent programs are essential to this strategy of providing services."

Under the Cisco program, VARs control the transactions, negotiating prices with customers and conducting the deals through a Web-based tool. Cisco confirms the orders with the customers, delivers the products and bills the customers. Partners are paid based on their certification levels and the prices they have negotiated with the customer, minus a small fee to Cisco for holding the products. The margins for partners come from the discounted rates they get from Cisco.

EAgent is designed to improve the profitability of partners, which include VARs and systems integrators. Because Cisco holds ownership of the products during the transaction, it reduces capital for the partners. Brar says eAgent also expands partners' credit capacities.

"In the past, partners were limited by credit as to how much product they could sell," he says. "With eAgent, Cisco is shipping the products, so it doesn't involve partners' credit."

Don O'Neill, director of strategic alliances at Cisco Gold partner Nextira One, based in Houston, says his company expects to derive at least 50 percent of its annual revenue from Cisco sales through the eAgent program. Nextira dabbled in the program last year, O'Neill says, and this year plans a full-blown effort to move a lot of Cisco products through the program. "It allows us to compete with a number of VARs in the competitive [voice and data] market," O'Neill says.

Meanwhile, Microsoft plans to extend its agent offerings to its largest VARs and to thousands of small and midsize VARs beginning this quarter, says Rebecca LaBrunerie, licensing and pricing program manager. They will be available as part of the company's Open Value licensing program, which is aimed at customers who buy Microsoft business products in bulk.

Under the program, a solution provider familiar with Microsoft products can become a "software adviser." When a software adviser recommends a Microsoft product to a customer, the adviser passes the order to an authorized Microsoft license provider. The license provider, generally a software distributor, completes the deal, including billing. The adviser is rewarded with a referral fee of 10 percent to 15 percent of the value of the purchase.

LaBrunerie says companies have been using agents formally or informally for years, "but the agent model has been underused in the past. We think it will boost the health of the channel." In the past, VARs would recommend products and help with support, but not earn much of a margin in the advisory role. "It often wasn't worth their time," she says. "This gives the channel an incentive to sell our products."

HP's Agent Plan

Last November, HP launched an agent option for VARs, service providers and integrators as a part of its partnerONE initiative, which is designed to help the company's 20,000-plus partners increase revenue and profits, consolidate 40 partner programs and encompass HP's entire product and services line (see "It's All About Your Influence" on page 28).

The agent program rewards partners' performance and initiative, and is designed to reduce administration time and complexity, says Susan Reynolds, HP director of partner marketing for the Americas. Any partner can receive a commission for influencing the sale of an HP product. Customers reference a partner identification number and name when they place an order via the Web, phone or through a direct-sales representative. HP handles the transaction, including product shipping and billing, and partners are paid a fee ranging from 5 percent for PC products to 10 percent for high-end printers.

"Partners are telling us the concept of being [just] a reseller doesn't exist anymore," HP's Reynolds says. "You can have a partner who might do a sell-through for one customer and act as an agent with another customer."