Vendor Exclusivity: Don't Lock Yourself In

Case in point: Earlier this year a large multinational solution provider had a big opportunity with a client that included new servers, storage, software and more. As the solution provider had done hundreds of times in the past, he went to register a portion of the deal with the largest vendor included in the solution. But this time, instead of a quick approval, he got an unexpected call back.

“They said, ‘Hang on, what about [networking products]? And can you register your VMware through [our] OEM rather than with VMware direct?’ ” said the solution provider CEO, who asked not to be named. He told the vendor that this specific client was a legacy customer of another networking vendor and that it normally registers virtualization directly with VMware.

“They said if you’re not going to do all four of those lines, we’re not giving you the storage and server registration. We told them that we were already displacing another [server and storage] with this solution, but that we have to be receptive to what the client wants. We can’t force [your products] on them.”

According to the solution provider CEO, the vendor’s field sales rep told him that he was going to give the deal registration to another partner who was willing to register its products across the board to ensure the vendor had full visibility with that client.

“It’s gotten very sticky, very uncomfortable that that’s the type of approach we see,” said the CEO. “They were pretty honest that it’s the way it’s been dictated to them, that if they can’t find a partner to offer a total [one-vendor] solution in the data center, a solution that used to be just server and storage, they’ll find someone else. They made it known that they’re supposed to get a banner to fly across all of those areas.”

In another example, the same solution provider said he was asked to rescind a registered deal that already had been approved because he wasn’t selling a vendor’s products across the board. The vendor wanted another partner that was willing to do so.

Clearly, the battle lines are being drawn. As more vendors offer products in a broader range of technology areas, those vendors are expecting VARs to choose sides. Several solution providers said the outcome of this struggle could have a decidedly negative impact on the channel’s effectiveness to serve customers.

NEXT: M&A Fuels Exclusivity Frenzy

M&A Fuels Exclusivity Frenzy

Hewlett-Packard buys 3Com with an eye toward taking a bigger bite out of the networking market. Cisco Systems gets into the blade server game with an intent to grab share from HP. Oracle buys Sun Microsystems and promises an end-to-end hardware-software solutions stack.

Much of the recent acquisition activity among IT superpowers has been aimed at providing one-stop solutions, with a larger base of loyal VARs selling those solutions across the board.

Vendors, of course, have always wanted their solution provider partners to refuse to represent or invest in competitive offerings. But the consolidation and economic turmoil reshaping the competitive IT landscape today has made it a more pressing issue for vendors and solution providers.

Many partners insist that taking the 100 percent vendor exclusivity path is a Faustian pact that will ultimately lead to financial ruin.

“I think any VAR/consulting firm/systems integrator that is worth a darn would be silly to get into any exclusive relationship with any vendor,” said Rand Morimoto, president of Convergent Computing, an Oakland, Calif.-based solution provider. “In the 25 years I’ve had this company, every vendor has come and gone, most out of business or absorbed into another organization or brand, such as 3Com, Banyan, Compaq and others just changing focus.”

What was “in” a decade ago is never “in” 10 years later, and if business owners bank on a changing marketplace, it just sets them up to be exclusive with a vendor that is now out of favor, not the thing customers want, Morimoto added. “Vendor exclusivity is what brings down a good percentage of small and medium consulting firms/VARs as the vendor brings the consulting firm down with them,” he said.

With that in mind, CRN provides an in-depth analysis of the exclusivity pressure solution providers feel in various technology segments.

NEXT: Coming To The Dance With HP

Coming To The Dance With HP

HP isn’t about to go on record as saying that it demands exclusivity from its channel partners -- quite the opposite, in fact. And HP’s partners aren’t exactly bolting for the exits, even if some say the pressure to sell the full HP data center stack is as strong as it’s ever been.

“Listen, it’s always easier when you have a relationship that’s quote-unquote exclusive. But I don’t think our view is that the world has to be exclusive. We’re very comfortable in a co-opetive environment and have been for a very long time,” said HP CEO Mark Hurd in an interview with CRN earlier this year.

