HP Direct: No Price Advantage

"We will absolutely make sure the pricing structure is fair," said Kevin Gilroy, vice president and general manager for HP's North America commercial channel sales. "In the past, [a level playing field wasn't as tight as it needs to be. Going forward, it'll be extremely tight. If the pricing isn't managed properly, this model doesn't work."

In recent months, solution providers have complained that HP direct was undercutting their prices, threatening some accounts. "The Compaq [rules of engagement message was ambiguous; there was a lot of conflict," said Mike Fitzsimons, owner of Precision Computer Services, an enterprise solution provider in Shelton, Conn. "What we are getting from HP is much more clear and concise. I'm much more confident [that the new strategy will minimize channel conflict."

HP has named 850 enterprise accounts it will target on a direct basis under its new strategy, called Partner One. HP will take the lead in the named accounts. Any account outside those 850 will be the exclusive domain of the channel for all enterprise products including Unix, enterprise storage, Alpha and enterprise software.

But Wintel products, including four- and eight-way servers, as well as printing and imaging products, won't be governed by the same rules. HP direct will sell those products to any customer that wants to buy them direct.

"When you combine the two companies, a monolithic channel strategy is close to impossible," Gilroy said. "The economics [of the PC business don't allow for it." That said, Gilroy reiterated that level pricing will eliminate channel conflict.

The program will kick off Nov. 1. As part of the plan, HP has divided its channel into an enterprise group headed by Dan Vertrees, HP's general manager, North America enterprise channel sales, and a commercial channel headed by Gilroy.

Vertrees said about 1,300 North American solution providers will be classified as enterprise partners with the remaining 19,000 falling into the commercial channel space. Vertrees promised HP would beef up its channel field sales reps. "In the field, partner-facing individuals, we're 30 percent greater than we were before. In our distribution partner coverage, we'll have two times the coverage. . . . And for ISVs and [systems integrators, we'll have a 30 percent increase," he said.

Solution providers say the merger has negatively impacted HP's channel sales force. "IBM's feet on the street are significantly more than HP's," said Don McDowell, vice president of server solutions at Forsythe Solutions, an enterprise solution provider in Skokie, Ill. "As a result, we've seen significant growth in our IBM business. Right now, we have more active IBM opportunities than with any other vendor."

Still on the table are HP's evolving relationships with its largest distribution partners. Gilroy said he expects more product volume to ultimately go through distribution. But he acknowledged that "we are trying to grow our channel business and we are trying to grow our direct business," without one cannibalizing the other.

Joe Serra, vice president of systems product marketing at Tech Data, said the distributor has opened its books to HP and the vendor has reciprocated to find ways to decrease costs in the supply chain. "You can't do justice to the plan until you've put all the cards on the table. But that's not to say we can come up with the perfect solution in 90 days," he said.

Mike Grainger, president of Ingram Micro, added: "Part of HP's future success is to reach the SMB space, and that space, historically, is most effectively addressed through broad-line distribution."

SCOTT CAMPBELL contributed to this story.