Channel Chiefs Sound Off On CDW-Berbee Union

asked the channel chiefs of Cisco, IBM and Microsoft for their opinions on the CDW-Berbee deal. Following are excerpts of those discussions.

Chuck Robbins, vice president of Cisco's U.S. and Canada channels, spoke with CRN News Editor Steven Burke.

CRN: What do you think of the CDW-Berbee deal?

Robbins: We view it as a positive thing. CDW has been a good partner for us and Berbee has been a good partner. At the highest level we actually think it is positive.

CRN: Will Berbee's Cisco service authorizations automatically transfer to CDW upon completion of the deal?

Robbins: As you know there is an awful lot of consolidation going on right now. So what we do when partners acquire or come together is we wait for them to come together and then we come in and look at them as a single entity and then we assess them based upon the requirements of the program as an entity. To answer your question about the geographic issues, our program is a country-based program in the United States so whether it is SBC or IBM or even Berbee today our program gives you the ability to use whatever certification you qualify under nationwide.

CRN: Will there be any specific restrictions related to MDFs, VIP back-end Rebates and minimum advertised price?

Robbins: First off, our program has no volume element to it. So when you talk about MDF and margin incentive programs, none of that is volume-based in our program either. So all of that stuff is based upon predefined demand generation and go-to-market activities. VIP and other back-end profitability programs are based upon customer satisfaction at the end of the day, which ultimately is the biggest issue. If partners are delivering unified communications to customers and customers are satisfied with that delivery and they are receiving a quality product and service offering, then that is what matters.

CRN: So the existing customer satisfaction restrictions that Berbee is currently working under will continue once CDW acquires them?

Robbins: When it relates to some of the advanced technologies and newer technologies, the issue is really the customer experience. So the customer satisfaction element of the program as well as VIP will be the things that really matter. Partners that can deliver those technologies to the customer in a satisfactory way is the only thing that matters.

CRN: VARs say CDW currently has a pricing advantage on routers and switches. Now that they are offering full-fledged solutions, what kind of solutions margin pressure do you expect will be put on your channel?

Robbins: First of all, I think it is important to say that there isn't a volume-based pricing element in the [Cisco] program. To make a statement that any partner has a pricing advantage over another one would be invalid. The pricing in the market is based upon value, as we have always talked about. So, ultimately, it comes down the capability to deliver solutions, [and] Berbee has clearly proven to be one of our best partners in that space.

CRN: Do you foresee any solutions margin pressure in the wake of the deal or is it not really relevant the way the Cisco program is structured?

Robbins: I think that this is a natural extension of CDW's stated strategy to offer more services to their customers. We need to see how CDW ultimately integrates the organization. I think currently they are saying it is going to be a division. But I think that the services that are inherently offered by Berbee today and the financial model and the economic model I don't see how that would change. I certainly don't know what CDW's plans are in that space. I believe they will continue to deliver a high-value product for our customers.

CRN: How is this going to affect your ability to keep other channel partners profitable?

Robbins: We create our profitability programs based upon what we see in the marketplace. I personally believe that CDW and Berbee are both just as interested in profitability as any other partner. I guess we'll have to wait and see how it plays out, but I don't see anything right now to get me very concerned.

CRN: Will you take any steps to protect the investments and margins of your other partners?

Robbins: I think the steps we took a few years ago when we addressed the profitability issues of partners are still relevant today. I can't foreshadow how any partner chooses to sell their products or solutions. The acquisition combination inherently doesn't do that. We think it is a positive thing. Berbee has been a great partner. CDW has been a great partner.

CRN: Will you insist that CDW not commingle funds from the Berbee side of the business and market development funds from the product reseller business?

Robbins: Our program will either view the integrated company as a direct marketer reseller or as a system integrator and not both. First of all, we don't have volume-based MDF, but we do have a DMR program and we have a systems integrator program and the two have different benefits depending on your business model. You can't combine the two.

CRN: So Cisco is going to have to choose what kind of partner they are?

Robbins: No, they are going to determine that. And, by the way, you also have to remember we haven't had a classic volume-based program anyway. So, while it sounds revolutionary, there hasn't been some big volume-based program that existed. But it allows us to be consistent with our partners and treat them all fairly.

CRN: It sounds like in order to meet the system integrator requirements they may make more [Cisco] investments?

Robbins: We have a set criteria for specialization and certifications that is a statically defined set of criteria. It is really to create this level playing field with our partners. So a small partner operating in one geographic market that wants to be VoIP specialized, we create an opportunity for them to bring value in the market they operate in. But I think as CDW looks to build out more services for their customer base they will have the option of looking at that model.

CRN: Is it a foregone conclusion that you will recognize them as a systems integrator?

Robbins: I couldn't say at this point. Obviously, we'll have to wait until they bring their company together. We'll spend some more time with them and talk through with them what they are trying to accomplish. That is premature.

CRN: What is your message to partners who are concerned this will impact margins?

Robbins: I think of all of our partners have seen in the last five or six years that we are committed to partner success and partner profitability based upon the value that they bring in the marketplace and we will continue to do that. I think we have been fair and equitable and we listen and we will continue to do that.

NEXT: Q&A with IBM's Donn Atkins. Donn Atkins, IBM's General Manager of Global Business Partners, spoke with CRN Industry Editor Craig Zarley.

CRN: How do you view the CDW-Berbee deal and what IBM authorizations does CDW gain as a result?

