Years Of Study: Two Decades of the VARBusiness Annual Report Card

The French have a saying: the more things change, the more they stay the same. We thought of that when we came across a 19-year-old VARBusiness Annual Report Card (ARC) in preparation for this, our commemorative 20th edition. Consider a former editor's conclusion, then: "...The vendors continue to make the same mistakes on recruiting, selling to and supporting VARs that they've made over the years. Nobody seems to learn from history."

Without sounding smug, we'd like to think we've learned a lesson or two from history, even if it's not much more than many others have. Poor support, weak technologies and ineffective program execution--these are the things vendors are still trying to improve on 20 years after VARBusinesslaunched the ARC.

Some have done a few things better, others worse. Communication seems to trip up many. As does complexity. For the most part, VARs have given high marks to vendors that demonstrate consistency across key areas, including breadth and quality in their product lines, expediency in distribution and support services, and precision in their channel-management and marketing assistance.

Still, the level of overall satisfaction has ebbed. No one vendor has consistently earned great marks over 20 years. A good many that received poor or failing marks in availability of products, price and performance satisfaction have risen only to see scores tumble again.

In this special report, VARBusiness looks back on 20 years of the ARC: the winners and losers, the more interesting data points and the issues that remain constant. We hope you enjoy our retrospective look as much as we have.

1986-1990

The modern distribution channel was comparatively nascent in 1986, with vendors still developing programs to support and leverage their resellers. VARs appreciated the support lent by vendors' channel executives, but wondered how much clout new channel executives had within their favorite vendor's hierarchy.

Channel leaders predicted VARs would streamline their partnerships and product offerings and represent only one or two vendors. In many instances, though, VARs added more products to their portfolios, especially as the PC hardware and software industry exploded on the scene.

As they do today, VARs complained bitterly about channel conflict in the ARC's early years. Vendors that didn't successfully navigate direct vs. indirect sales wound up costing VARs margins. Though many PC resellers discovered that attempts to recapture margins by marketing clone-IBM PCs were successful--think of the number that profited by representing tier-two vendors, including AST Research and Grid Machines--name brands still mattered to many. As one VAR said, "If the disk drive doesn't work, the clone customer goes berserk; to the IBM customer, it's no big deal because he figures he'll be taken care of."

The advent of the VAR advisory council happened in 1987. The first councils were created to help bridge the gulf between VARs and vendors. At the time, VARs complained that vendors didn't really understand their problems, while vendors thought VARs' views of the channel were a bit "myopic."

"If vendors want to win the loyalty of their VARs, they must set up forums for discussion. And they must be willing to hear and respond to what their VARs are saying," VARBusiness advised in its second ARC.

Vendors' efforts to improve communications and partner support began yielding results by the 1988 ARC. Those that provided more marketing and technical support, and gave partners more information, tended to fare better. However, most vendors still rode on the strength of their product quality and technical prowess.

In the 1989 ARC, vendors' efforts to improve channel-support programs began showing positive results. In light of decreasing hardware margins, vendors were becoming more dependent on their channel partners to reach new markets. That caused them to build new programs that helped VARs market and sell their products and, most important, make money.

Overall, VARs' satisfaction scores with their vendors jumped from 60 percent in 1987 to 86 percent in 1989. Still, channel conflict weighed heavily on VARs; vendors' inability to address this issue cost them.

By the end of the ARC's first five years, distribution and product availability became key differentiators, an indication of how many companies were dependent on hardware margins. Since 1986, VARs had complained about vendors' failure to deliver products in a timely manner and to make products available to them while giving high-end products to direct-sales accounts.

Tandy, which took second place in the 1990 ARC, pledged to process VARs' orders within two days--then a noteworthy goal. At the other end of the spectrum was Sun Microsystems, which earned the lowest order-processing score. Sun officials blamed its poor performance on rapid growth that overwhelmed its ability to fill orders. (We bet Sun wishes it had that problem today.)

1991-1995

As the decade turned, channel conflict and distribution problems persisted. But pricing became an increasingly important issue with VARs. As vendors ramped up production for the beginning of the Information Age, inconsistencies in pricing caused tremendous problems in channel programs and sales. Although the Internet and Web were still a few years away, VARs had improved their communications, thus robbing vendors of the ability to sell products into one geography at one price, and another area at another price.

In the 1991 ARC, the move toward fewer operating systems and open compatibility meant that VARs and customers could pick and choose software that would run on multiple pieces of hardware. "The bottom line is that as products become increasingly commoditized, it is the vendors with the deep pockets that will fund the support programs that will survive in the long run," said one analyst.

By 1992, product-delivery problems were being solved with the emergence of two-tier distribution. Large VARs were getting products directly from vendors, while distributors fulfilled smaller partners' needs. The growing role of distributors made pushing products to market easier and more efficient, VARBusinesswrote.

