Software Salvos: IBM Overhaul Stresses Value

IBM is completely revamping its software channel program from a volume-based model to what it calls a "value advantage" structure aimed at rewarding partners selling services in the burgeoning midmarket.

The new program, expected to be rolled out in May, could be accompanied by as many as a dozen new IBM Express software offerings by the end of this year. The Express line includes midmarket versions of IBM's enterprise software offerings. New Express products associated with all four IBM software brands,DB2, Lotus, Tivoli and WebSphere,are expected to be unveiled this quarter.

The software program changes are just one piece of IBM's overall effort to strengthen its channel programs to attack the midmarket, IBM Software executives said. Other midmarket initiatives are expected from IBM's global business partner and hardware units.

IBM Software partners estimated that the new program could boost their software margins by 10 to 20 points if they provide services into the midmarket.

Greg McCormick, president and CEO of Silicon Plains Technologies, a solution provider in West Des Moines, Iowa, said many partners have complained that IBM software margins are too low. "Most of what we do with IBM we consider highly specialized, and so we wanted higher margins," he said. "This was one of the ways that they saw to do that. It remains to be seen how well it's going to work, but my initial take is that it's going to work out for someone like me."

IBM did not disclose specific details on what services or skills will be rewarded with higher discounts.

One distributor source said the program rewards consulting, application development, partner software and services contributions, and ISV relationships.

"We are going to make investments around the support of partners, and we are going to eliminate the duplication and conflict [with IBM's direct-sales force]," said Donn Atkins, vice president of worldwide sales and marketing at IBM Software.

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	>>%A0'Small nimble value-added partners are an incredibly powerful part of the channel.' -- SCOTT COOPER, A VICE PRESIDENT AT IBM SOFTWARE
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The IBM direct-sales force will not be compensated for midmarket sales, Atkins said. "Where we've had direct-sales teams trying to vie for the same opportunity [as a business partner], we're going to take that off their territory definition and say, 'We're not going to pay you; this is a space we are going to cover with partners.' %85 It's a main part of our go-to-market strategy in 2003."

The new program will also tighten the links between IBM and its distributors, which will be charged with recruiting IBM Software partners and measuring the services muscle of those partners in the midmarket.

IBM said it is currently in discussions about the new program with software distributors, including Ingram Micro, Arrow and Avnet-Hall-Mark. Distributors will have to provide an undisclosed level of co-marketing dollars to participate.

"Small nimble value-added partners are an incredibly powerful part of the channel, and we needed to make doing business with IBM easier and more attractive to them," said Scott Cooper, vice president of worldwide channel and SMB marketing at IBM Software.

Fred Cuen, vice president and general manager of the IBM business unit at Avnet-Hall-Mark, said the program benefits partners that "are selling solutions that incorporate IBM software and other applications with the services that go along with it. Those positioned in that manner will benefit greatly from this program."

Steven Burke contributed to this story.