HP Pricing Debate

The strategy shift comes as HP works out how to assimilate larger systems integrators including Accenture, Cap Gemini Ernst and Young, BearingPoint (formerly KPMG Consulting), EDS and Braxton (formerly Deloitte Consulting) into its new PartnerOne channel program.

Also at issue is what HP Unix solution providers say is a two- to four-point pricing advantage that these systems integrators reportedly enjoy over other HP channel partners. The apparent discrepancy was a topic of discussion last week at an HP partner advisory summit in Half Moon Bay, Calif., said channel executives in attendance.

Dan Vertrees, HP's vice president of enterprise partners for the Americas region, said large systems integrators do not get better pricing on Unix products. "It's unfounded, and it's not the case," he said. However, HP is considering shifting its largest systems integrators over to the PDM model, Vertrees said. "Our team is looking into it [to determine if it's appropriate; it's a work in progress."

The pricing issue, however, remains a major sticking point with HP's enterprise solution providers. "We do the same high-end consulting [as the large systems integrators, but we lose out on the deal because they have a two- to four-point pricing advantage," said Jeff Reed, executive vice president of product marketing at Bloomington Hills, Mich.-based U.S. Logical, HP's largest North American solution provider and the last one that was purchasing Unix products directly from the vendor.

Logical last week signed a deal to buy all of its HP product purchases, which total more than $100 million in annual sales, from Arrow SBM, leaving large systems integrators as the only channel partners that buy Unix products direct from HP.

Another solution provider who attended the meeting but requested anonymity, added: "We have brought up the pricing issue with HP over and over, and they have done nothing. The [systems integrators kill us on price."

Meanwhile, HP last week added Pioneer-Standard Electronics' KeyLink Systems as its third PDM. In September, Vertrees said HP likely would stick with its two PDMs,Arrow SBM and Avnet Hall-Mark,and wouldn't look at adding KeyLink until next May.

"We hadn't gotten through our study," Vertrees said, referring to his earlier comment. He said KeyLink was added because of anticipated incremental business as a result of the Compaq merger.

Distribution executives and solution providers questioned the strategy of adding another PDM. "There seems to be no net gain for HP by adding [KeyLink," said Geoffrey Lilien, president of Lilien Systems, an HP solution provider based in Mill Valley, Calif. "It would just be splitting up the business that Arrow and Avnet already have."

PDMs work on a fee-for-service basis, taking and managing orders, with HP direct-shipping products to solution providers or their customers.

KeyLink will add incremental HP-Unix business, said Pat O'Connor, vice president of marketing for the HP relationship worldwide at Pioneer-Standard. "We have our own portfolio, many of whom are premerger Compaq folks and who are interested in the migration path from Alpha servers to Itanium or whatever the next iteration of HP-UX is."