Good News, Bad News About The Midmarket

Just moments before I started writing this column, I received some good news and some bad news. Let's start with the good news. It concerns the midsize business customers you service. Their expectations for this year are a dream come true. They plan to spend more on IT, rely more on their current solution providers, expand the number of VARs they do business with and turn to you for more technical advice. You couldn't ask for better results from our conversations with 291 customers who employ between 100 and 1,000 workers.

Now the bad news, which really isn't bad for you, but for certain vendors that have been talking about the midmarket opportunity since the Gladiators occupied the Coliseum. These vendors, especially IBM, aren't making headway in the midmarket to the extent they'd like.

I am starting to wonder if IBM has boarded an "Express" train to nowhere. Of course, I am referring to the push IBM has made on the software products it designed for companies outside of the enterprise. Plain truth is our survey found that this customer set does not feel warm and fuzzy about IBM. No matter how much IBM tries or spends, it has got to change its Express strategy if it is going to start turning the tide.

For IBM, or any company focused on the midmarket, winning boils down to empowering solution providers so they understand the scope and capabilities of products being sold into this market space. It's not about convincing customers that a huge corporation can understand and meet the needs of small firms. But let's not single out IBM. Our survey found midmarket customers do not view Computer Associates, EMC or Novell as important to them either. That's in stark contrast to the way they view Cisco, Intel and Microsoft. To make matters a bit more unsettling for IBM: Few, if any, midmarket customers were planning to deploy on-demand computing solutions in the coming months. In fact, four times as many were willing to take a chance on Voice over IP because their solution provider recommended it than were ready to write a check for an on-demand solution.

The point here is you can see a chasm between what enterprise-oriented vendors want in terms of market penetration and how poorly they have equipped their partners to sell into that space. Based on our survey findings, midmarket customers have a very close working relationship with solution providers. The solution provider is the vendor to them. For IBM, CA or EMC to be successful in this segment, they are going to have to accept the realities of this marketplace, educate their partners and equip them with the right tools.

In addition, customers told us their spending is going to be highest when it comes to hardware, followed by software, with their smallest allocation for services. (That seems to contrast with solution providers who sell to larger enterprises, where services received a higher proportion of the overall IT budget.) The midmarket segment seems hungry for hardware, no doubt. Just look at their plans when it comes to personal computers. On average, these midmarket companies have 255 PCs—desktops and laptops—in use. Their top priority when it comes to these machines is split evenly between upgrades and security. But the strong upgrade cycle is going to be focused around either the small midmarket companies or the larger ones. The organizations in the middle (those employing 250 to 499 employees) are much less focused on upgrading their systems. Their focus is much more on security issues most likely because their systems are newer, with more employees accessing the Internet or connecting to partner and supplier sites. The differences among these customer segments is fascinating to study and can offer you guidance in terms of where to focus your sales resources.

Inside these customers, the customer service, engineering and finance/accounting departments have the largest IT needs. Sales, marketing and purchasing came in behind those three departments when we asked the midmarket customers to rate their IT needs by department.

Look for more coverage of the midmarket in our May 2 issue, and online as well.

I've been preaching about the cover story of the April 4 issue for months now, and with good reason. Solution providers, like never before, are exploring the benefits of vendors that may not have dominant market share but offer a product that fills a niche or presents an opportunity for incremental sales. In this issue, we capture the alternative trend, which is being driven by Juniper, Gateway, Ricoh and several others willing to take aim at entrenched market share leaders by leveraging the channel. Tiffany Bova, Gateway's senior director of indirect channel sales, recently decided to test the alternatives theory herself--I think we egged her on, actually--by striking out on a 40-city tour over the span of several weeks. Like a single-handed census taker, Bova visited a litany of VARBusiness 500 firms and smaller operations in hopes of convincing them to support the Gateway brand.

"I thought there would be a lot of doors slammed in my face or phone calls gone unreturned, but it turned out to be the opposite," Bova says. She found VARs receptive, willing to listen to her story and more than a few signed up to support the Gateway brand, with more expected to follow suit. Not everyone needs to make such a sojourn, but Tiffany's Traveling Tech Tour does validate the alternatives trend.