David Donatelli, general manager of HP’s Enterprise Servers, Storage and Networking unit, reprised that statement in April, going so far as to declare that “there will be no pressure exerted” on HP partners to pick sides in the computing giant’s growing feud with Cisco, “other than us offering great products.”

That sounds pretty good for solution providers looking to keep their vendors honest and competing for partner business. Knowing how the hard-charging Hurd and Donatelli operate, however, it also sounds a bit too good to be true.

For a start, Hurd is up-front about describing HP channel partners as “an extension of the HP sales force.” HP’s new Emerging Growth Accounts program fires up partners with “a Dell attack program, a Sun attack program and an IBM attack program,” according to Marc Sarazin, executive vice president of sales and marketing at HP partner AdvizeX Technologies, Burlington, Mass.

And when it comes to Cisco, the networking giant that Hurd and Co. has squarely in its sights, some partners have made it clear that they’re 100 percent on HP’s side. Sarazin said AdvizeX “recently made a strategic decision to go to market with HP networking and not Cisco.” Other HP partners aren’t as happy about playing the exclusivity game. They say there is a lot of unwanted pressure on them to go into customer engagements with the total HP portfolio or not at all. One HP partner in the Northeast who asked not to be named also had a deal registration kicked over to another solution provider earlier this year because his company bid with non-HP products in a data center project.

Simon Palmer, president of Tustin, Calif.-based HP partner STA, said “no manufacturer out there should push exclusivity,” yet offered a different way of looking at the issue: “But they can earn it.”

“I think HP’s doing a good job of acknowledging that option for choice in the market,” Palmer said. “Quite honestly, as a solution provider in front of the customer you can appear biased when you’re not offering a choice. You present a more balanced view when you present a broader view,” he said.

Palmer touched on the notion of STA being “an extension of the HP sales force,” saying it’s a useful idea but one that shouldn’t be taken too far. “We can act as an extension of their sales force,” he said. “But we are different companies run with different metrics. And sometimes those models and metrics aren’t going to add up when laid out side by side. And that’s where you have to be an adult and say, ‘Hey guys, this just isn’t going to work.’ ”

The main code Palmer lives by when working with vendors like HP and others is to follow through on what he has said he’ll do. “We have very specific rules of engagement with our sales force,” he said. “We don’t flip at the last minute if the customer wants a different brand after we’ve brought in HP or another vendor. You have to recognize that there is serious competition at the manufacturer level. We’ve always been very up-front with manufacturers that whomever we come to the dance with, we’ll leave with.” —Damon Poeter

NEXT: Cloud Computing’s Carrot

Cloud Computing’s Carrot

In this still-evolving market, some cloud vendors want to take control right away and are dangling the exclusivity carrot in front of solution providers, promising added incentives for those that sign on the exclusive dotted line. So far, few solution providers are taking the bait.

“The cloud space is still so small that the vendors feel they have control of the market,” said Eric Berridge, co-founder of New York-based cloud solution provider Bluewolf. “It’s the customers that control the market. Period. But that could change.”

To assert that control, some cloud vendors -- which solution providers wouldn’t specifically name -- push for exclusivity with their stable of solution providers. Berridge said, however, that in many cases vendors might not have to push too hard. Some relationships are relatively exclusive by nature and vendors and solution providers enter into an almost unwritten agreement. Bluewolf is in a unique position in that it’s a major Salesforce.com provider but is still free to work with other vendors, he said. For example, the company works with Oracle on the database side but would think twice before signing on with a competing pure CRM vendor other than Salesforce.com.

“If all of a sudden I told [Salesforce.com] I was going to build an Oracle on demand practice … they would see it as a break of trust,” Berridge said, adding that while Salesforce.com isn’t forcing Bluewolf into exclusivity, it is fairly inherent. The continual addition of features and modules on the part of Salesforce.com would make it difficult for Bluewolf to align itself with a different vendor. “We want to keep our focus,” he added.

Some cloud VARs have benefited from playing the exclusivity game. Bellevue, Wash.-based Explore Consulting was an exclusive NetSuite solution provider for years and received incentives for that agreement.

