Getting Right With The Channel

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There’s a new religion in the halls of McAfee, one that’s leading the security vendor to a sales and profit revival. That religion is the channel.

Just two years ago, McAfee was in trouble. Then called Network Associates, the company was suffering from stagnant sales of its Sniffer network management and Magic help-desk offerings. Its channel was a mess, with partners shying away from the vendor as its habit of cherry-picking deals and taking them direct became more prevalent. And the security side of its business continued to lose share to market leader Symantec.

After shedding Sniffer and Magic in 2004, the pure-play security vendor now known as McAfee decided to turn over a new leaf and embrace the channel with a zeal rarely seen in the technology industry. Over the past nine months, the company has restructured its sales department and IT systems to optimize them for partners, doubled its staff dedicated to supporting the channel, reduced its direct-sales force by 90 percent, and cut the number of direct accounts from the hundreds to just 10.

And the channel is taking notice. The Santa Clara, Calif.-based company has added nearly 1,000 new partners since October and issued more than 5,000 sales and technical certifications. Channel sales have moved from about 60 percent in 2002 to more than 90 percent today.

“They have really turned themselves around,” said Jim Hindy, CEO of Entre BTG, a Norcross, Ga., solution provider. “They have taken themselves from a company with a very mixed message and strategy to a singular force in the security industry. The change has been dramatic.”

The result? The company has posted strong sales growth in the past three quarters and profits are on the rise. Indeed, finding channel religion may have saved McAfee’s soul.

“We changed the relationship with our partners, and it’s proven to be a tremendous help for our business,” said George Samenuk, McAfee chairman and CEO. “It was a fundamental shift from a 60 percent channel company to a nearly 100 percent channel company, and it is working.”

Samenuk said the company posted growth of 28 percent in the fourth quarter of 2004, its first quarter as a pure security player focused on the channel. That was followed by 36 percent growth in the first quarter and 32 percent in the second quarter of this year. “The channel was critically important to achieving those growth rates and profitability,” he said.

The change from a direct company to a channel company “was not an easy task,” said Kevin Weiss, McAfee executive vice president of worldwide sales, services and support. “It was beyond a struggle. It was a religious war.”

Despite an uptick in growth after the sale of its Sniffer and Magic units, even 2004 “was an absolute disaster for us,” Weiss said. “In the SMB space, we lost share quarter after quarter. We were struggling to make our numbers in North America, so we weren’t doing something right,” he said. “But by the fourth quarter, we knew we had the programs in place and were developing the systems that would help us come out of it. We knew we were on the right path.”

That path, said McAfee President Gene Hodges, was a full-scale change in how the company does business. “We had to change our internal systems to make it easier for partners to do business with us,” Hodges said. To deal with the legacy of a company that would take partner-initiated deals direct, the company changed its internal systems so that salespeople cannot sell except through a partner. “Our sales force simply cannot produce a direct quote,” he said. “That stops them from making direct sales.”

The company had some 120 telesales reps calling on SMB customers, which “irritated both the partners and the end customers,” Weiss added. That number has been reduced to 10, and the reps currently work in conjunction with partners instead of around them, he said.

In addition to changing its sales force, McAfee also had to change its channel program and products, Hodges said. McAfee knew the key to growth and success in today’s environment was the channel, especially with industry heavyweights like Cisco Systems and Microsoft entering the field, he said. “It would be impossible for McAfee to compete effectively with Microsoft or Cisco. It would be impossible for us to outsell them—a fool’s errand,” he said. “But it is possible for us to build better products and a better channel program, and that’s what we’re doing.”

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