IBM's Channel Challenge

"The two main themes at PartnerWorld will be on demand and SMB. IBM is investing a lot of its money in these two areas, and we want the partners to go after them," says Michael Borman, general manager of IBM's Global Business Partners and the executive leading the channel charge.

There will be other critical issues for PartnerWorld attendees to consider as well. IBM will hit Vegas with enhancements to its SMB Advantage incentive program, designed to make it more irresistible to resellers and to help the company gain share in a market segment that its enterprise-centric structure just won't let it dominate. They'll be informed that IBM's support of Linux will make it worth the solution provider's decision to invest manpower and capital to the open platform.

And they'll also be told that IBM's $40 billion services arm, IBM Global Services (IGS), which last year issued its Principles of Engagement that define how to resolve conflicts in the field with partners, is making progress in that area. Partners will have to assimilate all these information points and decide where and how much they want to invest, and what they're willing to accept in terms of market limitations from the most powerful company in technology. For as IGS increases its hold on the enterprise market, it's becoming increasingly difficult to compete with. Will big IBM partners cede their growth potential to IBM and its services unit? It's a thorny issue they need to make peace with.

"We have run into some conflicts in the named-accounts space, the enterprise [accounts]%85Where they have an embedded, entrenched [situation], there is very little space for us," says Chris Swahn, president of Amherst Technologies, a solution provider and IBM partner in Merrimack, N.H., that generates sales of $300 million a year, of which roughly 15 percent of that business is with IBM. "It's a sticky wicket, and the short end of the stick usually falls to us. When IGS outpositions us, I understand. But I don't enjoy having the value I provide to the customers being dismissed."

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Amherst feels it has no alternative but to accept the status quo. Its management acknowledges it just can't compete with the depth of services IGS can offer the top Fortune 500 companies. "If you think you're bigger and better than IBM, you're misguided," Swahn says.

Rick Kearney, president and CEO of Tallahassee, Fla.-based Mainline Information Systems, a $300 million integrator, says there was a time when IGS and his company were on opposite sides of the fence, competing against the solution provider for services jobs. "IGS used to be a real tough subject for us," Kearney says. "We were trying to figure out what we were, and IGS was trying to figure out what it was."

A resolution occurred only when Mainline, rather than IGS, elected to change its approach. The solution provider decided to back away from consulting and services fees, which now make up a scant 10 percent of Mainline's revenue, and concentrate more on product sales. "We're a sales-focused reseller, not a global-services or consulting company," Kearney says. "We have zero conflict with IGS now. We're much happier today, and so is IBM."

So if that's how some partners with $300 million in revenue respond to IBM, even as others feel they cede little or no ground in the enterprise space, it's easy to imagine that a number of smaller solution providers--no matter how superb their offerings might be in any given vertical or technology--might be confused about their play in the enterprise market.

"I don't care what the [strategy is about services]. Just tell me what the rules are for IGS," says Janet Waxman, vice president of Framingham, Mass.-based market-research firm IDC. "Until IBM puts a stake in the ground, the channel doesn't know where to go."

IBM is allowing certain VARs that pass its accreditation to work as subcontractors on its enterprise deals, says Dan Fortin, IBM vice president of business partners for IBM Americas. Fortin, who has just been named to run SMB channels for Borman, says such partners offer particular skills and local geographic or industry advantages. IBM has been holding advisory councils about customer conflicts and "they are pleased with our progress," Fortin adds.

But John Pratt, IGS vice president of channel services, acknowledges that IBM wants more activity in SMB because it's a market familiar to the channel. Right now, he says 60 percent of the company's reseller business, both hardware and services, as well as primary and subcontract work, is non-SMB. "There's a difference between where [the partners] are and where we want them to be," Pratt says.

As for enterprise accounts, he says IGS is more than willing to bring in partners who bring along an opportunity and that IBM encourages partner specialization. "Nobody can afford to have a bench with every skill possible. Not even IGS," Pratt says.

Adds Gartner principal analyst Michael Haines: "As partners become more specialized, IBM needs to [engage them] in true joint-business planning. It has a good ability to do that because it has the right database. With understanding, IBM can take partnering to the next level. It's a no-brainer."

That may be so, but not all VARs find it so easy to get to that plateau. Clyde Cutrer, founder and owner of Genisys Group, a Franklin, Tenn.-based integrator with about $25 million in revenue, says it has been very difficult for his company to get on IBM's approved partner list. "We've tried. They want 100 people ready to go," he says. Genisys, which generates roughly 80 percent of its $25 million in sales from the SMB market, has sometimes run into conflicts with IBM when going after enterprise customers.

Still, part of being a good partner is understanding where you fit in the channel structure. As Swahn puts it: "I know the giant is going to eat what he wants, but I can get real fat on his scraps."