“We were exclusive, but we all just kind of outgrew the exclusivity thing,” said Jeremy DeSpain, Explore Consulting’s co-founder. “The industry grew and the space grew out of that small-niche mentality.” Now, Explore Consulting offers solutions across other platforms, has signed on with Amazon.com and is working to integrate solutions from both Amazon.com and NetSuite, DeSpain said.

“It gives us the ability to cross-sell, in this case, Amazon customers to the NetSuite platform,” he said. “We can provide better overall solutions to customers. I view it as complementary to extend out and beyond what core NetSuite functionality offers to clients.” Looking back, DeSpain said the NetSuite exclusivity was a win-win for both companies as it helped establish a strong customer loyalty, helped Explore Consulting gain experience and pushed it to becoming one of the biggest NetSuite providers.

“Being the best at one thing is better than being average at a lot of other things. It was a huge benefit early on,” DeSpain said. In the end, some solution providers vehemently believe exclusivity goes against the true meaning of cloud computing.

“We haven’t had any one company asking for exclusivity, and if they did we wouldn’t work with them. But we haven’t seen that,” said Patrick Ciccarelli, president and CEO of Varsity Technologies, a San Francisco-based cloud solution provider. “As soon as you’re exclusive, you’re breaking down the idea of this amorphous thing [the cloud] you can use on an as-needed basis.” —Andrew R. Hickey

NEXT: The Security Squeeze

The Security Squeeze

As in other areas of IT, many security solution providers are getting squeezed from all sides to commit to 100 percent exclusivity with their vendor partner.

“There’s always been pressure,” said Jim Freeman, principal and CFO of Attain Technologies, a Denver-based solution provider. “When we started our business 10 years ago, we set it up as vendor-agnostic. It’s a little hard for me to pick a solution until I know what the problem is. What’s happened over time is that we find ourselves doing more multivendor solutions so we don’t run afoul of the pressure we get from HP, CA and Cisco.”

Freeman feels he has successfully resisted the intensified vendor pressure and has remained vendor-agnostic by sticking to a model that never allows revenue from any one vendor to exceed more than 40 percent of his business. Vendors inevitably will have more leverage over the VAR once revenue starts to exceed that, he said. “If you’re 90 percent HP, you’re going to get the pressure,” said Freeman.

It also helps that he keeps almost 50 percent of his business in managed services, which enables him to be more self-sufficient and less vendor-dependent. Should Freeman become exclusively reliant on one vendor, he believes “it would make it very difficult for my recommendations to have as much credence with our customers. My credibility with the customer is gone if [vendors] need us to influence deals in their direction. It’s just not realistic in a channel model.”

Other security-focused solution providers, however, can see their way clear to submit to a vendor’s exclusivity clause if that vendor partner helps them provide a specialized or niche service to customers. Leo Bletnitsky, CEO of Las Vegas-based Las Vegas Med IT, said that GloStream, which provides electronic medical records software, demands partners uphold exclusivity by requiring them to refrain from advertising or selling competing products. Glo-Stream also requires a $36,000 entry fee for its channel program. “I’m sure if it came to their attention that we were selling competitive products, they may choose a different partner,” Bletnitsky said.

Being exclusive wasn’t a hard decision in this case because the only competing product wasn’t as strong, he said. Meanwhile, GloStream reciprocates the exclusivity clause by solely partnering with Las Vegas Med IT to sell its products in that geographic region. “It’s nice that it’s not open to everybody,” he said. “We have exclusivity from them and they have exclusivity from us.”

In this case, Bletnitsky said he was confident he was promoting the right product. If not, he was at liberty to recommend other products -- just not sell them. “If our solution is not right for the customer, I’m going to let them know. Even if we convince someone to buy something from us that isn’t the right solution, eventually they’re going to figure it out,” he said. “The client is worth a lot more than the sale.” —Stefanie Hoffman

NEXT: Riding The Software Train

Riding The Software Train

Major software vendors, including IBM, Microsoft and Oracle, have taken steps in the past year that, while not requiring solution providers to work exclusively with them, effectively requires them to devote scarce resources to one or a limited number of IT vendors. Take IBM and the certification requirements it set last year under the “Software Value Plus” program for the approximately 100,000 channel partners that resell its software, eliminating the open distribution model it had previously followed.

