Distributors Missing Out

IBM midrange distributors said at the vendor's PartnerWorld conference here last week that they aim to sell more service and maintenance contracts with IBM hardware to avoid missing out on millions of dollars in business.

Executives at Arrow Electronics North American Computer Products group's Support Net division and the IBM business unit of Avnet Hall-Mark said their sales teams, in some cases, are selling maintenance contracts to end users on behalf of solution providers, which are then paid fees.

"We left $30 million of IBM services business on the table [last year]," said Fred Cuen, senior vice president and general manager of Avnet Hall-Mark's IBM business unit.

Arrow's Mike Long says not enough services business is attached to product sales.

Mike Long, president and COO of Arrow Electronics North American Computer Products group, estimated that 30 percent of the attached services business gets missed at the time of the product sale. "That's too big of a number to ignore," he said.

Avnet Hall-Mark has launched the After Market Project to improve attach rates of service and maintenance contracts at the time systems are sold or warranties come up for renewal, Cuen said. Avnet Hall-Mark's IBM business unit now does $100 million in IBM attached services business annually, he said. And if the After Market Project succeeds, "that business could easily grow to $200 million annually," Cuen said.

Support Net is running a pilot program with a half-dozen solution providers in which it's selling service contracts to partners' customers, said Eric Williams, executive vice president of the Arrow division. "We are trying to understand what the requirements are, and we are going to add more people to the program," he said.

Solution provider resources are often stretched too thin to keep track of all the service and warranty contracts available at the time of sale and when they come up for renewal, distribution executives said.

Avnet Hall-Mark "will sell the service contract to end users on the [partners'] behalf and then give them a fee," Cuen said. The renewed effort to sell service contracts will keep IBM's direct-sales organization out of channel accounts, according to Cuen. If a service contract isn't attached to a product 90 days after it's sold, IBM is free to pursue the services sale directly, he said.

Distributors said IBM's stable channel policies are paying off in increased market share. Arrow's IBM business, for one, rose 8 percent last year, in large part because IBM recognizes that partners generate demand and can boost sales in the key small- and midsize-business markets, Long said. IBM "gets it, and they will get the jump on others," he said.

Hewlett-Packard and Sun Microsystems are more product-focused than customer-focused, Long added.

Avnet Hall-Mark posted a 4 percent sales gain last year, and in the last six months of the year its IBM business topped expectations by 15 percent, Cuen said. IBM's stability and predictability as a partner,along with a focus on partner profitability,make it a key ally, he said.

Likewise, Joe Serra, vice president of systems and product marketing at Tech Data, said the distributor's IBM business increased "in the high single digits" last year, while HP and Compaq sales declined in the double digits. "IBM solution providers have a high level of comfort with the vendor's programs and strategy," he said.

Pat Collins, senior group vice president of sales and marketing at Ingram Micro, also gave IBM kudos for its channel approach. "They really understand how to engage the channel," he said.

Such a comfort level has led IBM to anoint distributors as a prime recruiting engine for new solution providers. Michael Borman, general manager of global business partners at IBM, made it clear to solution providers attending PartnerWorld that HP is a prime target for IBM's enterprise market expansion. "HP focuses on printing technology for consumers," he said. "HP should be a gold mine for all of us."

To that end, Support Net has launched SmartStart, aimed at recruiting partners and bringing HP solution providers to the IBM camp, Williams said. "Signing up solution providers for IBM is easy. What's difficult is building up the IBM relationship," he said.