New Channel Order

After a long diversion fueled by Y2K and the dot-com phenomenon, vendor channel executives attending the CRN Channel Chiefs Roundtable said they are actively building a new ecosystem using return on investment (ROI) and an increased focus on vertical solutions as cornerstones. But the new channel ecosystem is far from linear. Instead, it is a complex and evolving puzzle with endless permutations whose aim is to create the right partnerships for delivering quick solutions to customers' strategic business problems.

By necessity, the new ecosystem relies heavily on more partnerships between ISVs and vendors and, in turn, more teaming between ISVs and vendors' existing channel partners, executives said.

"We have a huge push vertically on building ecosystem partners because, in this market today, customers buy based on highly quantifiable return on investments," said Chuck Robbins, vice president of U.S. channels at Cisco Systems.

As a result, Robbins said Cisco is seeking out ISVs and teaming them up with existing Cisco channel partners. "We're trying to take an active role in finding partners who are developing applications and delivering [these partners] to our other solution providers," he said.

A return to partnerships designed to solve specific business solutions is a much-needed dose of reality after the dot-com binge and bust, said John Lee, Oracle's senior director of channel sales and development, North America sales. "We had Y2K and the whole dot-com boom, so much of our resources were going to trying to fill the needs of our customers due to those two events," he said. Now, Oracle views partnering with ISVs to offer vertical solutions "as getting back to basics in terms of how do we deliver a solution into this industry. You need to have industry vertical partners."

Channel executives agreed that much of their new ecosystem push is a direct result of the backlash created by events of the past few years. "I think during the '90s we all experienced this tremendous booming demand," said Stanley Jaworski, vice president of worldwide channels marketing and development at Symbol Technologies. "All we were trying to do as manufacturers was take advantage of that. The emphasis on software may not have been as important as being able to collect the hardware demand."

As a result, Symbol has a renewed focus on ISVs and solution providers that align themselves with software developers. "I think today you really have to work for your money," he said. "I think solution providers that provide software, ISVs in particular, will be a major part of that process going forward. We look at the ISV, which sells no hardware, as an important component of developing deeper penetration into the vertical market strategy."

Even software vendors are taking their largely horizontal approach to the market and developing a channel ecosystem around alliances with more vertical ISVs.

"There is really a need for a horizontal approach because everybody needs security, but there are certain verticals that are even more susceptible to the needs of security," said Allyson Seelinger, vice president of North American channels at Symantec. "Whether it's driven by regulation, like health care with [the Health Insurance Portability and Accountability Act] or whether it's the vast amount of personal, customer or employee data they have with financial or retail [industries], we do have a focus on particular verticals that are really sensitive to the need for security."

Therefore, there is now a big push at Symantec to partner with ISVs so that the application software vendors can take advantage of some of Symantec's security solutions.

"We have announced our Technology Partners Program particularly targeted at ISVs," she said. Teaming up ISVs with the vendor's existing solution providers is "absolutely part of the vision," she said.

Software vendors, too, are encouraging a cross-pollination between each other's stable of solution providers. Check Point Software Technologies and Symantec, for example, encourage solution providers to enhance their solutions by carrying offerings from other security software vendors. "We have always espoused a best-of-breed strategy for channel partners," said Neil McNamara, vice president of sales, Western Hemisphere, at Check Point. "We have an organization of security companies that we very strongly promote to our [channel] partners and encourage them to carry three, four or five security vendors' products because we understand we are not the complete solution."

Microsoft is also stepping up its partnerships with ISVs and, in turn, integrating the ISV relationship into its existing channel. "We want to make sure we're doing the right things at Microsoft for [an ISV] to partner with our channel partners," said Kevin Wueste, Microsoft's general manager of worldwide partner sales and marketing, SMB channel strategy group. "We're going to be announcing soon a new set of opportunities and offerings for the ISV channel specifically to drive that space. We are working very hard to grow that space and increase the linkages we have, the training we have, the support we have as vehicles to grow our relationships that go in that space with Microsoft software."

But like Symantec, Microsoft takes a hybrid view of the market in which horizontal opportunities will blend with vertical specializations. "The market is broad enough that a hybrid model will exist," Wueste said. "There will be verticals where you have to have specialization. Whether it's retail, insurance, financial or automotive, you know you're going to have to have focus and show capacity in your technology where you can drive solutions based on a business promise. At the same time, from a company like Microsoft, there has to be a view that crosses the hybrid where you actually serve more generic opportunities."

Sun Microsystems, like Microsoft and others, is wrapping horizontal solutions around a vertical approach to the market, said Gary Grimes, Sun's vice president of partner management and sales operations. "I think it is a hybrid world today and, clearly, you install horizontal applications in a vertical solution sense," Grimes said. "It's not just enough to sell technology infrastructure. You have to have application solutions, and that drives a whole lot of other behaviors around ISVs and around some of these very unnatural relationships and partnerships we have at this table [among roundtable participants]."

IBM, for its part, said teaming within the solution provider community is a crucial ingredient when adding ISVs to the ecosystem. "I think the teaming [of partners] is very significant," said Frank Vitagliano, vice president of distribution channels management for the IBM Personal Computing Division. "We need to have partners hook up with each other, understand what each other is providing relative to applications, and tie into other solution providers who can put wrappings around it. At the end of the day, it's not about product. It's about solutions. We've invested quite significantly in a Business Partner Connections program, and it's paying off, particularly for ISVs."

Hewlett-Packard is also actively engaged in partnering efforts among ISVs, systems integrators and other solution providers, said Dan Vertrees, HP's vice president of the enterprise partners group, Americas. "We profile and put together mapping [of partner capabilities by geography]," Vertrees said. "We have grids put together so we can create a bridge to the enterprise [by teaming ISVs and solution providers]. We're bringing it down to what the end-user customer is asking for today, and they are pretty crisp about what applications they want to know about," he said. HP has segmented the databases and specialists out in the field so field-sales people can provide the appropriate solution provider and application to the customer, he added.

Cisco is working at partnering networking infrastructure solution providers with ISVs, Robbins said. "In some cases, we have networking partners who get involved with health-care applications, or K-12 networks or IP telephony. They don't have the applications, so we partner them with [ISVs that specialize in the vertical]," he said.

But channel executives agreed that the key link in making this new channel ecosystem work is producing a quick ROI both for the customer and the partners stepping up to the plate with new solutions. "Speed of ROI is crucial because working capital in the channel requires vast returns," noted Kevin Gilroy, HP's vice president and general manager of commercial channels, Americas.

But Gilroy acknowledged that aligning the solution providers with specific technologies and then mapping out a profitability matrix with the vendor is perhaps the biggest challenge faced by manufacturers. "Before you can support [partner profitability], you have to have alignment, and that is something I think the industry struggles with," he said. "It's not easy, but it can be done. In the one-to-one sales motion and the one-to-few, you can do it through strategic alignment meetings. On the one-to-many, it is more problematic. The industry is terrible at one-to-many."

Once the solution providers and the vendors are on the same page, executives said, together they have to focus on specific business solutions for customers. "I think you have to show the business promise, how the customer is going to move the business forward," said Microsoft's Wueste. "If you can knock that out, along with ROI, you start to knock down the obstacles and barriers of today."