While many IBM software partners said that certification would help them stand out in a competitive market, there’s no disputing the fact that resellers have to devote more time and money to getting their engineers and sales representatives trained and tested.

Oracle, for its part, overhauled the Oracle PartnerNetwork program to put more emphasis on training and certifying resellers for their expertise in specific Oracle technologies and vertical industries. Those “specializations,” as Oracle calls them, aren’t required (unless a partner is seeking Platinum status), but Oracle has made it clear that certified partners would be given preference in competitive sales situations.

Microsoft has likewise altered the focus of its channel program so that partners are certified and ranked according to their business and technology “solution competencies.” And Microsoft is asking the 10,000 resellers of its Dynamics ERP and CRM applications to commit to developing extended expertise in specific vertical industries -- or step back and accept referral fees for Dynamics sales opportunities. To be fair, many smaller solution providers work exclusively with a single software vendor -- or, at most, one vendor in each product category -- so it can develop deep expertise in that vendor’s technology.

For many solution providers, such expertise is their raison d’etre and their competitive edge.

“We intentionally work with one vendor in each [technology] area,” said Ronnie Parisella, CTO of Primary Support, a New York-based solution provider that works mainly with Microsoft. “It’s very, very difficult for our people to stay up-to-date with multiple vendors,” he said, noting that just keeping on top of Microsoft’s software updates, hot fixes, Service Packs and licensing is a full-time job. Still, vendors do apply subtle and not-so-subtle pressure to try to convince solution providers to work only with them, according to Parisella.

“Vendors are always playing up their competitive differentiators,” he said, noting that SonicWall, the Internet security software vendor Primary Support works with, is big on developing spec sheets for resellers emphasizing the superiority of its products over competing products.

Said Mike Chadwick, executive vice president at Prolifics, a New York solution provider that works almost exclusively with IBM software: “We don’t feel that we could be legitimately effective in a lot of different technologies. We dedicate ourselves to one vendor and get good at it.” The pressure can be even higher at the field level when the solution provider is working on a deal with a vendor’s sales force. “They want assurances you’re not going to flip and sell competing product lines,” he said. “That’s where as a VAR you have to set the parameters up front. The solution provider must be a trusted adviser and offer [customers] the power of choice.”

For his part, Perficient President and CEO Jeffrey Davis doesn’t believe IT vendors are pushing for VAR exclusivity as much as they were, say, 10 years ago. Microsoft back then tended to work with smaller, regional resellers that exclusively sold Microsoft products, he said, and the vendor more often expected such exclusive relationships. Today Perficient works with software products from IBM, Microsoft, TIBCO, Oracle, EMC and other vendors. “They’ve accepted by necessity that a lot of their partners are not going to work exclusively with them,” Davis said. “We’ve got a bunch of clients, including some big customers, and we have some influence.”

And then there are vendors that are so confident about their products that they encourage channel partners to carry products from competitors.

NetSuite CEO Zach Nelson, during a recent earnings call, was asked by an analyst whether some newly recruited VARs had switched away from selling software from Microsoft Dynamics GP, formerly Great Plains software, to exclusively carry NetSuite. Nelson nixed that idea. “I would love for [resellers] to demonstrate NetSuite side by side with Great Plains,” he said. —Rick Whiting

NEXT: No Microsoft Muscle?

No Microsoft Muscle?

Although Microsoft used to get its hackles raised over partners with Linux leanings, it’s hard to find a Microsoft partner today who’s feeling pressure to go all-in with Microsoft products. Microsoft does encourage partner “commitment,” but its partner program doesn’t place the heavy emphasis on sales performance and sell-through numbers that other vendors’ programs do. Instead, Microsoft’s partner program is designed to foster abundant services opportunities for the channel, and that has been one of the keys to its success.

