Staying the Course

Amid the backdrop of a woeful economy, rampant channel conflict and the biggest merger in high-tech history, VARBusiness conducted a survey like no other. Our mission: determine who among top Unix systems vendors enjoys loyalty among top partners in a single geographic market. We chose the San Francisco area,the epicenter of the Internet boom where Compaq, HP, IBM and Sun compete tooth and nail for IT trendsetters.

The possibilities were endless: Did its proposed $20 billion-plus merger with Compaq erode HP's standing among partners? Are Sun's sagging sales deflating allies? Can IBM partners really take advantage of Big Blue's momentum? Is channel conflict sinking Compaq?

Four staunch VAR allies address these and other tough questions. In candid profiles, the leaders of four companies come clean. They share their heartaches and their hopes, their sentiments and their strategies. See for yourself who remains loyal, and why. You'll be surprised by what you find. We were.

F2 Technologies: The Compaq Draftee

Frank Wishom never set out to build a business around Compaq, but he nonetheless finds himself in the company of the Houston computer and services giant, whose fate his own organization is now so closely tied to.

Wishom, the CEO and co-founder of F2 Technologies, Oakland, Calif., is one of many Compaq conscripts whose allegiance is tied to a piece of business Compaq concluded several years ago. In the case of Wishom, he joined the Compaq fold when his platform of choice, Digital Equipment Corp., was acquired by Compaq in 1998.

Back then, Digital had hot-selling servers based on its proprietary and fast Alpha microprocessors. Aided by new friends at Compaq eager to open doors for their newly inherited VARs, F2 Technologies sold a bundle of servers through 1999,the company's best year financially. That year, sales topped out at $30 million. Then the market and the plan for Alpha-based servers began to unravel. When they did, Wishom entered the most difficult phase of his professional life,one he has yet to fully exit.

Now, with the HP merger winding its way down, Wishom faces one of the most difficult decisions he's ever had to make: Stay with Compaq or switch to another vendor. After careful consideration about product strategies, partner programs and business conditions, Wishom has decided to stay.

"I'm going to stay with Compaq until the bottom drops out or until they get rid of midrange VARs," he says. "I'm committed to who brought me to the dance."

Here's why: At nearly 60 years of age, Wishom says he doesn't want to start over with another vendor partner. Already three years into a seven-year exit plan with F2 Technologies, which he co-founded in 1994, Wishom says he doesn't have time to re-establish what he has in Compaq. An industry veteran who started his company after building a successful career with ITT, Crocker Bank and other organizations in the Bay Area, Wishom believes there's more to a partnership than merely memorizing the individual components of a product line. Sales contacts, competitive information, product know-how and leverage points within a vendor take years to acquire, he says.

Not that he hasn't been tempted. Both Sun and IBM have tried to recruit his company, a proven, minority-owned, certified Disadvantaged Business Enterprise in the state of California. Furthermore, his relationship with Compaq has cost him many nights of lost sleep. When the vendor decided to phase out Alpha in favor of Intel microprocessors, for example, his customer base balked. One customer, with an estimated $19 million invested in Compaq products and services, was persuaded by a Sun specialist to switch platforms completely. "That impacted us substantially," Wishom says.

So have certain programs launched by Compaq,the company's agent program, for example. Compaq set up the program to reward VARs who influence business in end-user accounts. The problem? The mechanism for tracking "influence" isn't perfect, Wishom says. Now, he says, he must split his commissions with VARs that claim to have influence in his accounts.

But he stays loyal. Compaq made him a lot of money and will again, he says. He just hopes he doesn't have to endure another year like 2001, when sales dipped to just $5 million. With business improving, F2 Technologies, which specializes in sales to local government entities, looks to rebound. Wishom believes $10 million in sales is a reachable goal for 2002, one he can achieve with Compaq.

Lilien Systems:The HP Loyalist

North of the Golden Gate Bridge in the shadows of Mt. Tamalpais, lies Mill Valley, Calif., home to million-dollar retirement villas, upscale coffee houses and charming inns that make the town one of Northern California's most picturesque places in which to live and work. It's where Banana Republic and Smith & Hawken got their start, and where a young Geoffrey Lilien set out to build a great IT technology solutions company some 18 years ago.

Despite the scenic environs, things have been anything but tranquil for Lilien Systems of late. "February was about as bad a month as there ever was," says Lilien, founder and CEO, for the HP midrange systems reseller, the largest in Northern California.

The numbers for last year give a more complete picture. Sales dropped to $11 million from $26 million in 2000. After nearly two decades in business, Lilien faced his first layoff. It troubled him, but he moved on. "I had 17 good years and one bad one," he says. "No reason to get upended."

