HP To Cut Partner Referral Fees In Half

Hewlett-Packard plans to inform partners Friday, July 1, that direct-agent referral fees for its industry-standard servers will be cut in half, a move not expected to be welcome by solution providers.

The referral fees that will be cut from 8 percent to 4 percent particularly pertain to customers who receive discounts deeper than 25 percent off of HP's entire line of ProLiant servers. It does not impact its higher-end systems or storage gear. HP is giving partners one month's notice so they can close deals this quarter. Confirming the plan, an HP spokesman said: "We're in an extremely competitive business climate and particularly in aggressively-priced deals, we need partners to share in our efforts to reach needed discount rates to win business." .

But one midsize solution provider who learned of the change was fuming. The partner, who requested anonymity, says he refers millions of dollars of business to HP using its direct-agent referral program and that the cut could cost him hundreds of thousands of dollars--which could mean the difference between turning a profit or loss unless he reduces employee headcount.

Particularly troubling, the partner says, is the fact that partners bore the brunt of HP's demand-forecasting problems last year, when HP was unable to fill orders as a result of a flawed SAP system implementation.

"What irks people in the channel is we stuck with HP through thick and thin, throughout that fiasco through all of last year," he says. "We ended up having to pacify a lot of their accounts because, at the same time that was going on, they were cutting all their deal people out. So they were really relying on the VARs to handle their customer-sat and customer-service issues."

HP has decided to cut the referral fees due to the tight competitive market, notably the fact that Dell has been deeply discounting its servers, forcing HP to further cut its pricing and hence impacting margins, those familiar with the company's thinking say.

"They want us to put skin in the game; needless to say, it's something that many of us have been pushing back on and fighting on," says Don Richie, CEO of Austin, Texas-based Sequel Data Systems. Richie, whose business is based on selling primarily higher-end systems, will only see a minimal impact from the move.

Although for higher-end products it is not uncommon for HP and partners to discount anywhere from 25 to 40 percent, it is less common to give steep discounts for commodity servers, Richie says.

"If it starts creeping its way into higher-end products, that would be a big deal," he adds.

Ron Cook, president of Connecting Point Technology in Las Vegas, says he doesn't use the direct agent referral program for that very reason.

"You sign up for a program like that and they can take the benefit away willy nilly, so why would you participate?" Cook says. "I'd rather keep my customers as my customers."