HP's Attach Rate Revelry

The new Attach Plus rebate program, set to go into effect May 1, signals a strategic shift by the vendor to leverage its broad product portfolio and make good on CEO Mark Hurd’s vow to “double down” on partners most loyal to HP. Attach Plus also replaces a key sales volume rebate paid only to HP’s Gold and Platinum partners and opens up attach rebates to solution providers whose annual HP revenue exceeds $1 million.

“This is probably the largest change to PartnerOne since the merger [with Compaq],” said John Thompson, HP’s vice president and general manager of the Solution Partners Organization (SPO), Americas. “We don’t see a lot of other companies that can offer the breadth of the portfolio that we do. Certainly, when we are competing against companies like Dell and others, we don’t see that they have this in their toolkit, whether we are talking about hardware attach, or services attach or software attach. This is something that is going to catch partners’ attention and incent them to sell a total package solution. Whether you are a large Platinum player or a small partner, there is an opportunity to play.”

Solution providers see the changes to HP’s solution provider compensation strategy as continuing proof that there is money behind the vendor’s promises.

“This rewards the guys who have gotten all of the certifications and done all the right things and finally places it so that we get the higher-end rewards rather than the guys who were just doing it on volume,” said Don Richie, president of Sequel Data Systems, an HP-only regional solution provider in Austin, Texas. “The [new Attach Plus rebate] is incredible. For a guy like myself who is selling a single platform, by the time I go through all the attach stuff, my back-end dollars will go up over double what they are today.”

Sam Haffar, president and co-CEO of Computex, an HP-exclusive partner based in Houston, said he expects to see a minimum increase of 50 percent in HP market development fund dollars. “Our profitability is going to go up,” he said. “This helps our whole business plan. That funding will help drive more train- ing and more salespeople.”

The HP program could cause some partners to ally themselves more closely with the Palo Alto, Calif.-based company at the expense of vendors such as Dell or EMC, partners said.

“Maybe this will change the behavior of some of the partners who are not as loyal,” Haffar said. “I know some HP partners who have Dell boxes moving through their facility. We have never had a box from Dell or anyone else come through here and we never will. Why should HP work with you if you are going in there and selling EMC and Dell?”

The new Attach Plus plan sets attach rate matrices for Personal Systems Group (PSG) products, servers, Imaging and Printing Group (IPG) products and HP Services and replaces the membership rebates paid to Gold and Platinum partners, said Tom LaRocca, HP’s vice president of Partner Development and Programs, SPO, Americas.

Solution providers said Gold and Platinum members previously were paid a monthly rebate ranging from less than .5 percent to close to 1.5 percent, depending on the product and PartnerOne membership status, on all their HP sales.

“When you pay on revenue, you pretty much treat all partners the same,” LaRocca said. “But if you’ve got partners that are driving more of an HP content and are doing that, then this says we are willing to make investments in you and are willing to treat you appropriately.” The new Attach Plus rebate is built around the ratio of accessories, software, services, storage and options attached to HP systems. For each of the vendor’s product groups, with the exception of services, there are three rebate levels with compensation rate percentages paid on all HP sales if minimum attach ratios and sales goals are hit. The rebate compensation varies by business group.

For example, Enterprise Servers and Storage (ESS) products receive higher rebates than PSG products. HP declined to give specific rebate figures.

HP Services has four rebate levels. HP’s ProCurve and OpenView products won’t be included in Attach Plus until some time during the vendor's fiscal 2007, which begins Nov. 1, LaRocca said.

“Level One gets them close to what they were making in membership rebate dollars,” said LaRocca, citing the PSG example. “At Level Two, you’ll make more than you would have on just the membership check, and if you hit Level Three, you’ll probably make close to triple what you would have made on just the membership check.”

More importantly, LaRocca said solution providers can now choose how heavily they want to be engaged with HP and know that they will be appropriately rewarded for their efforts.

“Because each business unit has multiple levels of attach, you can engage with us in what you think makes sense for your business model,” he said. “As you move up the ladder in attach and sell more and more HP content in the solution, then your rewards increase on an incremental basis. And as you cross- sell and upsell, we will reward you for leading with HP products and services.”

Rick Chernick, CEO of Camera Corner Connecting Point, a Green Bay, Wis., HP partner, said the new HP program is a big win for smaller solution provider partners. “This is really going to be a great program for smaller guys that want to get in and get a little marketing money to help them grow their HP business,” he said. “Before, they couldn’t get enough to buy a golf shirt.”

