The Thrill Is Gone

Ciarciello, who has worked at Philadelphia-based CompuData for 27 years, says his company spends far too many unbillable hours cleaning up the myriad problems vendors create as they look to cut corners, often rushing products to market before they're fully baked and then not providing adequate support for those products once they've been released. "The situation is becoming impossible," he said. "When I go to sell a solution, I spend a lot of time educating my staff on how to sell. Why can't vendors spend time educating their own staffs on how to provide support?"

This is not an isolated complaint by one disgruntled solution provider. Exclusive CRN research data shows that the overall level of solution provider satisfaction with vendor channel programs has dropped sharply over the past 18 months. For nine key hardware vendors as a group, the overall level of channel satisfaction fell 20 percent between May 2002 and September 2003. For 11 major software vendors as a group, the decline was 26 percent. The overall level of satisfaction is defined as the percentage of solution providers that are satisfied with channel programs minus the percentage that are dissatisfied (see accompanying methodology statement).

Among individual vendors, software companies saw some of the biggest declines, led by Check Point Software Technologies at 55 percent and Novell at 46 percent. Among hardware vendors, Sun Microsystems was down 39 percent during the period, while EMC was off 33 percent.

One big reason for the dissatisfaction, solution providers say, is that many vendors are spending 80 percent of their time working closely with only the top 20 percent of their partners. That means these vendors build channel programs for, and make channel investments in, only a small percentage of the solution providers that install and maintain their products. In particular, solution providers say many vendors pay lip service to the small- and midsize-business markets and the channel and don't make the investments necessary to be successful in those markets. In fact, small solution providers (with less than $5 million in annual revenue) tend to be less satisfied with vendor channel programs than their larger counterparts. The differences can be significant. For example, over the past six months, the overall level of channel satisfaction with IBM's programs is more than 30 percent higher among large VARs compared with small VARs.

Solution provider disenchantment has risen against the backdrop of a brutal technology sales environment that many in the channel see as a key driver of their problems with vendors. During the slump, solution providers have looked to their vendor partners to step up and help them meet the challenge of selling solutions to businesses that are scrutinizing every dollar of technology spending. But the channel satisfaction figures clearly demonstrate that solution providers feel most big vendors have failed to meet this challenge.

Specifically, solution providers complain that as vendors look to cut costs they do things like cut back on support personnel and experienced engineering staff. Then, to boost revenue, they focus too much on volume sellers at the expense of true value-added resellers. "The whole relationship between vendors and solution providers that are actually trying to add value has become dysfunctional," said Oli Thordarson, president of Alvaka Networks, a Huntington Beach, Calif., solution provider. "Vendors let the value-added resellers do all the work to mainstream a product in the business market, but then they turn around and advertise directly to the end user and sell in volume, destroying margins. The volume sellers get all the business, and the value-added providers end up with nothing to show for all their time and effort."

Another problem, some solution providers say, is that vendors are rushing products to market before they work properly. "I feel like we are an alpha test site for software companies," said CompuData's Ciarciello. "We are seeing so much immature code coming out from the vendors. Some products don't load properly, or flat out just don't work."

Others complain of a lack of consistency in channel programs, which makes solution providers reluctant to try building any type of longer-term relationships with vendors. "Some channel programs are so complex, and change so often, that you can't figure them out," said Tom Clinton, CEO of Computer Software Innovations, a $20 million solution provider in Easley, S.C.

Only two vendors, Intel and Microsoft, saw their overall channel satisfaction levels increase between May 2002 and September 2003. Microsoft managed an 11 percent increase (most of it coming in just the past four months), while Intel eked out a 1 percent gain. "Microsoft is finally realizing it doesn't pay to compete against their own channel partners," said Frank Bell, CEO of Intellinet, a $10 million solution provider in Atlanta. "They are coming to us and asking, 'What can we do to help your business, because it helps our business.' Their business executives are teaming up with our business development sales force to help make the sale and provide the solution." Bell thinks a key factor behind this new attitude lies in Microsoft's decision to link key executives' compensation and bonuses to channel satisfaction.

Overall, an important consequence of solution providers' dissatisfaction is the rise of second-tier vendors, which some solution providers feel offer them deeper margins, more creative partner programs and the attention some of the larger vendors appear to have abandoned.

Does all this mean that solution providers have lost faith in the ability of major vendors to provide meaningful channel programs? Most say no. Some vendors, such as Cisco Systems and IBM, have already begun addressing some of the more critical issues cited, and these actions are garnering positive reviews from their channel partners.

Still, a growing number of solution providers, fed up with feeling slighted by the major vendors, are seeking new opportunities in the white-box market. In separate CRN research data, 50 percent of VARs surveyed between May and October 2003 said they were building white-box desktops, up from 46 percent in the same period a year earlier. For the white-box server market, the figures are 41 percent and 36 percent, respectively. In October 2003, a record 16 percent of solution providers said they were building white-box notebooks.

"Bigger vendors need to make drastic changes in their channel programs or channel satisfaction will continue to drift down," said Alex Solomon, co-founder of Net@Work, New York. "They need to hire more people so they can focus on channel partners at all levels, not just tier one. Smaller, up-and-coming vendors are doing a much better job in this area, and their products are comparable to those of bigger vendors."

Indeed, solution providers say the big vendors should be very concerned about improving their channel satisfaction ratings among small solution providers since they are the ones largely serving the SMB market, which is likely to see faster growth in technology spending next year compared with the enterprise segment.