More Computer Vendors Turn To Rebates To Help Boost Partner Profitability

In the high-tech industry, rebates haven't become so addictive -- at least not yet. But more companies are moving down that, dare I say, road. And that includes more than customer rebates, which have been offered with mixed results to consumers for years. Unfortunately for many consumers, getting money back from manufacturers including Dell or Iomega has not always been an easy task and requires seemingly as much paperwork as filing out an IRS 1040 form. One Whittier, Calif., VAR goes so far as to sell against manufacturers that offer rebates. On its site, RJ's Computer Specialists asks visitors "How many times have you had to go through the hassle of filling out those rebate forms and never received your rebate?"

Here's wishing that IT companies do better with the incentives they offer to business partners. At the very least, here's hoping that the rebates and incentives offered to VARs, solution providers and IT consultants don't wreak the same financial havoc in the IT channel that they have in the car world. Right now, rebates and incentives are viewed as ideal tools to help shore up partner profitability, which has become the issue at Cisco, Sun and elsewhere.

Last year, Sun broke new ground with some innovative incentives that not only paid for performance, but also for more subtle things including loyalty. The company's heralded Storage Elite Program pays partners rebates totaling 3 percent of their total Sun sales if at least 25 percent of their business includes Sun storage equipment. The company also rewards partners if they do not sell equipment from competitors, or if they move Sun software or hardware gear into one of several target accounts. Since launching the program, Sun has paid millions of dollars to channel partners. Better still, the checks come every month to those who meet specific criteria.

Cisco VARs won't get checks each month, but they'll soon receive generous incentives just the same. One of several new ideas for combating low partner profitability, Cisco recently launched its Value Incentive Program (VIP) through which Cisco VARs can qualify for rebates that could literally double the margins on Cisco IP Communications and VPN/security networking technologies they sell to customers.

But, as with many rebates programs, there are several catches to this one that bear repeating. Money from Cisco won't come until six months after a deal is done. The reason? Cisco purposely wanted to delay paying rebates until after it figured that VARs have collected on their receivables from their customers. That way, solution providers would be inhibited from factoring in the rebate into their bids to customers, a practice that usually leads to price and margin erosion. Cisco originally thought that 90 days would be a sufficient time to delay rebates, but later discovered that it had better move to 180 days when it realized how long it took some partners to collect on receivables owed to them by customers.

Furthermore, Cisco wanted to add an element of uncertainty to rebates and ensure that partners delivered top-drawer service to customers before paying partners their money. So before you can expect any rebate from Cisco, brace yourself as the company measures your customers' satisfaction.

Although the rebate procedures strike me as somewhat cumbersome, several Cisco partners I spoke with last week didn't seem to mind the way the program works. They were more concerned about further price erosion. That could change if it turns out that getting a rebate from Cisco becomes a hassle indeed. No one who successfully delivers an IP or VPN/security solution in this economy needs any more hurdles to overcome.

No doubt, other manufacturers are going to be keeping a close eye on Cisco, Sun and others to measure the success of their rebate and incentive programs. If they prove successful, watch for more companies to adopt similar measures. If that happens, however, the entire financial model for moving IT goods through a channel could be turned on its head. While it's too early to assume that IT manufacturers will follow their car-maker brethren down the same path they took with rebates, it's worth remembering that the road to fiscal hell in some cases was paved with good intensions.

Let me know what rebates mean to you: [email protected].