Camera Corner Connecting Point is investing more heavily in HP storage solutions in the wake of the new program. “We are smart enough to know that if we don’t jump on the bandwagon and get into storage and backup it is going to be tough to maintain a $10 [million] to $12 million operation on desktops and laptops,” he said. “Even server [prices] are dropping. The big thing is attach, attach, attach, and they are helping us do that. We are very excited about it.”

Chernick said he believes the HP turnkey solution will resonate with customers. “The choice that everyone has to make now is: Is this going to work with your business model?” he said. “The reality is, customers also would like to see a turnkey solution. I don’t think they want to see 20 different components making up one solution.”

John Paget, COO and president of North America at Synnex, a Fremont, Calif., distributor, said the new program is a big win for small- and midsize-business-focused partners. “HP is once again coming strongly to the channel as their preferred way of doing business across the SMB market,” he said.

Kris Rogers, executive vice president at PC Mall, a Platinum HP direct market reseller based in Torrance, Calif., added, “I don’t see much downside, and I see a lot of upside. The program works pretty well for the volume players because it gives you a financial incentive to increase the amount of HP attach.” She said that in PC Mall’s case, it has to achieve attach rates about halfway between Level One and Level Two on the PSG matrix to earn a rebate equivalent to the Platinum membership rebate it loses. “But if we hit Level Two, there is significant upside.”

She noted that HP has been urging partners not to mix non-HP memory and peripherals with HP system sales and that the Attach Plus plan may be a way to achieve that goal. But she said that HP needs to competitively price its monitors, memory and other options in order to make Attach Plus work.

“It’s not a matter of beating us over the head and telling us we can’t sell ViewSonic or NEC or Kingston memory,” she said, noting that sometimes HP’s and other OEMs’ branded memory, for example, is two to three times the price of Kingston’s memory. “The issue is that ultimately the solution has to be competitively priced to the end user,” Rogers said.

Still, she said that the new rebate plan provides the incentive to bundle more HP content with each HP system sale.

Changing, too, are Gold and Platinum membership level criteria. Effective Nov. 1, membership for Platinum status will be determined by annual product revenue, with the membership bar set at $25 million. Previously, solution providers had to either sell $75 million annually in HP products or have 15 certified HP engineers on staff.

Likewise, Gold status, which previously required minimum annual sales of $10 million or five certified HP engineers, will see the bar drop to $5 million in annual sales or by achieving Elite status in one of eight areas such as Storage Elite.

But some solution providers, while cautiously optimistic, were reserving judgment on the rebate changes until they could plug their historic data into the new attach matrices to see if they, in fact, come out ahead.

“What I haven’t been able to determine are the details behind what SKUs count and what don’t so I can figure out where I’m at,” said Brian Nogar, COO of Logicalis North America, an HP Platinum enterprise partner in Bloomfield Hills, Mich.

“This is a take-away with an opportunity to pick up vs. a pickup,” Nogar said. “To some extent, HP is cost-neutralizing it out of the gate. If they had thrown this [rebate] in and kept Platinum where it was, there would be dancing in the street because it would be all upside.”

Nogar, who is responsible for Logicalis’ Integration Solutions Group, said the group’s three largest vendor partners are HP, Cisco Systems and EMC and that he most often leads with HP. He said that if Logicalis changes nothing on its attach rates, it will likely generate enough attach rate revenue under the new plan to make up for lost membership rebates.

While he sees an upside for attaching more HP content to certain deals, he doesn’t see a dramatic shift from a multivendor solution approach. “No one size fits all,” he said. “We are trying to solve our customers’ needs. There are some [for which] an all-HP solution is a great fit and, if you do it right, there are a lot of opportunities to maximize your profits. But that’s not the case everywhere.”

Because the Attach Plus program is heavily slanted toward selling HP systems along with software, services and options, some software-only HP partners cautioned HP not to ignore them in the rebate windfall.

Jeffrey Jamieson, vice president of sales and marketing at Whitlock Infrastructure Solutions, an HP Gold partner based in Annapolis, Md., that focuses on software solutions said, “If HP comes down with some massive program that doesn’t apply to us, that’s fine. If there are companies out there that can take advantage of it, good for them. As long as I’m not being ignored. So far we haven’t, and I would hope that nothing will change.”