“The margins on Microsoft software sales are minimal, and since most partners are focused on services, they actually have an incentive to minimize software sales as a portion of a project’s total budget,” said Paul DeGroot, an analyst with Directions On Microsoft, Kirkland, Wash. “This leaves more room for additional services, where margins and ongoing revenues are greater.”

Of course, Microsoft’s sales teams prefer working with partners that embrace the full Microsoft stack, but with the exception of Dynamics, most partner competencies aren’t based on sales performance, added DeGroot.

Traditionally, many of Microsoft’s competitors have also been partners, which makes it difficult for exclusivity to creep into the equation. Cisco is a prime example. Even after Microsoft entered the unified communications market with Office Communications Server, the two companies continued working closely together, which makes sense since many Microsoft partners are also Cisco partners. Microsoft and Cisco often trade verbal barbs about whose UC solution is better, but solution providers haven’t experienced any strong-arming from Microsoft.

“I haven’t seen Microsoft pushing partners to drop Cisco,” said Neil Brenner, vice president of converged technology at Consolidated Technologies, a Port Chester, N.Y.-based solution provider. While Microsoft’s stance today is to integrate with PBXes from the likes of Cisco and Avaya, that might not always be the case, said Brenner. “I believe at some point soon, [Office Communications Server] won’t have seamless integration with Cisco or Avaya for call control or remote call control. At that point, enterprise users would have to make the choice for a ‘go forward’ platform,” he said.

In virtualization, where Microsoft has been making incursions into VMware market strongholds, the software giant has been stressing the cost savings it offers to lure VMware customers but hasn’t demanded that its solution providers drop VMware altogether. Microsoft, in its partner marketing efforts, has targeted areas of complexity in VMware products that are causing problems for customers. In March, Microsoft and Citrix Systems unveiled the “Rescue for VMware VDI” promotion, which lets customers trade in their VMware View software licenses for the same number of Microsoft VDI Standard Suite subscription and Citrix XenDesktop VDI Edition annual licenses, for free.

Microsoft’s increasing focus on interconnected systems also runs contrary to the notion of vendor exclusivity. Microsoft says XML is now at the core of all its product development efforts, and Jean Paoli, co-creator of XML, is a Microsoft employee. “Microsoft has focused a lot on interoperability in recent years, and you can’t do that and insist that people use only your products,” said DeGroot. “In general, it’s probably a good strategy and gained them more than they lost, in the sense that it has let them penetrate accounts where rip and replace wasn’t an option.” —Kevin McLaughlin

NEXT: Pass The Chips

Pass The Chips

Consolidation and increased aggressiveness among IT giants may have led to corresponding pressure for exclusivity in some areas, but one market where the pressure may actually be easing a bit is at the very beginning of the IT supply chain.

Microprocessor giant Intel had its knuckles rapped hard by antitrust regulators in the European Union and elsewhere in 2009. The chip maker had to pay a $1.45 billion fine over a ruling by European Commission regulators that it had engaged in anticompetitive marketing practices to the detriment of rival Advanced Micro Devices (Intel is appealing the May 13, 2009, decision).

It’s silly to think that the EU ruling or a U.S. Federal Trade Commission complaint and other legal proceedings have put any dent in Intel’s desire to win every bit of business for itself and itself alone. But there’s a sense among industry sources that Intel these days is walking a very careful line so as not to give the impression it is leaning too hard on OEM and white-box partners.

After all, the EU ruling explicitly found that Intel pressured computer manufacturers and other partners with rebates that hinged on whether a company’s product mix was almost entirely Intel-based and, in some cases, exclusively Intel-based. An antitrust complaint filed against Intel by the New York Attorney General last November detailed communications between Intel executives and their counterparts at Dell, Hewlett-Packard and other companies that raise serious questions about what Intel did to pressure partners for exclusivity and the large amounts of money it was allegedly willing to pay for it.

