HP Rebate Snafus Force Exclusive Partners To Seek Alternative Vendors

Hewlett-Packard Co.'s PartnerOne rebate numbers don't add up.

That's what some longtime HP-exclusive partners are saying in advance of the vendor's Americas Partners Conference in Las Vegas Feb. 24-27.

In fact, almost all of the dozen HP partners contacted by CRN said they were having logistical problems with the vendor's flagship PartnerOne Attach Plus rebate program. The most common problem reported was that HP's "sales out" data didn't match their own internal numbers, making their HP rebate payments difficult to track and virtually impossible to predict.

PartnerOne is HP's umbrella channel program. Attach Plus is the HP rebate program that pays partners money for bundling HP products and services into a single solution. And in March 2007, HP introduced Growth Accelerator, which is stackable on Attach Plus rebates and pays partners additional money if they hit specified quarterly sales growth goals.

But in addition to the data glitches, HP partners say they are losing out on sales and rebate opportunities because of gaps in the vendor's storage lineup. And despite what they consider to be a significant commitment on their part to HP, they say they are seeing few leads from HP's direct sales force.

The problem seems most pronounced among HP's Gold and Platinum partners, the vendor's largest and most loyal, and those that should have the most to win with Attach Plus. What's more, five Gold partners that consider themselves HP-only told CRN that problems with rebates and HP storage are forcing them to consider abandoning an HP-only model and explore partnerships with Network Appliance Inc., EMC Corp., Sun Microsystems Inc. and even Dell Inc.

"As an HP exclusive partner, there is no benefit financial or otherwise at this stage of the game to being exclusive," said one HP Gold partner, who asked to remain anonymous. "If you are exclusive to a vendor, the benefits should be different. You should have access to more HP people and resources and act more as an off-payroll type of HP employee. But that's never materialized."

Sales Data Complications

Solution providers say Attach Plus matrices are so complex, and the difficulties they experience trying to obtain and verify realtime sales-out data mean they can't track or predict rebate payments.

"They've made it so complicated and convoluted that it doesn't pay predictably," said another HP Gold partner, who asked not to be identified. "They have a huge problem tracking sales data. We'll upload sales data and it won't show up on HP's systems, and if they don't get sales numbers right, you're screwed. We have all of this money tied up in rebate programs, but there are so many links in the chain that if any one fails, the whole chain fails. It's problems like this that have led me to become a NetApp partner."

Another exclusive HP Gold partner expressed similar frustrations. "Trying to reconcile our sales out vs. what HP tells us our sales out are has always been a problem," he said. "Lots of times they are not even close. Not only don't the numbers match, but we're not sure what HP is basing the numbers on. When a point to a point and a half of gross margin is riding on the numbers, this is serious money."

The problem is widespread, even touching smaller HP partners. Bert Duval, president of D and B Technologies, an Ashland, Va.-based HP solution provider, said he received a letter from HP notifying him he faced de-authorization from its Authorized Warranty Delivery Partner Program.

HP said in the letter, "Our records indicated that your company did not meet both the $50,000 annual product sales volume and $10,000 in Eligible HP Services sales."

Duval responded to HP with a letter that said in part, "I received a registered letter Dec. 26, 2007 stating that D and B Technologies did not sell $50,000 in HP Product nor did we sell $10,000 in services sales. According to my accounting system we sold $87,000 in DesignJet products, $166,991 in new computer and laptops and $59,276 from your remarket program. That totals $313,276 in HP Product."

Duval, whose $800,000 a year company has been an HP partner for 10 years, says he still hasn't received a response from HP regarding the discrepancy in sales-out data. "The first rule of business is knowing your costs," Duval said. "I can't predict the future [about incoming rebate payments] because nobody at HP can tell me what my sell-through is."

Adrian Jones, HP's vice president and general manager, Americas Solution Partners Organization, said he was not aware of the problems in reporting sales-out numbers. "I haven't heard directly from exclusive partners that they have an issue understanding their goal sheets or progress reports that we send out on a monthly basis," he said.

He added that HP, Palo Alto, Calif., has undergone significant consolidation in its data centers over the past two years, going from 85 down to three. "But it should not—and has not affected—partner progress reports. If the data is not matching, I will take that up as an action item with my operations team. But I have not heard that."

HP partners, however, said they've voiced their concerns to HP without finding a resolution to the problem.

Jones noted, without giving specific numbers, that HP's spending on partner rebates has increased in double-digit figures over last year's spending.

Strong Growth, Lingering Frustration

While many of the solution providers interviewed reported overall strong growth in their HP business, many said the Attach Plus rebate program is broken. As a result, something seemingly ideally tailored for HP exclusive partners is instead leading to a perception that they're being being squeezed instead of rewarded.

"We are growing our business, but we are doing it without a lot of synergy from HP," noted one HP Gold partner, who asked not to be identified.

