Fear Factor: What's Keeping VARs From Connecting With Carriers

The message is out there. And it goes something like this:

Massive customer demand for hosted and cloud-based services is forcing more and more VARs to confront the reality that business-grade connectivity will be critical to their success in a cloud hungry market place. The carriers themselves are flooding the market with cloud and hosted offerings to sell direct to business end users, therefore by not offering those sought-after services to their client, VARs are watching dollars and maybe even hard-earned customer loyalty slip out the door.

And while margins on equipment are shrinking or being compressed, the monthly residuals earned from selling carrier services can provide the protection strategy VARs are looking for in lean times.

In short, VARs are being presented with a doomsday scenario in which only the strongest will survive. Evolve or die, they’re told. Connectivity or bust.

’I think over the last several years, everyone could stay in their comfort zone and continue doing what they were doing,’ said Dale Tucker, who heads up CenturyLink’s Channel Alliance. ’VARs could stay with their traditional model and sell hardware and software. There was no real threat to them in terms of their business model. And we could rely on the traditional telecom channel, without having to worry about cultivating the IT consultant and VAR channel, because there was enough business that we didn’t have to worry about dealing with them. I think we each just stayed in our comfort zone.’

But as cloud knocks down the boundary between the LAN and the WAN, that comfort zone is going away, said Tucker.

A handful of plucky VARs saw the change coming early on, and tweaked their business models to include network services programs. And master agents say more VARs are signing on as agents, or forming strategic partnerships with other established telecom agents to provide carrier service referrals for their clients. Still, analysts estimate that VAR penetration into the telecom space is only around five percent. And full convergence is still but a distant spot on the horizon.

So what’s holding VARs back?

The answer, said a number of top master agents, carrier representitives, and VARs interviewed by CRN, is that it all boils down to fear.

Next: Fear of the Unknown The Unknown: Questions and Uncertainty

Carrier services may well represent an untapped well of potential new profits, but VARs tend to view the carrier world as a volatile jungle compared to the ordered world of IT equipment sales. Therefore it could take a little more than some well-placed messaging to get VARs to make major changes to a business model that they’ve profited from for years.

VARs are indeed accustomed to providing total, soup-to-nuts IT solutions, but those solutions have all lived safely on their clients’ LAN. The perception is out there that things get dicey once they cross the client edge and start selling solutions on the WAN, where VARs have little control over network performance.

World Telecom Group (WTG) is a leading telecom master agency that has seen its VAR partner base grow to a third of new partners this year. But that still doesn’t represent a vast migration of VARs into the carrier space, according to WTG’s CEO, Vince Bradley, who understands the IT VARs’ apprehensive mindset.

’Telecom or carrier – those are bad words and understandably so. [On the IT side] there’s lot more efficiency verses the telecom channel. Ultimately you have a lot more control than the carriers do. If there’s a fiber cut, that affects everyone,’ Bradley said.

There is a lot of uncertainty and a steep learning curve associated with carrier services that keep VARs away. From the very beginning, quoting and provisioning any network service is a complex, multi-step, paperwork-heavy process, which depends on everyone dotting every i and crossing every t. Miss any step, and the service might not be delivered.

And once successfully installed, the uncertainty continues: Will the carrier respond quickly to outages, or will it leave the VAR looking more like a zero than a hero, doing damage to precious client relationships? Will the carrier compete with its partners on equipment sales, or worse, will it steal clients away? And do VARs really want to make major shifts in their business model, only to be held responsible when and if a network goes down?

Alan Sandler, owner and CEO of Sandler Partners, a Los Angeles-based telecom master agent and consultancy, said that while larger VARs might have the resources and patience to build out a runway for a successful carrier services program, the majority of smaller VARs aren’t willing to bet their business on carrier services, because they fear the problems that could arise.

’They are a little bit reticent or scared to talk to the customer about carrier services. Or they don’t want the responsibility, because they don’t want any challenges that come up in the future to negatively affect their customer relationship.’

Next: Fear of the Carrier Carriers: Friend or Foe

Carriers and master agents are working hard to alleviate VARs’ carrier-anxiety and spread the good word about network services. But they’re fighting an uphill battle against some carriers’ own reputation for not always playing nice in the sandbox.

For Jason Kraft, a telecom veteran who helped to build out a carrier services program at a large, national VAR, FusionStorm, the channel conflict that could arise from competing with carriers was a concern from the start.

’Fears came up a couple times. For a VAR the fear is that when we partner with a major telco, we’ll go in and sell a deal, and then a year later, they come in and take the account away,’ Kraft said. ’That’s the fear that equipment VARs have. That they’re going to walk a customer into an account and then have to fight to maintain that account.’