In the white-box channel, it’s been tougher to get a bead on how much Intel ever threw its weight around to achieve exclusivity, if the chip giant did indeed do that with smaller partners. At the time of the EU ruling, Todd Swank, vice president of marketing at Northern Computer Technologies (Nor-Tech), a Burnsville, Minn.-based custom-system builder, called the accusation that Intel misused its rebate program “hooey.”

“AMD and Intel have similar programs,” said Swank, whose company does business with both chip makers. “Both give rebates to go after specific products. But to give money to not do something -- I’ve been doing marketing in the U.S. for 10 years, and I’ve not seen anything like that.”

On the other hand, another system builder who asked not to be named said Intel had been known to “strong-arm” system builders. Interestingly, that system builder also said that in recent months Intel has “gone out of its way to be more channel-friendly.”

One key player in all of this that appears ready to accept that Intel knows its bounds when it comes to pursuing exclusivity is AMD itself. The smaller chip maker settled its own antitrust suit against Intel last year with the provision that Intel not engage in unspecified, anticompetitive “business practices.” Of course, now another Intel rival -- graphics chip maker Nvidia -- has its own legal beef with Intel, so all of this may be far from over. —Damon Poeter

NEXT: Storage: Back Me Up

Storage: Back Me Up

Vendor exclusivity in the storage market comes not from vendor pressure, but instead from loyalty incentives and from solution providers’ own desire for strong partner relationships, some solution providers say.

Incentives to be exclusive are more likely to come from the top server vendors, particularly IBM and HP, both of which also sell a full range of storage products.

Lilien Systems, a Larkspur, Calif.-based HP-exclusive solution provider, gets up to 95 percent of its storage revenue from HP-related sales and services and the only time it receives pressure to be exclusive is when HP servers are involved, said Dhruv Gulati, Lilien’s executive vice president. “HP can’t legally pressure us,” Gulati said. “However, they can offer a carrot, which is more money if we sell the larger HP portfolio, and a stick, which is a threat to pull a registered deal.”

Lilien’s sales of NetApp hardware and CommVault software do not impact its role as a trusted adviser to HP clients as far as HP is concerned, Gulati said. “We’re a trusted adviser because of our loyalty and our relationship with our customers,” he said.

Being nearly exclusive with HP can be a mixed blessing when it comes to other opportunities, Gulati said. For instance, NetApp and its customers often prefer to work with an incumbent solution provider that is more committed to the NetApp line, he said.

Dave Butler, president of Enterprise Computing Solutions, a Mission Viejo, Calif.-based HP-dedicated solution provider, said a close relationship with HP eliminates any questions about its dedication when it engages with the vendor’s field sales team.

Sometimes vendor exclusivity can be by choice, as in the case of Davenport Group, a St. Paul-based solution provider that decided on its own to hitch its star to Eden Prairie, Minn., storage vendor Compellent when that company launched in early 2004. Sonia St. Charles, CEO of Davenport, said it saw in Compellent technology that was unavailable from any other vendor. Compellent also had solid funding, and was founded by executives of another long-term vendor, Xiotech. And it was 100 percent channel, St. Charles said.

It also helped to know that Compellent planned to offer an IPO in a short time, St. Charles said. “In 2007, before they went IPO, we made a pretty heavy investment in our Web site and marketing to take advantage of the buzz from their IPO,” she said. “So when people Googled Compellent, they came to our Web site.” —Joseph F. Kovar

NEXT: The Cisco Machine

The Cisco Machine

Is there pressure on VARs from Cisco to sell Cisco products and solution sets exclusively or near-exclusively?

“Ha. Does a bear ... er, well, is the sky blue?” said one incredulous Cisco Gold partner who asked that his name not be used in print. Thinking about his answer a bit more, the longtime VAR paused and posed it another way. “Well, there’s always pressure. This is the Cisco machine we’re talking about, and they’ve always been high on making sure you’re doing what [they need you] to do to keep the beast full,” the VAR said. “But I’m not sure I could point you to any specific instances. We’ve had a good year with Cisco and I doubt the pressure is any worse for us than anybody else. Not this year, anyway, with so much else happening. They’ve put the brakes on some of the pressure stuff.”