In fact, the leftovers might end up being more filling than the main course. The SMB market, Borman says, is as big or bigger than the enterprise market and, more importantly, its customers are spending faster. "There's really no dominant player with a 25 percent or 30 percent share," Borman says. "That holds hope for IBM and its business partners. Also, the SMB market is paying a 10 percent to 15 percent premium for solutions. Large accounts can take apart the solution, then go out to bid for different components and drive the margin down. I think solution providers can make more money in SMB, and our plan is to lead with partners in that space."

That includes enhancements to the company's SMB Advantage incentive program, introduced last year, Fortin says.

Specifically, IBM hopes to transition its SMB-oriented partners to its new industry-based solutions model. At PartnerWorld, Big Blue is rolling out two new programs aimed at partners and ISVs who focus their practices heavily, but not exclusively, on IBM's Express portfolio.

The first, called Solutions Builder Express, offers a blueprint for partners to build, sell and deploy on-demand solutions to the midmarket. The program is broken down into eight industries--including retail and finance--that IBM has identified as key to the SMB space. For each, IBM defines a technology solution comprised of a combination of its products to address business problems specific to each industry. The expectation is that partners can customize and add value to solution starting points.

The second new program to be introduced at PartnerWorld, called Integrated Runtime, seeks to simplify for ISVs the cost and effort it takes to integrate their applications with different pieces of IBM middleware, a huge pain point for smaller software developers.

The On-Demand Game Plan
In addition to SMB, Borman will talk up "on demand." IBM's 18-month-old vision is ambitious and formidable as it attempts to sell a new philosophy for computing, one that mixes and matches its once-siloed infrastructure products to suit specific business demands. It depends heavily on consulting services and vertical-domain expertise.

Borman says there's play in on demand for IBM's business partners across the board. ISVs and systems integrators will tie business processes together, and solution providers will help implement them, he says. "The partners need to get educated. Once they do, they become excited, take the idea and go run with it," he says. "From an expenditure vantage point, they only need to get people trained." Adds Fortin: "One would think it's only enterprise, but we're seeing it in SMB."

IBM hopes to sway partners with new on-demand training and enablement programs. At PartnerWorld, they'll hear about workshops, launched early this year, to get 50 to 60 of its largest partners globally up to speed. IBM has also put into place an e-business on-demand certification program for partners that will emphasize both technical and sales areas.

Additionally, the company is ramping up lead-generation initiatives and assisting partners in putting together customer references. By putting some real meat on the bones of the on-demand message, IBM hopes to develop some partner action, especially among ISVs that focus their application development in vertical industries.

Says Pete Marshall, assistant vice president at ISV Candle, El Segundo, Calif.: "The first time I heard the term [on demand], I was like, 'Ah, OK. Now IBM wants to own everything.'" But Marshall says he now believes opportunity abounds for partners to transition existing customer environments to the on-demand model through server consolidation, storage virtualization and application integration. Those types of services will result in long-term customer relationships and recurring revenue. In addition, Marshall says IBM's software partners and systems integrators should be adding value by building on top of the IBM middleware stack and, in some cases, delivering their applications as services.

Which is what Michael Hills, CEO of Haverhill, Mass.-based SemaTree, is doing. Hills built his suite of CRM, sales and marketing applications on top of IBM's middleware. Hills says this year he abandoned the traditional per-user licensing model for his software to mirror IBM's pricing structure more closely. "I think whenever IBM does something [like on demand], it grabs attention," he says.

IBM is banking on an on-demand conversion among large enterprises to set off a chain reaction for the model down into the SMB space. Still, as IBM marries business to IT, with an emphasis on business transformation, the question for partners at PartnerWorld might be: Are they making the right bet?

"IBM is betting the farm that IT is going to become a utility-like power that you turn off and on, and it will make most sense for customers to outsource. That's the long-term end game," says Nina Lytton, president of consulting firm Open Systems Advisors. "IBM is reaching very broadly, and the risk when you reach broadly is you may lose your balance and topple over."

Still, when IBM wants you to play, as it clearly will with on demand, it can make it rewarding and exciting. While EDS' CEO Michael Jordan recently told VARBusiness that his company "is a lot easier to work with than IBM," a number of partners are pretty pleased with IBM's ability to make a deal happen.

Working With IBM
Bunty Lalchandani, president of Micro-World, a $20 million VAR based in Torrance, Calif., says IBM is the easiest vendor to partner with. "No other [company] provides such dedicated resources that help us understand pricing, bid letters, how to enhance our services," he says enthusiastically. "On the administration side, they help us get funds for marketing to get the best of all programs available." He says IBM has the most success partnering with SMB VARs and those that focus on the "lower-enterprise" market.