Atkins: I have gone through the teams in Americas that actually are working on this situation. It's inappropriate for me to comment on specifics of this transaction. It's still in process. Just like any partner, anytime any request like this comes in we want to work with the partners to ensure that No. 1, we can accommodate what they are trying to do from a business direction perspective, but at the same time we want to do it in the context of overall strategy and direction. I can't comment on any details.

Since I've been in this job I've been talking about protecting partners' margins and helping them with their growth, but that's something I do it in the context of all my partners. Anything I do in these types of discussions has to be in the context of what's right for the individual partner as well as what's right for the overall partner community.

CRN: Then should we not assume that the IBM authorizations at Berbee will automatically transfer to CDW on completion of the deal?

Atkins: We evaluate each of these individual situations independently, and I can't comment on this transaction because the discussions are ongoing.

CRN: In general, though, CDW intends to take Berbee from its regional base and make it a national player. Are there geographic restrictions for IBM partners that would prevent CDW from doing this?

Atkins: We have a number of value-add requirements--some have to do with coverage; most have to do with skills and certifications. There are many examples around the United States where partners have decided to grow either though organic growth or through acquisitions to broader geographic footprints. That's something that we have supported over the years and will continue to support,

CRN: Do you have any concerns that because CDW is getting into the solutions space that CDW will impact the margins of your other partners?

Atkins: If you go back to the foundation of our strategy, it says we want to reward partners for value creation in delivering our products and solutions to the marketplace. That strategy remains very important to us and we will continue to support it. Both Berbee and CDW are good partners. We value both of them and the capabilities they bring to the marketplace. As this transaction continues to unfold it's our intention to work with both companies to assure that we can support the outcome they are trying to reach in the context of our overall strategy

CRN: So you are analyzing the deal to see what IBM can or can't accommodate?

Atkins: I think that's fair, but at this point in time, until detailed discussions are worked out, I don't want to comment.

NEXT: CRN talks with Microsoft's Robert Deshaies. Robert Deshaies, Microsoft's vice president of U.S. Channels spoke with Industry Editor Barbara Darrow.

CRN: What do you think of the CDW-Berbee deal?

Deshaies: We're extremely excited about the deal. We believe it's a reflection about how our channels and ecosystems are beginning to change to focus more on solutions rather than point products. This fits in line with where we believe partners are going.

[These are] two quality organizations with [their own] respective competencies. Customer expectations continue to evolve and these are two partners who have good competencies and synergy in what they can bring to the customer experience. [Customers] expect more of a solutions orientation.

The merger of the two companies brings capabilities in both directions.

CRN: How would you describe these respective competencies?

Deshaies: From my perspective, CDW works hard to ensure an efficient way for customers to get the products-- [which] in turn become solutions--easily into their organizations, deployed easily, tracked easily [and] efficiently in a B2B way.

And, of course, they offer a huge broad selection of technology, hardware, peripherals, software--it's more than just software.

CDW brings attention to customer experience in a different way in that it focuses--my words here-- around [a] good, efficient experience, whereas Berbee, because it's a solutions integrator, focuses on a deeper relationship, customer intimacy. [It's] more solutions-oriented. Berbee will lend their experience to CDW and vice versa.

CRN: CDW now has a pricing advantage over smaller solution providers. Now that they are offering solutions, do you expect margin pressure on the other solution providers?

Deshaies: No, I don't think so. The reason I don't think it'll create more margin pressure [is because] we're all aware that there's a huge amount of IT services market opportunity now and [Gartner says] it will grow to more than $175 billion over the next four years. If you include development and IT management, you're looking at $1.5 trillion . As we look at the IT industry as a whole and spending coupled with growth, technical expertise, I believe there's lots of upside. People less focused on price pressure and delivering solutions. That, coupled with IT shortfall, people more focused on profitability and driving right types of customer loyalty.

CRN: How will this affect your ability to keep your other partners profitable?

Deshaies: I think these acquisitions/mergers that take place are fairly new . [They] haven't happened in the past a lot. We'll all be learning through this, and will evolve how we work with these channels and keep striving around profitability.

We've announced strategic approach to programs, enablement and partner business performance, how we look at KPIs, still in play, partner capacity, deal size, business velocity, all these will continue to be the same whether companies merge or not. How these mergers will go, if there are more or less, it's a learning experience for all of us.

CRN: . Will you take steps protect the services investments and margins of other partners?

Deshaies: This is one single transaction. We look at the ecosystem holistically and make sure we watch key indicators and will evolve programs as needed.

CRN: Will you insist that CDW not co-mingle solution incentive funds from the Berbee side with market development funds from the product reseller business?

Deshaies: This is their business--as they work through their details, we will plug in and work through our partner program to make appropriate changes.

CRN: Do you think we'll see a wave of similar partner-side consolidation and what is the impact of that?

Deshaies: We go through cycles in IT industry. Traditionally we go through waves, a big spurt of acquisitions, it calms down. Each is a step in the evolution to where channel will be in three, five, seven years. As we look at different acquisitions taking place today, I believe we are seeing more service orientation coming into play. As mentioned earlier, we will potentially have fewer big partners, but there's still opportunity for breadth [in the] partner channel.

While we'll see consolidation at the top, there will also be broader opportunity for smaller partners.

There will be opportunity for boutiques for specific customers and competencies. And partners will partner with [other] partners because just because you're bigger doesn't mean you're better.