The past year in the networking space has been framed by big acquisitions -- Cisco-Tandberg, Avaya-Nortel, HP-3Com -- and a bigger rivalry, that of HP and Cisco, which has been full-on in the channel since at least the 2009 Cisco Partner Summit in Boston. It was there where Cisco North American channel chief Wendy Bahr declared, “We are competing with HP. Period. End. It is competition.” At the time, many VARs that sold both HP and Cisco feared that price wars and pressure would bleed the channel dry in the interests of clashing vendor titans.

HP certainly didn’t dial down the rhetoric on the neworking side in 2010. At its HP Americas Partner Conference in Las Vegas in April, many HP executives rallied the VAR troops in favor of giving Cisco its fiercest competition in years, thanks to HP’s stepped-up focus on networking and its acquisition of 3Com.

At the Cisco Partner Summit last month, however, a different mood pervaded. Gone were the brash, bully pulpit declarations of war against HP, and instead came a calmer tone of thanks and a gentler urging of partner loyalty.

“There was a lot of backlash that came from Cisco saying ‘game on’ last year,” said Peter Belyea, vice president of Teracai, an East Syracuse, N.Y.-based solution provider, in an interview at the Summit. “I think now they realized that they don’t have play like that. They can set the strategy and focus on what’s important.”

Cisco Chairman and CEO John Chambers told reporters at the Partner Summit that Cisco “doesn’t focus on other companies. We focus on market transitions.” Bahr acknowledged to CRN that the 2009 Summit was loaded with anti-HP sentiment, but that Partner Summit 2010 was about “market transitions” and that Cisco was “so busy with its partners, and that’s what it’s all about.”

Keith Goodwin, Cisco senior vice president for worldwide channels, said earlier this year that the company’s current philosophy is to earn partner loyalty. “The key word there is ‘earn.’ We’re not there demanding it, we’re not there focused on ‘you have to be loyal,’ it’s about earning it,” Goodwin said. “Our view of how data centers virtualize going forward has the network in the center. HP has a different view of that. We want to share in a compelling way with our partners and inspire them to invest in our vision.”

In discussions since, executives from both Cisco and HP have publicly downplayed any notion of pressure on VARs to choose one or the other.

“We like people to sell HP solutions, and we will incent them to do so,” said HP Networking Senior Vice President and General Manager Marius Haas in a May discussion with CRN. “But we’re not going to say, ‘You need to do one or the other.’ We’re not asking for that. We believe that the market will choose and I think the partner community will follow what the market looks for.”

Some of HP’s competitive promotions, however, have been more aggressive than Cisco’s. HP’s ProCurve unit, now part of HP Networking, launched a promotion in October 2009 called ProCurve Accelerated training to lure Cisco VARs to ProCurve with the promise of fast-tracked certifications for HP networking based on the Cisco certifications they held. “Double your knowledge without shrinking your wallet,” read the promotion, which HP touted as saving partners $12,000 over what they’d pay in ProCurve training if they didn’t hold qualifying Cisco certifications.

Andrew Cadwell, vice president of sales at INX, a Houston-based solution provider, said that INX’s loyalty to a few strategic vendors -- such as Cisco and NetApp -- has helped it stay out of HP vs. Cisco-related vendor loyalty skirmishes. “We don’t have that same pressure as some of our similar-sized competitors. We sell platforms, such as with Cisco, VMware and NetApp, and we don’t substitute HP,” Cadwell said. “But I’m not saying it’s not out there. I’ve heard it’s out there.”

Most recently, Cisco has had other issues to worry about than HP, namely its own supply chain shortages that, according to Cadwell, have affected much of the bread-and-butter routing and switching Cisco business and especially product lines like Nexus, which are crucial to Cisco-led data center deployments.

Things have loosened up and Cisco representatives have been helpful to INX, Cadwell said, but the fact that Cisco’s top executives didn’t make definitive public statements about the scope of the supply chain issues while they were happening meant “we didn’t have anything we could point customers to to set expectations.”