Jones said that HP values its exclusive partners, but that all partners are treated the same. "Most of our exclusive partners are out there being exclusive because they saw they could have the whole range [of products] and sell a different solution than some of their competitors," he said. "We are very loyal to our partner base, whether they are exclusive or non-exclusive. We don't have a rule change from one to the other. Are we going to treat exclusive partners differently? We treat all partners the same. But there is an opportunity for exclusive partners to sell more of HP's portfolio, which gives them a richer financial reward," he said.

One HP Gold partner noted that Hurd has told exclusive partners that HP should treat them more as family members. "But when you bring that up to any HP executive other than [Chairman and CEO] Mark Hurd, they'll shake their heads and say we don't treat you differently. Because of that, there are a lot of HP-exclusive partners that are looking at other vendors. We have no choice," the partner said. Rethinking an HP-only business model by some of the vendor's most loyal partners comes at a time when a seemingly re-energized HP channel helped push the vendor to the top of the IT world with 2007 revenue in excess of $104 billion.

But another HP Gold partner said that strong growth can hurt a VAR, because, over the past two years, HP has replaced product sales rebates with ones tied to sales growth. Partners that have a great year one year might not see growth rebates the next, he said. "When you have a blowout year, that's fantastic. But what happens the next year when you do not have a blowout year? If you don't grow year over year, you don't get the growth rebates. That could translate into a 5 percent to 7.5 percent drop in our gross margins, and that's hard to make up," the partner said.

But Brady Flaherty, a principal with Altos Technology Group, an HP-exclusive partner in Sacramento, Calif., said, "We're hitting all of [our rebate and growth] numbers so you're not going to hear a complaint from me. It's just icing on the cake and HP wants to reward their top partners for pushing that barometer. Altos has to grow percentagewise faster than HP because we are a small, $100 million company. HP isn't perfect, but they are better than most."

HP partners say a move in December to increase rebates by expanding Growth Accelerator to include HP Services and a new Data Center elite designation did little to solve PartnerOne problems. Growth accelerators were added to the PartnerOne program in March 2007 and were designed to pay partners added rebates for hitting and exceeding quarterly growth targets in specific product categories. Moreover, Growth Accelerators are stackable with Attach Plus rebates.

Another HP Gold partner said HP has told him that the added Growth Accelerators could double his rebate money. "My reward for being a multidisciplined HP-exclusive partner is that I have twice the money at stake in an unpredictable rebate program," he said. "If I hit on all of the goals, I could probably hit the jackpot, but nobody knows what that jackpot is. Last quarter, my rebates went to almost nothing even though I had a great quarter. HP rebates in the past were several hundred thousand dollars a year to my company, and right now I have no predictability of getting any of those."

Another HP-exclusive partner, who asked not to be identified, said simply, "We are spending time managing those dollars instead of selling."Unrealistic Goals

Other HP-exclusive partners added that the sales goals needed to hit the rebate number, especially in storage, are unrealistic and impossible to attain.

"They are completely out of step in storage and don't have much presence in the enterprise," said an exclusive HP gold partner. "If all we do is represent HP storage, we're not going to be in the storage business, so you've got people bringing on EMC or NetApp so they can participate in that business."

One partner noted that his most recent quarterly storage growth goal was 21 percent over the year-earlier quarter and that his overall growth goals for storage, industry-standard servers and business-critical systems averaged more than 25 percent. HP estimated in November during its fourth-quarter earnings call that fiscal 2008 revenue would grow about 8 percent from $104.3 billion in 2007 to $111.5 billion. "They have an 8 percent goal and yet expect partners to do 3 times what they expect in order to get paid," said the HP exclusive Gold partner.

Jones acknowledged that in the fourth quarter, HP set some storage goals for partners that may have been too high. "But we have high goals for storage in general," he said. "Storage is a big area of focus for us in 2008, and we are going to continue to push it. If you take anything in our PartnerOne program, portfolio sales and sales growth are key."

Still, HP-exclusive partners are scrambling to adjust their strategies in light of the problems with PartnerOne rebates and what they call HP's noncompetitive storage offerings. "HP does not do well against NetApp and EMC in a competitive situation and, as a result, our HP storage business is flat," said an HP exclusive partner.

But rather than bringing on a competing storage vendor, the solution provider said he is beefing up his Cisco Systems Inc., Oracle Corp. and VMware Inc. business. "We've decided to build up complementary business rather than a competitive one with HP," he said.

But another exclusive partner said, "HP rebates and HP, in general, are becoming less and less meaningful to me."

That sentiment could well boil up among a significant number of solution providers at HP's upcoming Americas Partner Conference. With Dell, IBM and others mounting renewed incursions into HP's channel, they said HP executives need to come up with concrete answers to stem growing channel frustration.

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