Partner Power

Unlike the channel efforts of many big brand-name manufacturers, these solution provider programs are put together by companies that are not only “talking the talk, but walking the walk,” said Rory Sanchez, president of SL Powers, a West Palm Beach, Fla., solution provider. “Anytime a VAR creates a reseller program, it&'s channel-driven. That&'s because they have designed a program that they would like to see every manufacturer build.”

Sanchez is one of the VARs profiting from this growing peer-to-peer play. SL Powers resells the DoubleCheck Email Manager appliance made by Network Management Group Inc. (NMGI) because it packs a lot more margin with a lot less channel conflict.

In the case of an outright sale of the DoubleCheck product, Sanchez is making 50 percent margin compared with a typical 25 percent margin for a competitive bigger brand offering. With a managed services sale, the difference is astronomical: triple the margin over the stand-alone DoubleCheck product over a three-year time frame.

What&'s creating these kinds of high-margin opportunities are channel programs crafted to drive highly profitable solution sales, said Sanchez. NMGI, for example, does not publish Web pricing or sell to direct market reseller giants like CDW. When NMGI had a request from a South Florida direct marketer, the company was forced to buy the product from Sanchez. In addition, NMGI does not overload its channel partners with hefty training fees or certification investments. Last but not least, NMGI allows its channel partners to brand the product under their own name.

Sanchez said it only makes sense to resell solutions that have been proven in the field by colleagues. “We are all walking in the same shoes,” he said. “Why would I want to reinvent the wheel? I would rather spend my money with someone that is in the same business as I am rather than a giant corporation where I am just another number.”

The list of offerings being sold by solution providers runs the gamut—they include managed services, such as network performance monitoring, automated tape backup and hosted e-mail spam filtering; extended warranty services; data storage backup systems; and even an e-mail newsletter service. Solution providers say that along with the higher margins, key factors include better and more responsive technical support, the ability to get features easily added or to customize a product, and last but certainly not least no channel conflict. “The bottom line is I make more money selling the DoubleCheck product and I don&'t have to worry about my customers being stolen,” said Sanchez.

Besides reselling products from NMGI, Sanchez is running his business with ConnectWise PSA, a professional services software package that was developed and is now being resold by solution provider ConnectWise of Tampa, Fla.

Sanchez is also poised to take the VAR-to-VAR plunge himself beginning in mid-January with a plan to let VARs resell his Guaranteed Networks managed service. Sanchez&'s aim is to implement a franchiselike model, letting other VARs leverage the huge back-end investment already made by his company. “They end up making more money because they don&'t have to spend the several hundred thousand dollars we did to get up and running,” said Sanchez. “They sell it and maintain the customer relationship.”

That ability to maintain the tight local customer connection without the threat of a direct offensive by a potential flip-flopping channel vendor is another factor behind the peer-to-peer partnering movement.

While the possibility for conflict between solution providers remains a possibility, NMGI, ConnectWise and other solution providers said they respect solution providers&' accounts and would not break a sacred trust between colleagues and partners.

“That fact that we are a VAR makes us a more successful vendor,” said Steve Harper, president of 21-year-old NMGI, which now has more than 100 DoubleCheck partners. “We value the VAR&'s time and are not there to inundate them. It does not take a rocket scientist to figure out that we get it. Most of the tier-one vendors with their channel and marketing programs have gone out and hired the best and brightest from business schools. But if you haven&'t sat behind a desk and used your credit card to make payroll, you don&'t understand the true pain that a VAR feels.”

Harper said NMGI, Hutchinson, Kan., goes out of its way to make sure that all its partners compete on the same level playing field. “The more you sell, the bigger gift box you get at Christmas,” said Harper. “That&'s about it.”

That trust that Harper has developed between his company and other VARs is driving an IT ecosystem that has more and more VARs selling solutions through other VARs, said Arnie Bellini, CEO of ConnectWise, a 24-year-old solution provider that expects to post $6 million in ConnectWise PSA sales this year. “This whole ecosystem is fueled by trust and excellence,” said Bellini. “VARs have figured out that the only one they can trust in the channel is other VARs. The truth is that solution providers are the rag dolls of this industry. We get tossed by the manufacturers and spun around by channel partners who tell us what markets we can and cannot inhabit, and what niches we can and cannot invade. When you are buying a product from another IT solutions company, you know you are getting the truth. If you buy DoubleCheck, you get best channel practices and a go-to-market strategy that works because it was perfected by another VAR.”

