IBM To LARs: No More Discounts

Several large account resellers (LARs) confirmed last week that as of Aug. 1, IBM will stop giving them rebates and incentives on new ELAs. The change affects relatively few, but very large, partners--seven in the United States and three in Canada, according to IBM. At stake are hundreds of millions of dollars in service revenue.

The partners say IBM is, in effect, cutting them out of a lucrative service business built around software asset and license management, in which companies like the old Corporate Software (now part of Software Spectrum) as well as CompuCom Systems, ASAP Software, Software House International and others have made their money.

"IBM is firing the channel in the enterprise space," said one reseller who requested anonymity. "In SMB, they're throwing a lot of money around with partners, but even there, many of those rebates and discounts are flowing to customers."

IBM Software executives soft-pedaled the move. "I think they're being a little dramatic about this," said Jay Leary, sales executive for Somers, N.Y.-based IBM Software, regarding the disgruntled resellers. "We haven't taken them out of ELAs per se, but beginning in August, we will no longer pay incentives for their participation in new ELAs. They have a year of continued incentives on ELAs where they're currently active."

LARs, of course, are free to go in after the fact and sell their management services into these accounts.

There have been no rules of engagement around ELA sales, and when a reseller was involved, the IBM sales rep made less money, according to the resellers.

Resellers say IBM is trying to solve its own eroding margin problem by eliminating the resellers up front. They also noted that IBM has said in the past it would kill the incentives, but then issued stays of execution. Those stays have now apparently run out.

IBM is still trying to work out options to "facilitate LARs providing services," Leary said. It is even conceivable that the vendor itself could resell the partners' license management services, embedding them into an ELA, he said.

There is also discussion around exceptions. "Where there are unique customer requirements in the near term, we'd look at some exceptions so LARs could keep their accounts," Leary said.

The LARs maintain that IBM is essentially poaching accounts they have cultivated and warn that this move could give IBM's competitors more leverage with the LAR community.

One LAR executive, who did not want to be identified, said Microsoft, by comparison, has done a better job handling its Enterprise Agreements without dispossessing the channel.