It’s been less severe for other Cisco VARs.

Ryan Halper, president of Seattle-based Cynnex Networks, and several other partners said a few recent Cisco programs have been good at inspiring loyalty without forcing it. The one initiative many Cisco VARs pointed to was Cisco’s three-year, zero-percent financing program, which was unveiled in January 2010. “It gives us an advantage,” Halper said. “I think we still have to win in the traditional sales process, but it does let us close deals faster.”

But don’t think for a second that the rivalry between the two vendors doesn’t run deep, VARs said. Adam Steinhoff, president and CEO of Steinhoff Consulting, North Palm Beach, Fla., who has de-emphasized his Cisco business in favor of cheaper alternatives, said he feels it in even small deals. “I have to admit that I brought that point to them about six months ago, and if I mention HP, magic happens,” said Steinhoff, describing discussions with Cisco executives. “What I’d prefer is let’s not jump through hoops every time. I shouldn’t have to go and get a price deviation every time I need a product.”

Dan Serpico, president of FusionStorm, Pasadena, Calif., said he hasn’t seen any more aggression than usual from Cisco or HP, both of which FusionStorm partners with. “There is a race here among these technology companies to own as much of the data center spend,” he said. “But I don’t think that is any different than it was five years ago when there wasn’t yet a cloud to slice up. Cisco provides great technology and meaningful partner relationships for us. For HP, it’s also true. It’s also true of IBM and others we partner with.” —Chad Berndtson

NEXT: The Final Word On Exclusivity

The Final Word On Exclusivity

In the end, several VARs said they have been frustrated by the amount of resources spent dealing with vendor exclusivity, resources that could have been better spent serving customers. In the first example we gave of the conflict, the solution provider wasn’t able to get better pricing for selling one vendor across the board and had to bring in technical staff to find tertiary products to get the opportunity to get to a price point he was able to compete with, he said.

“It’s a bummer. It’s not put us in a good position,” the solution provider CEO said. “It creates a couple of issues. [Vendors] can’t dictate that [end users] have to go homogenous to a solution. [No one] should be doing that. You’re doing the client a disservice ramming it down their throat.

“Exclusivity programs also push end users to choose a partner that they might not be comfortable with,” he said. “Just because you fly [a vendor’s] banner doesn’t mean the client won’t see a degradation in support. [A vendor] might win the battle, but they’ll lose the war that way. Do you really want your name associated with a partner the [end user] didn’t want and is not comfortable with? Do you really need to be so zealous there? If your solution is the best and an industry standard, that’s great. But let’s evolve together and not force it. It’s creating unproductive selling behavior.”

Finally, if you think VARs face a challenge trying to balance the needs of customers with the requests of their vendor partners, imagine the pressure a distributor faces when billions of dollars are at stake. Greg Spierkel, CEO of Ingram Micro, believes vendor exclusivity is a nonissue for about 80 percent of vendors that have a narrow portfolio of offerings. But that doesn’t mean the other 20 percent don’t create pressure that’s felt across the channel. Solution providers should fight for their right to sell best-of-breed solutions to customers, regardless of what vendor that is, Spierkel said, because a vendor’s offerings might be the best in one technology area, but not in another.

“You may feel this piece is not quite as good as with other parts of the portfolio. That’s a fair thing to say. Then it gets to be a choice,” he said. Vendors that strive for an “all-in strategy may lose some business because VARs won’t or can’t go exclusive with them,” Spierkel said. “There’s always risk if a vendor struggles with part of its portfolio or if you don’t have something else in your portfolio. [A vendor] might do well for three years and all of a sudden they’re not the best in networking or computing or storage. Or they might struggle with supply. Then you’re caught,” Spierkel said. “I’m not a proponent of exclusivity to the utmost. You have to be careful. Everybody should always deal with the No. 1 or No. 2 player in a sector. If you carry two, great. If you carry three, maybe that’s overkill. But you shouldn’t be beholden to one. You might have to potentially miss some opportunities.” —Scott Campbell