CRN Interview: Frank Vitagliano, IBM's PC Division

Frank Vitagliano, Vice President of Distribution Channels Management at IBM's Personal Computing Division, recently spoke with Industry Editor Craig Zarley about the role solution providers and distributors will play in IBM's SMB strategy.

CRN: Why is it important to focus on SMB solution providers?

VITAGLIANO: We've always thought that small and midsize customers are important, [and usually we'll sell to them via IBM Direct. But the market is settling out and customers, not vendors, decide where they want to buy. Small and midsize customers are relying on the channel as their outsourced IT department. They're going to buy from the channel. It's critical to be relevant to these guys. Frankly, we've been doing a good job of getting to them through the distributors.

CRN: What percentage of IBM's SMB PC business is going through the channel vs. IBM Direct?

VITAGLIANO: It's about 70 percent [through the channel, 30 percent [direct. Those numbers have stabilized, and they're consistent with the industry [in the United States. If you look at large enterprises, [the ratio is about 60 percent [direct and 40 percent [through the channel. When you take the total U.S. market, that's why it's about 50 percent direct and 50 percent through the channel.

CRN: Hewlett-Packard has just launched its PartnerOne channel program. How does IBM's channel program differ from HP's?

VITAGLIANO: We have PartnerWorld, and HP has PartnerOne. It's the same concept. But when you compare PartnerOne with our PartnerWorld in the U.S., it's very evident that we remain focused on SMBs. Their pyramid has Platinum at the top, and you have to do $75 million to be Platinum. Our program has Premier at the top, and you have to do $3 million to be Premier. Their Gold is $10 million. To be at our next level down, Advanced, you have to do $100,000.

CRN: Why are your sales bars lower?

VITAGLIANO: We don't want to just differentiate on the size of the VAR and how much business they do with us. We think there are other criteria that are important.

If you go to tertiary markets, you're going to have the biggest VAR never doing $75 million. You'll have tertiary VARs who'll never do $10 million in revenue for one vendor. If you [set sales levels so high, you're leaving out a lot of very well-trained, qualified SMB resellers that you want to have as loyal partners. You're leaving them to a member-level status. That's a critical differentiator for us. I believe that it's essential for us to put our [channel dollars in the SMB space because it's important that our partners drive demand for us vs. just fulfilling demand.

CRN: What role will distributors play in your SMB strategy?

VITAGLIANO: We're seeing the highest share we've had in a couple of years in the distribution channel. We've probably picked up 3 or 4 points in total business. The other place where we're really seeing share gains is through the distributors' value-added programs, such as [Ingram Micro's VentureTech. We've paid a lot of attention to them this year. When we started the year, [VentureTech members' share of IBM purchases was about 10 percent, and it's doubled since then. I really believe in the value-added programs that the distributors are driving. Both VentureTech and TechSelect [Tech Data's SMB program give us access to very well-qualified, well-trained VARs, many of whom are in tertiary markets. It really helps us get our message out and focus on a core group of [solution providers.

CRN: Have you considered adopting a fee-for-services model with distributors instead of the traditional two-tier distribution model?

VITAGLIANO: We're not considering that right now. We've worked with our distribution partners to cut costs, but we currently have a viable model that works.

CRN: What's going to drive PC growth in 2003?

VITAGLIANO: I think the next evolution of replacement cycles will drive the market. We had a lot of purchasing in the Y2K time frame, and there haven't been many upgrades or replacements since then. There are a lot of customers out there with three- or four-year-old technology that would've upgraded [in a healthier economy. But we're optimistic that will happen in 2003.