No reason, indeed. Already, March has turned up a number of prospects. Customers today, he notes, are asking for storage and security solutions. And they want more services from Lilien Systems. While good news, it means certain adjustments for the company, which once looked to server hardware sales for 70 percent of its business. Now, customers aren't so interested in Big Iron.

"It's somewhat frustrating that customers aren't as interested in servers because there's so much good in the HP line," Lilien says. "Take the new rp7410, which just came out. It brings partitioning down into the midrange."

Lilien figures that customers have reined in IT spending too tightly. He believes they will soon have to rejuvenate hardware purchases once they realize they're losing their competitive advantage due to lack of IT investments. Meantime, he's retooling his company to fit the times. For example, his sales emphasis is now on established customers whose budgets aren't tied to venture-capital funding. Only recently, as much as one-third of his business came from VC-backed start-ups. Lilien Systems is also getting closer to security vendors and honing its skills in data mining and analysis. In December, for example, the company entered into a marketing alliance with InfoCentricity that has Lilien Systems selling that company's Xeno analytics software to customers.

Despite its outreach efforts, however, Lilien Systems will still look to derive the overwhelming majority of its business from the sale of products from HP, with which it partnered back in 1991. Ironically, it made that bet as a tactical decision after making a strategic decision to align itself with Oracle. At the time, Oracle's software wasn't scaling as needed on operating systems from SCO and Novell, so Lilien turned to HP. Over time, the relationship became the most strategic one for Lilien Systems. Today, Lilien Systems resells HP-UX servers and workstations, HP NetServers, HP OpenView software and HP Surestore Storage and SAN products, to name a few.

Although Lilien favors the vendor's merger with Compaq, he believes it has been a significant distraction for his customers and employees alike. Fortunately, he says, HP's channel strategies did not change during the build-up to the vote that decided the merger's fate. Lilien credits Kevin Gilroy, HP's North American commercial channels vice president, for maintaining consistency throughout his organization. While others may have drifted from HP during the merger frenzy, Lilien decided to get closer to it, hoping to make inroads with the local HP sales office. So far, the move has paid off.

Daily his company meets with HP. And within days of setting up an appointment, he can expect an HP salesperson to join his colleagues on a sales call. When there's a rare technical issue to be solved, Lilien can count on his vendor of choice to respond to an inquiry within hours, he adds.

"If you're a serious partner, you're taken seriously and looked to more frequently," he says.

rs-unix.com: The IBM Opportunist

Like most IT solutions companies, San Francisco-based rs-unix.com endured a difficult 2001. Customers scaled back, budgets dried up, and employees have come and gone. Still, the plucky company grew by 35 percent.

Thirty-five percent in a year when scores of others shut their doors and hundreds posted record losses? "Yep," says company president Jeff Medeiros, who offers one simple explanation: "We bet on the right technology partner,IBM."

As an IBM midrange Unix systems reseller and solutions integrator, rs-unix.com finds itself in the enviable position as the company with the hot product to offer. The IBM pSeries of midrange Unix servers, according to sales numbers from Dataquest and IDC, is outperforming systems from Sun, Hewlett-Packard and Compaq. The Regatta line, in particular, is winning new business for Medeiros' company.

Each day, he's thankful he made the bet he did on IBM six years ago, although he considered alternatives while working for another systems integrator. Unlike rs-unix.com, that company offered several different solutions including Sun, IBM and HP. Try as it might, the company failed to create a distinction within the midrange Unix

server market. Medeiros concluded it was because the company represented too many vendors. When he formed his own company, Medeiros chose IBM, partly because he started his career there, but mostly because he believed in the company's vision.

"To be frank, Sun, HP and DEC had very decent channels at the time, even perhaps stronger than what IBM had then," Medeiros says. "But I remembered a presentation by [then-CEO Lou] Gerstner that had a channel business strategy that was not just part of the business model, but the core of it. That sealed it for me."

Today, the company focuses on large enterprise customers with acute high-availability and storage-management needs. Although he's attracted Charles Schwab and other notable customers, Medeiros believes smaller enterprises offer his company great hope. The strategy appears to be working. Despite the down economy, sales last year grew to $27 million from $20 million in 2000. This year, Medeiros says $40 million is not out of reach.

With interest building in IBM technology, Medeiros is making the most of the opportunities before him. Recently, he knocked EMC out of a billion-dollar customer. And he defeated Network Appliance for a chance to provide one area retailer a NAS solution. Furthermore, he just beat Compaq for the rights to proceed with a pilot project for another major customer in the Bay Area.

More than ever, Medeiros says, customers seem confused about which way to turn as competing vendors take unpredictable measures to fix their businesses. Take HP and Compaq, for example. After HP announced plans to merge with Compaq, Medeiros saw less and less of HP in target accounts. The merger plans, he concludes, had a significant, negative impact on the vendors involved. "We think the field sales forces have become frozen. They are demoralized, because they don't have the competitive products and demotivated because they can't know what their long-term strategy is or what their product road maps will be," he adds.

