Vendors Need To Strike The Right Balance In Their VAR Partnerships
A number of years ago I spoke at one of our conferences about how I believe it is a dangerous business model for a solution provider to dedicate its efforts 100 percent to a single vendor. That sparked a fair amount of debate, and only about 50 percent of the audience agreed with me. But I can point to a number of dedicated Sun Microsystems resellers that are either no longer around or struggled to stay afloat when that vendor's product line got woefully out of sync with the market after my statement.
Well, it's time for some down-and-dirty predictive analysis. I'm basing this on a few factors. First and foremost, it's a result of processing the hundreds of channel-related conversations I have each month with both solution providers and vendors. Add that to some obvious trends that are occurring right now.
And then throw in a dash of some very early numbers on an initiative I've asked our extensive research department to undertake here in the CMP Channel Group.
With all that in mind, my gut tells me there is a large number of vendors headed toward waking up and finding they have an out-of-balance channel that may prevent them from growing at the desired rate. Because many of them won't have the ability to truly look at the numbers and trends and realize it's a result of their own channel strategy, many will increase their direct sales efforts. That, of course, is going to create serious channel conflict, which will allow the few vendors that get it right to gain more market share.
So why do I think this is going to happen?
First off, I believe there are too many vendors that actually chase the 80/20 rule. In other words, they want to do most of their business with as few solution providers as possible. That trend is going to be accelerated by an increasing number of mergers in the solution provider market, resulting from many solution providers getting to the point where they want to cash out and the fact that there is a lot of private equity looking to find a home right now.
As we consolidate, we are going to see the emergence of numerous large solution providers targeting the midmarket as their sweet spot. These organizations will then try to consolidate their vendor offerings. It's a management tendency that in such organizations, efficiency is driven by heavy concentration in fewer lines. That and the fact that many vendors are almost exclusively concentrating on getting more out of their current set of solution providers, and you can see why I'm heading toward this theory.
Many vendors are going to find themselves stuck when they discover these larger VARs are less—and not more—inclined to have multiple product lines. One of the fundamental reasons Microsoft has been so successful in the channel is that it has always wanted to be a vendor for the masses, and it has always wanted to do more with more solution providers. The reason that works is because the channel is made up of so many different business models with so many different growth plans that it is impossible to pick and hold onto the "right partners."
I'm not saying it makes sense to be overdistributed and drive everyone's margins into the dirt. What I am saying, though, is that there needs to be a balance between getting more out of current partnerships while constantly refreshing in order to build for the future and prevent an unbalanced channel.
Only time will tell if I'm right or wrong. If I am, I'll be sure to remind you. If I'm not, heck, there are a lot of other subjects I can write about instead.
Make something happen, I can be reached at (781) 839-1221 or via e-mail at [email protected].