We Have To Move Beyond The Conflict Issue And On To The Opportunity

If Dataquest proves to be correct, the indirect portion of the outsourcing market will grow from 75 percent this year to 80 percent in 2005. At the same time, the share of outsourcing services provided by vendors directly to customers will fall from 23 percent this year to just 18 percent in 2005. Why is that?

You could argue that it indicates vendors are doing a poor job. Or you might argue that despite the percentage drop in outsourcing revenue moving through direct channels, less will still mean considerably more revenue than it does today because the outsourcing market is growing. And if you believe that, then it might stand to reason that vendors just don't have the resources to capture a bigger slice of the pie going forward.

To me, it all boils down to this: Vendors and the channel have to figure out a way to get the channel conflict issue off the table so that both can focus on the outsourcing opportunity.

I spent most of last week at the Solution Provider XChange conference in New Orleans, where I met with the 500 solution provider attendees as well as representatives from Microsoft, Hewlett-Packard, Sun Microsystems, Compaq Computer, Check Point Software Technologies, IBM, Symantec, Cisco Systems and other vendors.

In the opening session, the discussion turned to the topic of channel conflict. My personal feeling is that conflict will never entirely go away, and the issue needs to be discussed regularly between vendors and their partners. But conflict today is largely a hardware vendor concern and much less of an issue for software vendors. More importantly, it's not something we spend much time talking about with peripherals vendors.

Neither the channel nor the vendors should let conflict prevent them from figuring out how to make money together. This industry needs to be more creative in its compensation practices if we are ever to move toward some kind of resolution.

I'm a big believer that compensation is the most powerful tool at the disposal of any organization. Used properly, it can turn even the largest organization on a dime. Used improperly, it can destroy a great company. Most companies' compensation strategies fall somewhere in the middle.

Despite the specter of conflict, it seems we all agree on a few fundamentals: Vendors and the channel need each other. Products make up the solution. We are all in this to make money. Conflict arises when one side or the other feels it is not getting its fare share.

So maybe vendors need to look at how their channel partners are making money and devise tactics that leverage that. They also should look inside their own organizations and determine whether their compensation structure conflicts with their ability to drive business through the channel.

Conflict is an issue of money. As a channel partner, if I'm making money with you, then I'm happy. If I make money with you some days and compete with you on others, then I'm a bit less happy. Things get very bad when I can't make money representing you and I have to compete with you, to boot.

The efficiencies of the free market ultimately drive pricing to the lowest sustainable level over time by playing one competitor against another. It's one thing if that competitor is another solution provider. But vendors ought to ask themselves if they really want to compete with their own indirect sales channel,driving down profit for both of them. I just don't understand how that is good for anyone except the end user.

Make something happen. I can be reached at (516) 562-7812 or via e-mail at [email protected].