While HP and Compaq sort out their futures, Medeiros looks to make inroads in Sun accounts, too. Eventually, Sun will have to join others and adopt an Intel strategy of some kind, he believes, much like it did when it joined the Linux camp after preferring a proprietary approach in software for so long. Regardless, Medeiros believes concerns over Sun's long-term chip plans create a short-term opportunity for IBM. They key thing for Medeiros is to make sure that opportunity comes his way, and not just to IBM Global Services. So far, he's not complaining.

"Yes, we do compete with IBM for some business. But it's nothing like what you might think. I'm the largest IBM Unix-server reseller in Northern California. I think I am the most likely person to run into IBM Global Services. But, frankly, it's like CEO Sam Palmisano said at PartnerWorld: 'There's more opportunity right now that IBM alone can handle.'"

Acropolis: The Sun Survivor

How's this for pragmatic? When 36-year-old John Pham wanted to start his own IT solutions company, the Vietnamese immigrant chose the name Acropolis.

Fascination with stately, Doric columns and the Golden Age of Pericles? Hardly. Pham, a disk-design engineer who worked for Quantum and others, always admired the name Micropolis and wanted to borrow it for his own. He figured he'd fare better, though, as a small company if he could figure out how to move the name up a few pages in the phone book and in magazine advertising indexes. Hence, Acropolis was born.

That was 1989. After selling storage arrays and clustering solutions for a few years, the regional iForce systems provider formalized a relationship with Sun in 1995. Since then, the Milpitas, Calif.-based company has been on a roll, or at least it was until 2000. Fiscal year 2000 sales topped out at $40 million and executives began dreaming about an IPO. But soon thereafter, the VAR hit a wall when the dot-com market collapsed. With it went Acropolis' momentum. With a head count topping 50, Acropolis turned to layoffs for the first time. Cutbacks, however, failed to stem mounting losses. Refusing to give up, Pham tried something new. In January 2001, he bought the remnants of a managed service provider, which added 50 people to his payroll. Big mistake. With the demand for managed services falling, Pham again had to make cuts. Sales sunk to $30 million in fiscal 2001. Then things got real ugly. Demand for Sun products,virtually 80 percent of Pham's business,dried up as Silicon Valley area companies began making steep cuts of their own. In a span of 18 months, the market for Sun-server gear reversed.

"We used to have two sellers for every 10 buyers. Now it seems there's 10 sellers for every two customers," Pham laments.

And it shows. Fiscal year-end results for 2002 at Acropolis dipped to just $20 million. After laying off workers and shutting the doors on the services venture, Pham regrouped. Although recruited by others, he decided to stay loyal to Sun. In fact, he decided to get closer to Sun, despite the fact that it's fallen behind IBM. According to IDC, IBM edged Sun in the fourth quarter of 2001 to take the top spot in the Unix market on a worldwide basis with a revenue market share of 26.9 percent. In comparison, Sun's share dipped to 26.8 percent, while HP came in at 25 percent.

"I am focused on high-availability computing and data continuity. And that's Sun, Sun, Sun," Pham says. "I could have added a backup vendor, but I always [wanted] one throat to choke in case something goes wrong. So that means one vendor with a complete portfolio. That's Sun."

To survive, Pham shifted his attention from valley start-ups and technology companies to more mainstream Fortune 500 accounts,the kind he served before dot coms. He's stepped up his technical abilities to offer end-to-end solutions with 99.999 uptime. Today, he's one of Sun's largest resellers of Sun Fire 6800 servers and boasts expertise in advanced E10000 and Sun Fire 15K solutions. He's also pursuing key verticals, including retail, where he's made inroads with Wal-Mart, Target and others.

For his loyalty, Pham has largely been treated well by Sun, he says, although the vendor has taken some business away, including one fast-growing technology account. That had contributed $5 million in top line sales to Acropolis.

To make up for lost server sales, Pham is delving deeper into storage, where his roots are. Sun's new StorEdge 3900 and 6900 storage servers finally give him something to compete effectively with against EMC, so he's ramping up. Already, his company's engineers have completed 80 percent of the training required to qualify Acropolis as a Sun Storage Elite reseller.

Despite building momentum, Pham has a problem: IBM. Time and again, he's running into Big Blue,both its partners and direct sales people. One customer recently threatened to dump Sun for IBM, but Pham helped convince him to stick with Sun. What he can't do, though, is stop IBM from offering prices 20 percent below what Pham can afford to sell comparable Sun gear. IBM's Regatta server line, in particular, is competing effectively in accounts Acropolis targets.

But Pham perseveres. He's faced adversity before,he lost his friend and chief technologist in a tragic car accident in 1999,and has come back stronger. "Sun will rise again." he says. "Always does."