Products Good, Loyalty Better

EMC may still be outselling Hewlett-Packard in the market for network-storage hardware, but HP seems to be gaining traction for the first time since its 2002 Compaq merger. Not only is HP regaining market share in external storage systems, but it has also staged a remarkable worst-to-first comeback with its partners.

In 2004, HP was dead last in the VARBusiness Annual Report Card (ARC) ranking of network-storage providers. This year, while HP has failed to lead in Product Innovation, a high degree of Loyalty, along with above-average scores in Support and Partnership, gave it a solid win.

HP's partner loyalty far outpaced that of EMC, Hitachi and IBM. For example, EMC has been courting Don Richie, CEO of Sequel Data Systems, even though Richie is a longtime HP-exclusive enterprise systems partner. Yet, despite a collapse in HP's supply chain last year and a product line that was well overdue for a refresh, Richie is sticking with HP.

"[EMC has] good products, they are certainly a leader in what we're doing, but I'm committed to HP," Richie says.

HP's storage business is clearly showing signs of improvement following a significant product line refresh in May. That led to a strong second quarter for the period ended July 31.

That helped HP slightly close the gap with EMC, which still leads in worldwide external disk systems and external RAID-based storage, according to IDC's Storage Tracker report. Still, HP faces significant competition from EMC and the alliance of IBM and Network Appliance in the midrange and NAS segments.

John Thompson, vice president and general manager of HP's Solution Partners Organization, credits HP's storage-business improvement to the refreshed product line and better alignment with enterprise partners. "We are essentially doubling down on the enterprise area," Thompson says.

Not surprisingly, EMC believes HP is still vulnerable, and the vendor is aggressively courting dissatisfied HP storage partners. John Koury, EMC's vice president of global marketing and once a top Compaq storage executive, argues that HP is overdistributed. He says that three or four partners vying for the same deal results in a reverse auction, and the partners end up selling on cost.

"Or if they see back-end co-op dollars or deal-registration monies, everyone is focused on price and no one is focused on value," Koury says. "I dealt with that for years [at Compaq], and I definitely don't want to get into that space."

While EMC still has its work cut out to catch up to HP in terms of partner satisfaction and loyalty, company officials say the vendor is making significant progress in growing business through the channel. EMC is on pace to bring its disparate partner programs into a common program--Velocity.

For example, Legato, which offers storage resource-management and business-continuity software, was rolled into the core EMC-Velocity program in April. The new Smarts systems-management business was also at once brought into Velocity. Now, EMC is working on its public-sector partner business, which has more intricate requirements due to federal and local laws regulating back-end incentives, Koury says. That should be well under way by January. Also on the docket is its Dantz backup-and-recovery software business. And EMC is looking to normalize its programs with ISVs and systems integrators across product lines.

Speaking at VARBusiness parent CMP's XChange conference in August, EMC's top channel executives told partners that 51 percent of its business is touched by the channel. EMC executives, acknowledging it had undercut solution providers in the past, are asking potential partners not to judge the company based on its prior misdeeds.

"The channel has come a long way with EMC, and we are doing whatever we can to grow the program," says Gregg Ambulos, EMC's vice president of the Americas channels.