While two-tier distribution was more prevalent, it wasn't perfect. And vendors suffered as a result in the eyes of their VAR allies. The 1993 ARC found numerous problems in VARs' receiving products. Even AST Research, a PC/notebook leader of the day, was taking up to 10 weeks to fulfill orders.

Bucking the delivery problems in the 1994 ARC was Dell, which earned respectable scores based on availability, interoperability and upgradability. As the PC revolution entered its second era with Pentium processors, vendors rushed to differentiate offerings based on speed, hard-disk space, memory and monitor clarity. VARs, conversely, measured the PC makers on product information, on-time delivery, channel-conflict management and price.

In 1995, Zenith Data Systems' shocking win proved that product quality goes only so far. While other vendors were busy touting their products' quality and technical superiority, Zenith rose to the top of the ARC by communicating, supporting and delivering better than its rivals.

As the complexity of products and programs increased, so did the value of basic communication. Consider how Microsoft handled the launch of Windows 95, the much-anticipated successor to the MS-DOS operating system and upgrade of Windows 3.1. Microsoft had given beta versions of Windows 95 to partners, published frequent updates on its development and provided extensive post-launch support. The effort culminated in a strong showing for Microsoft in the 1995 ARC.

1996-2000

By 1996, VARBusinessadded Internet Software to its survey. However, the editors found it difficult to identify companies in this emerging category. So, VARBusinessasked solution providers which ones were the most important. The list included Adobe Systems, Attachmate, Microsoft, Netscape Communications, Oracle, Silicon Graphics and SunSoft. These companies represented a broad swath of vendors that provided everything from groupware to operating systems to graphics and design applications to Web browsers and e-mail systems. In short, they were the foundation of the World Wide Web.

But fancy new gadgets, feature-rich applications and Internet-ready software weren't the only things VARs cared about. Robert DeMarzo, VARBusiness' editor at the time, wrote that 1997 would be known as the year of "ease of doing business." The ever-expanding market for hardware and software meant that VARs needed more support, more tools and more resources to ensure sales. The VAR community was resolute in its view that vendors weren't doing enough to make partnering easy.

If there's one thing that the 1998 and 1999 ARCs found, it was that ease of doing business had emerged as a key ingredient in partner loyalty. As VARBusiness wrote, "Whatever reason a VAR gives for loyalty, it is imperative that a vendor make every effort to understand it and appreciate it--not judge it."

Loyalty can make or break an ARC score, but quality is always the foundation--the underpinning. And quality and positioning quality became critical in the 1999 ARC, in which VARs noted that the commoditization of IT products and services were forcing vendors to rethink how they define, approach and provide quality. With no common definition for quality, vendors had to demonstrate reliability and the ability to meet users' needs.

In the 2000 ARC, Microsoft dominated the platform category and expanded its foothold in the enterprise space with Windows 2000. However, the curious open-source Linux OS began showing signs of life as it emerged from a simple Internet-born hobby to a viable alternative. Naturally, Microsoft's Bill Gates dismissed the embryonic OS. Just a few short years later, it emerged as the company's No. 1 threat, at least for a while.

2001-Present

Pop! And suddenly it was over. The dot-com bubble burst. Gone were the wildfire sales of hardware and software. In their place emerged something different: the growing services sector. But because times were tough, VARs and vendors alike found themselves competing for services sales.

By 2001, the developing services arms of vendor companies conflicted greatly with the emerging services businesses of partners. Truth be told, vendors were as desperate for revenue as VARs. IBM justified the move into services by pointing out that it had rich revenue potential and leveraged existing internal support infrastructures. Not surprisingly, vendors that avoided the services market or successfully segmented services with their channel partners earned the highest 2001 ARC scores.

Channel-conflict issues persisted throughout 2002. That year's ARC study, HP and Oracle got hammered. Managing channel conflict took on increasing importance because of the ever-shifting market landscape. HP swallowed Compaq in a megamerger, while Sun succumbed to increasing competition. Everyone else dealt with shrinking margins and the commoditization of hardware as best they could. One key differentiator, however, was support. Vendors that provided the best support to their partners were also the ones that claimed the top ratings.

These trends continued through the next three ARCs. Vendors that built the best lines of communication, support and product quality also were the ones that engendered partners' loyalty. Loyalty, as it seems, remains one of the biggest factors in maintaining partner commitment.

In fact, in the 2005 ARC, loyalty scores propelled some vendors that were struggling in areas of product quality and support to the top of their respective categories. Clearly, as VARs said in the early ARC studies, loyalty will win respect and commitment over technical shortcomings, so long as channel conflict is kept to a minimum.

Some, it seems, learn from history after all.