Donna Arsenault, president and owner of Republic Voice and Data, a Tampa, Fla.-based reseller that provides voice and technology solutions, had her own horror stories to tell about doing business with certain carriers. She’s been undercut on equipment and had deals swept out from under her by the same carrier she was quoting to a client.

’The carriers...are horrible, and the customer experience is horrible. That’s a little disheartening, because you do want the customer to trust your recommendation. If the carrier doesn’t pull their weight and bring the services in a timely way, and then perform, the customer loses respect in your decision making in bringing that carrier to the table.’

Dana Topping, co-owner of master agent Intelisys, said that carriers will have to work harder to get the word out that VARs – and the channel – are an important part of their growth strategy.

’We need to help the VAR community understand that it is not our intention to displace their relationship with the client, that they are the trusted advisor, that that will endure,’ said Topping. ’I think that the carrier programs that will be successful will absolutely have to amp that up because I think the model of occasionally abusing channel partners and all the horror stories that they hear about the telco channels is a huge inhibitor for them.’

Next: Fear of the Compensation Model Cold Comfort: Compensation

Any VAR taking a serious look at carrier services just may do a double take when presented with the alien compensation structure of the carrier world, where agents are paid commissions months after the sale. That’s a hard transition from the up-front fee-based transaction that VARs are used to, said Intelisys’ Dana Topping.

’It’s a little bit of a leap of faith, that they have to work with you in understanding how that’s going to assist them to grow their business,’ said Topping. ’They really have no choice. There just isn’t a model that is analogous to the way they currently operate. The innovative ones will understand that, and figure it out, and find ways to succeed.’

VARs will have to have patience, and manage their expectations when it comes to selling network services. Building a monthly residual income that that makes a meaningful impact on an organization takes time, said Mike Saxby, Chief Strategy Officer at master agent Telecom Brokerage, Inc., or TBI. ’It isn’t a situation where money flies in the door on day one.’

Because of the complexity in quoting and installing network services, orders can take months to close, months to install, and by the time the customer is billed and the carrier pays the agent, it could be six months to a year before the VAR sees compensation, Saxby said.

That’s a hard pill to swallow, but over time, and with more accounts, those residuals add up.

’Once you build it, you’ve easily got a multimillion-dollar revenue stream that’s consistent, that’s coming in every month,’ said Saxby. ’And these VARs are going to be falling out of their chairs going ’why didn’t I do this five years earlier?’’

Next: What's a Carrier To do? An Extra Helping of Hand-holding with a Side of Tough Love

Carriers eager to win over the VAR community recognize that a good deal of evangelizing is needed to cajole and comfort reluctant VARs who are scared off by unfamiliar business models, recurring compensation schemes, or channel horror stories. The obstacles are many, but as cloud services begin to blur the lines between the IT and carrier worlds, VARs are increasingly seen as part of the solution.

’It’s a big challenge to completely transition their business model into one of working with customers on cloud services and recurring services, and just changing that approach and having to build up that revenue stream,’ said Intelisys’ Topping. ’VARs will learn that...while there are competing product sets that will displace some of what they currently do, they have the opportunity to be an aggregator and an integrator of multiple cloud solutions, so no one provider, whether CenturyLink or anyone else is going to be offering everything that customer needs.’

With that in mind, VAR-targeted programs are popping up throughout the carrier world to help VARs become comfortable and adjust in this unfamiliar territory.

TBI’s Saxby said cableco’s are doing a good job of converting carrier-averse VARs. Once comfortable with the model, they can move to selling other types of carriers, he said.

’Every year we see more and more. Cable companies have been really good at bringing more and more regional VARs to the table. They have a better feeling about the cablecos, they don’t feel like they’re schlepping ATT and Verizon. They have a greater degree of comfort,’ Saxby said.

But even with all the programs that allow VARs to dip their toes in the carrier pool without taking a dive – offering referral programs and hand-holding partnerships – eventually even the staunchest VAR advocates say solution providers are going to have to man-up and accept the change that is coming.

Craig Schlagbaum, VP of indirect sales at Comcast Business Services, said carriers can do a lot to help VARs make the pivot, but soon they’ll have to face the reality that business connectivity is vital to their success.

’The cloud model is going to force the issue. It’s an adjustment they’re going to have to make,’ said Schlagbaum. ’It’s a fundamental shift, it’s occurring, and they need to embrace it.’

Likewise, Intelisys’ Topping said sooner or later VARs will simply have to get over their fears:

’To a certain extent they’re going to have to make their peace with it and figure out how to make this work.’