Bellini says that the VAR-to-VAR trend is the result of the evolution of the VAR model from an “efficient delivery system” to “business productivity” providers. “Once you enter that realm, everything changes,” he said. “We are becoming the ones who can help each other because we have become so consultative to our clients. In other words, we are now connecting the dots of technology at a higher level to create productivity for corporate America. We are the only ones that can uniquely see the dots that need to be connected and then do it.”

Mike Semel, branch manager at Databranch, an Elmira Heights, N.Y.-based solution provider, said he is spending less and less time marketing manufacturers&' products and solutions. For example, one day earlier this month he responded to a call from a fellow Ingram Micro Service Network member, then sold an NMGI solution to one client and made a sales call to another reseller for his own extended warranty service that he runs through a separate company called CostKiller. “It seems like a major part of the lives of resellers are based on relationships with other resellers and less as a manufacturer&'s partner,” he said.

Semel&'s CostKiller solution offers warranties in place of manufacturers&' extended warranty plans for a fraction of the cost. An insurance company underwrites the contracts, and CostKiller gets a price that&'s cheap enough to pass on to other solution providers, he said. For example, Semel can offer printer warranties at $40 per year, compared with $200 per year through a manufacturer.

CostKiller, now nine years old, is still growing as more end users are willing to adopt a managed services model, Semel said. “The focus has shifted from how many hours of service per dollar to how many hours of downtime are prevented,” he said. “End users are more educated and savvy on the value of IT services. Resellers don&'t want the risk of hardware failure, and problems occur when a customer has a managed service agreement but something breaks outside the contract—CostKiller can help manage that risk for the reseller and end user.”

Besides reselling NMGI&'s DoubleCheck product, Semel also subscribes to Heartland Technology Solutions&' e-mail newsletter service for his clients. “I look at things like NMGI&'s DoubleCheck and Heartland&'s newsletter and see that it&'s difficult for any manufacturer or large corporate entity to produce and sustain them,” said Semel. “It&'s too close to where we live in our world. It&'s trying to take a problem and find a solution. Vendors build a solution and we scratch our heads trying to find the problem. Something like Heartland&'s newsletter is such a focused solution that resellers very quickly understand the value and can get in with minimal risk.”

Heartland, Harlan, Iowa, started sending an e-newsletter to customers four years ago. About a year ago, the solution provider began marketing the newsletter to other solution providers to customize and send to their clients. Heartland now distributes more than 50 newsletters and expects that number to grow to more than 200 by the end of 2006, said Larry Hedin, vice president of sales and marketing at Heartland.

Heartland could not quantify how much business has been generated because of its newsletter, but Hedin said some substantial sales have occurred.

The ability of solution providers to feel each other&'s pain is also driving this growth in peer-to-peer sales. Given the competitive nature of the technology solutions business, however, solution providers&' pain points are constantly changing, often requiring massive investments on their part to keep their solutions on the cutting edge.

Sierra Computers, a Reno, Nev., solution provider that sells its High-Rely Backup system to other VARs, has spent more than $100,000 to bring out the new High-Rely system with Serial ATA support, which is slated for February, said Darren McBride, president of both Sierra and Highly Reliable Systems, also in Reno. “For us that was a substantial investment,” said McBride.

Succeeding in the market gets more difficult with each passing generation as vendors catch on and enter the game, he added. “The advantages from the initial product are all fleeting,” he said. “You have to stay with it and continually update the product. And as you do it is a much higher-risk game.”

Meanwhile, the solution provider business model that can be easily shifted to resell products and services from multiple vendors is much more stable than a vendor business model, according to McBride. “A lot of big-name manufacturers have gone by the wayside and VARs like me have outsurvived them all,” he said. “Developing intellectual property with a product takes a large research and development budget. The risks are much higher, but so are the rewards.”

McBride said all of the peer-to-peer partnering efforts are attempts by solution providers to come to terms with dramatically lower product margins. “All of us VARs are aware that our survival depends on finding a strategy that gives us a toll position in the marketplace with unique intellectual property,” he said. “We are finding those customer pain points and delivering products much cheaper than the big guys can. That is something they can&'t take away from us.”