VARs Applaud IBM's Midmarket Channel Incentives

The new channel incentives are aimed at simplifying how partners are rewarded, and making the rewards consistent across geographies and partner types for those who invest in working with IBM, said Leslie Norris, vice president of global distributor and reseller channel management at IBM. "The incentives are about recognizing their investment, and rewarding them for certain behavior," Norris said.

Those investments come on top of a move this month to reorganize its midmarket Small and Midsize Business Group into two units, the Enterprise Business Unit and the Mid-Market Business Unit, and rename it the General Business Group.

The investments and reorg are something IBM has needed to do for some time, said Pete Elliot, director of marketing at Key Information Systems, a Woodland Hills, Calif.-based IBM solution provider.

"It's just something that needed to be done," Elliot said. "IBM has been muddled in its alignment in the last four years. We've been waiting for this for a long time. Hewlett-Packard has been eating [IBM's] lunch."

Tony Merendino, president of ServIT, a Kennesaw, Ga.-based IBM solution provider, said it is something IBM is late on.

"It is a space that has been overlooked and needs attention," Merendino wrote in an e-mailed response to questions about the program. "The programs are a good start to bring activity and revenue in the under 1000 employee firms."

However, Elliot said, he has already started seeing change as a result of the vendor's rethinking about its midmarket channel. "We've been having recent meetings with IBM's reps to identify the potential clients they want us to go after, and to see how to go after those clients to address their needs," he said.

IBM is changing its channel incentives at the transaction level, the investment level, and the performance level, Norris said.

At the transaction level, IBM has moved away from the previous system of paying incentive discounts in the form of a post-sale rebate, and instead is now paying those discounts at the time of sale, Norris said. "In the past, partners needed to go through the rebate process," she said. "Now we're doing it upfront. We say, for instance, we recognize that this is a midmarket product, and qualifies for a 3 percent discount. So we pay it upfront."

The upfront discounts are also incremental. For instance, Norris said, extra discounts for attaching storage to a server sale have also been moved to the front of the transaction because IBM recognizes that it takes more time to sell an entire solution than it does a server.

The upfront discounts can range from 3 percent to 5 percent, depending on server platform, Norris said. "And if you sell a server to a new customer who also buys storage and software like Notes, that's the Trifecta," she said. "This is good for the VAR because they know if they sell this and this and this, they get this discount."

IBM is also simplifying its performance-level incentives by halving the number of performance targets in 2008 over 2007. The company is also using a linear scale to determine discount accelerators instead of last year's step scale under which a solution provider might get some discount for meeting 80 percent of goal, and another discount for reaching 100 percent of goal.

"It's easier to qualify for the accelerators," Norris said. "And you know that for every dollar you sell above a target, you get more money."

Also new this year is an easier way for smaller solution providers to qualify for marketing and education funds, Norris said. Before, solution providers who did $100,000 in IBM business in 2006 qualified for such funds in 2007. Now, those who did $25,000 in 2007 qualify for such funds this year, she said.

"For smaller partners, we've put more money into helping them get the right education," she said. "So for 2008, about 1,000 new partners will be able to participate in the marketing and education fund."

IBM has also invested in streamlining the tools solution providers use to participate in incentives. For instance, Norris said, partners who need special pricing and who can just answer a couple of questions to show the deal meets certain requirements can get the special pricing automatically.

The new programs will help in the midmarket, Elliot said. However, the proof will be in how much time IBM reps will spend with their solution provider partners. "We do a lot of marketing into the SMB space," he said. "When the customer is ready to do business, we like to have an IBM client rep on the final call. Hopefully they'll have more time to spend with us."

They might. IBM said earlier this week that, as a result of the reorg of its General Business Group, it will make more reps available specifically to help channel partners deal with midmarket customers.

Merendino expressed some concern about extra incentives that might bring a large number of smaller competitors into the vendor's channel program.

"Since ServIT makes its living in this space we feel like we have an advantage over other [IBM partners] now that IBM is putting funds and programs in place to this customer set," he wrote. "The only potential downside is if IBM attracts the smaller channel partners that will be price oriented vs. value added based."

However, Merendino wrote, changes in how partners get paid is a big deal for them. "The [partner] that does the work gets paid," he wrote. "We now have to wait for partial compensation due to marketing dollars being reimbursed after the fact. It should be a better program." --Additional reporting by Rick Whiting