I had a tough assignment at our recent XChange show in New Orleans—to deliver the first presentation of the conference on Sunday afternoon. Taking a chance on something different, I developed the "Sunday Channel Sermon," which included 12 commandments for dealing with the channel. Here they are with some explanation attached to each:

1. Thou Shall Not Create Channel Conflict. Do I need to say more on that matter? These days it is more likely a solution provider will be competing with the likes of another VAR or CDW than a vendor's direct sales force.

2. Thou Shall Brief Partners In Advance of Customers. There is nothing more infuriating for solution providers then the old "simultaneous product launch" where vendors brief partners as well as customers on their new goods. If solution providers are prepared well before the product launch to address customer needs, then sales are likely to exceed goals along with customer satisfaction.

3. Thou Shall Be Easy To Do Business With At All Times. Our findings from the VARBusiness Annual Report Card issue show that vendors are making some progress in this area, but it is often where good channel plans run into a wall. Poor execution in the field, cumbersome and complex contracts or slow response times are all factors here.

4. Never Cover Thy Partners Accounts. Perhaps another flavor of channel conflict, this one applies to all those vendors you work with who suddenly believe you can no longer service that Fortune 500 as well as they could. They send in a phalanx of shiny, white-shirt, blue-suited salesmen disguised as "support" to assist you. As if you needed or asked for the help.

5. You Shall Not Take the Name of a Channel Partner In Vain. Hey, no bad-mouthing my readers. Even if they haven't completed the highest level of your certification program, these guys know what they're doing.

6. Thou Shall Realize Partners Generate Demand. They do; we have years of research to prove it, along with a new study released at our XChange Solution Provider event in early March. Here is a fact to memorize: Solution providers create at least $72 billion in unbudgeted incremental revenue per year.

7. Honor Those Who Helped You Grow. You've to got love those vendors that came to you with a sales plan a few years ago and now wonder if you really fit the profile of the type of partner they want going forward.

8. You Shall Not Chart VARs To Join a Vendor Program. Tell me again why I need to pay you to sell and support your product?

9. You Shall Always Read Your Good Books. VARBusiness and CRN. A blatant plug, I should be ashamed of myself.

10. Vendor CEOs Shall Always Attend Their Partner Conferences. If a vendor's CEO doesn't show, then just say no. If the big man isn't willing to attend a gathering of professionals who are dedicating time, money and resources to sell his firm's product, then doesn't that say something about his commitment to the channel? These conferences are once a year, so the chairman or CEO has no excuse for missing it. I know we pick on IBM's Sam Palmisano for his PartnerWorld no-show, but he deserves it. John Chambers does not miss the Cisco partner summit, and Steve Balmer doesn't miss Microsoft's either.

11. Thou Shall Not Change Your Channel Programs Every Three Months. Some well-meaning but clueless individuals believe they are not doing their jobs unless they change something—like the terms of their the partner programs.

12. Thou Shall Practice In the Field What You Preach On the Mount. Executives, based in headquarters, have grand plans that will go no where unless the individuals managing field operations can execute. The message has to get from the Ivory Tower and the partner conferences to those individuals managing partners in Chicago or the Southeast.

Remember that embarassing scene in the movie Jerry Maguire, in which Tom Cruise, playing the title character, gets fired and pleads with his co-workers to follow him out the door to no avail save for a mousy accountant? Well, I am here to report that opposed to the movies, there are some people out there who demonstrate true loyalty--and a backbone. You can find them at Aten Technologies. When Jeff Williams was running channels at Belkin, he cultivated a loyal following of not only solution providers but co-workers as well. When his strong channel commitment became a source of friction with Belkin's management, he was forced out. And guess what? He left Belkin with more than a goldfish. Several individuals and solution providers followed Williams to Aten, where his goal is to triple the business and surpass Belkin's market share. Williams has some special magic, no doubt.

Let me know if you would follow your boss out the door--or send him a thank-you note for leaving. And if you have commandments I should add on how you want to be treated, write me at [email protected].