Borman says one of his top priorities is to continue making it easier for partners to do business with IBM. "You have to stay on top of it--IBM is a big company," he acknowledges. Borman gives high marks to the company's recent reorganization that puts a lead client representative in place, just like it covers customers, which lets integrators rely on a focal point. He says it's an improvement over the old protocol that had different IBM brands calling on customers separately.

"We have several hundred throughout the world. For some large accounts, we have one rep. For medium-size integrators, we have one rep for several," Borman says. "It was based on what I could afford to cover."

Among the new programs IBM is initiating for partners, Borman points to its IBM Innovation Centers as a good example of its desire to create a one-stop shopping approach. The initiative, formerly known as IBM Solution Partnership Centers, is a unifying program that provides partners with physical or remote access to build skills and grow their applications, based on IBM hardware and software. They bring together a number of its best-of-breed programs, including its WebSphere Innovation Centers and TotalStorage Solution Centers.

Fortin says it's only going to get easier. He says IBM plans to streamline its incentives and tie together programs--storage, xSeries servers, software and more--so that they are uniformly deployed, and that announcements to that effect will be part of PartnerWorld. "Ease of doing business is always a priority," he says.

Genisys' Cutrer, who was with IBM for 18 years in sales and engineering, agrees the company is easier to do business with in the solution provider's SMB stronghold. He says IBM has worked with his company on five large opportunities that only two years ago would have been difficult to get it to respond to.

Yet, Mika Krammer, Gartner SMB vice president, believes IBM still has improvements to make. "I think IBM is somewhat channel-challenged because its products and services focus on the upper end of the midmarket," she says. IBM, she argues, rewards partners on revenue, not customer service or competencies, which are more often the hallmark of Tier Two and Three VARs. "At Cisco, you can have good certification levels, which can bump you up," she explains. "IBM needs to think about rewarding Tier Two and Three beyond just revenue."

Krammer believes IBM will not change its channel compensation enough and that, consequently, HP and Microsoft will gain an advantage. "There's a lot more competition among vendors for an increasingly limited partner channel," she says. "IBM needs to differentiate and create loyalty to take care of its partners."

Otherwise, it's possible that IBM partners might cast a wayward eye toward HP, IBM's No. 1 enemy. "They're definitely at war," says Judith Hurwitz, president of Hurwitz Consulting, who, like most analysts, agrees HP is IBM's most formidable rival. "Originally, [people] were laughing," Lytton says. "They looked at [the merger of HP and Compaq] as the collision of two garbage trucks. They were surprised at how successful it turned out."

Yet, Forrester Research customers are inclined to pick IBM's on-demand systems-management strategy versus HP's Adaptive Management initiative, a component of the Adaptive Enterprise strategy. From a strategic perspective, many say IBM has an edge because of on demand, and the business-process expertise it acquired from PwC Consulting in 2002.

And IDC's Waxman points out that IBM is doing well in the channel, certainly when compared to other vendors not as dedicated to solution providers or without the same capabilities: "A company like Sun is committed to the channel, but not as strong," she says.

What is indisputably true is that the channel is extremely important to IBM.

"We will see IBM continue to invest in the channel with...more solutions going through the channel," says Jeff Medeiros, president and founder of rs-unix.com, an IBM Premier Business Partner with $28 million in annual sales. Medeiros is a third-generation IBM-er who worked at the company for seven years. Like so many partners, his loyalty is fierce.

Medeiros says that IBM is honest and direct with partners about where it wants to play. He believes the company from this point on is fine-tuning its use of the channel to maximum effect. "They reward value and penalize volume guys from getting involved in value. They want to keep the market healthy," he believes. "And in front of the customer, it all comes together in the form of a solution."

With additional reporting by Carolyn A. April, T.C. Doyle, Jeffrey Schwartz and Rob Wright.

What Michael Borman Wants You to know

His Message At PartnerWorld
"The two main themes at PartnerWorld will be on demand and SMB [small to midsize businesses]. IBM is investing a lot of money in these two areas, and we want the partners to go after them."

Solution Providers and On Demand
"The partners need to get educated. Once they do, they [will] become excited, take the idea and go run with it. From an expenditure vantage point, they only need to get people trained."

Opportunities In The Small To Midsize Business Market
"I think solution providers can make more money in SMB [than with enterprise accounts], and our plan is to lead with partners in that space."

On The Ease Of Doing Business With IBM
"One of my top priorities is to continue making it easier for partners to do business with IBM. You have to stay on top of it--IBM is a big company."

Where Linux Fits
"Linux is the perfect standard for IBM's on-demand strategy. I think of Linux as a key element for our partners to sell."