Sun Stuns And Angers VARs With Direct Sales Promo

cut prices for many of its server, storage, software and services products

The promotion, which Sun announced in an email to customers -- including clients of its solution providers -- has already resulted in lost deals for VARs and customer pressure to renegotiate deals to match the promotional prices.

The promotion has "created a tremendous amount of problems for us since Sun blasted that e-mail to the community," said Amy Rao, CEO of Integrated Archive Systems, a Palo Alto, Calif.-based solution provider. "Sun is not respecting the partner who developed the business. It's very difficult to understand how they can do this to partners who worked weeks or months on a deal."

Tom Kuni, president of SSI hubcity, a Metuchen, N.J.-based solution provider and past co-president of Sun's national VAR council, said it was hard to believe that Sun was doing this promotion.

"In all my experience in channel sales, I've never before witnessed a more disruptive, discouraging and distrustful act self-inflicted by a manufacturer on its own reseller community," Kuni said. "The program timing and unintended consequences all have real disaster potential."

Dave Condensa, president and CEO of Helio Solutions, a Santa Clara, Calif.-based Sun solution provider and current co-president of Sun's national VAR council, said the Sun's move puts solution providers in a bad position.

"It makes us look like we are less aligned with Sun," Condensa said. "It hurts the relationship we've built with customers over a long time. We're supposed to be the customer's trusted adviser. But when we're hurt by such radical pricing, it affects our role as a trusted adviser."

The promotion, which runs from April 23 to May 7, is billed by Sun as its "25th Anniversary Sale." Among the offerings are some of its most popular servers, including the T1000 and T2000 entry-level SPARC models at nearly 50 percent off list price, the Sun Fire X4500 at 50 percent off, the StorageTek 5320 and 5220 NAS for as much as 60 percent off, and Sun software and services with prices of up to 50 percent off.

One solution provider called the move one of the most ludicrous promotions ever. "It's ridiculous pricing," the solution provider said. "I can't even come close. Even with opportunity registration and special pricing. It's a case of fire, ready, aim."

The biggest question, the solution provider said, is what happens after the two-week period ends. "Are customers going to go back to regular prices? This is a full-blown attack on the channel."

Sun is lowering the standard on their prices and on the value of the company, Rao said. "Moving forward, customers are going to expect to pay the same prices they paid a week ago," she said. "They're not going to say, oh, I understand it was a promotion, now I will pay regular prices."

Actually, Rao said, that is already happening in the second day of the promotion.

"We're already getting e-mails from customers saying, I know we worked out a deal, but I'd like you to honor those [promotion] prices," she said.

Helio's Condensa said that his company has yet to analyze the impact of the direct pricing promotion. However, he said it looks similar to a promotion Sun put in place earlier this year called Sun Startup Essentials, which offered similar products at similar discounts to Web 2.0 startup customers who, because of their location on the West Coast, form an important potential customer base for his company.

That program cost Helios hundreds of thousands of dollars worth of lost business, Condensa said. "The business we lost all came from new customers who had just moved to Sun," he said. "We had already brought them into the Sun ecosystem, and now they are already direct with Sun."

A Sun solution provider on the East Coast said he sees the potential for losing between $500,000 and $1 million because of the promotion. That solution provider said one customer had just ordered 10 servers totaling about $220,000, to be delivered over a six-to-nine-month period. However, after learning about the direct promotion from CRN, the solution provider said that, if the customer decides to go direct to get the 50-percent savings, it might order all 10 servers direct from Sun.

Another customer of that solution provider who buys all its Sun products from the partner e-mailed the solution provider asking if it can get the same prices that Sun is offering online. "What do we do?" the solution provider said.

What to do is a big issue for solution providers, all of whom were blind-sided by the Sun program.

One Sun partner located east of the Mississippi wondered if Sun thought about the long-term damages to its solution providers' relationships with customers. "We could have customers telling us, now we have to check the prices online because we can't trust you," the solution provider said.

Other potential issues include demands for price protection, which could hit customers who acquired equipment on a "try-and-buy" arrangement but who might now want to return those products to Sun. "And if customers request we give them price protection, and we can't provide it, they'll think we're the bad guy," the solution provider said.

One beneficiary of the program could be the gray marketers, the solution provider said. "What do you think they'll do? They'll be buying Sun product at 60 percent off, and stocking up on it," the solution provider said. "While Sun says that customers can only buy 10 products at that price, what does that mean? 10 of each system? 10 per customer? 10 per location? It's very interpretive."

It is also going to hurt Sun, the solution provider said. Instead of Sun getting 40 percent off list price from its distributors and VARs, it will now get 60 percent off. "Whoever is responsible for this has to be held accountable," the solution provider said.

Another solution provider, in an e-mailed response to questions from CRN, said the promotion will do nothing but confuse the market for Sun products.

"Yes it upsets resellers," the solution provider wrote. "The sun direct 'fire sale' business costs us deals as a reseller unless we can match the price, which drives down our margins. It also causes confusion in the market place, creates street price uncertainty and sets a dangerous precedent. Customers are already conditioned to wait for the best deal at the end of a quarter or year end. When your aim is linear growth vs. hockey stick, this throws a wrench into the mix. Sun wonders why its channel loyalty is eroding. Duh."

In an e-mail to solution providers, a copy of which was reviewed by CRN, Sun on Monday told its channel partners that customers had received advance notice about the sale.

"The Sun Partner team held numerous discussions with Corporate Marketing about ways to include the channel more fully in this demand creation promotion but for numerous reasons it was decided by Corporate Marketing to design the sale as a pure lead generation campaign and to use this short time and quantity limited sale as a test to see what kind of air cover and leads could be created with a promotion of this nature," Sun said in the e-mail.

The e-mail to partners also mentioned some of the terms of the promotion, such as the fact that the prices are only good for direct sales to customers. "We are hopeful that this will drive new customers to the Sun website and that this will lead to a variety of upsell and cross sell opportunities for our partners," the e-mail said.

One solution provider said the idea of using such a promotion as a lead-generation activity is ridiculous, given that Sun e-mailed its promotion notice directly to solution providers' clients.

"Corporate marketing had the audacity to tell us it will generate new business for Sun, and get new leads to the channel. It's pure audacity. A total disconnect from reality. To me, it indicates a channel direction from a company when they do a thing like this. How do you slash 50 percent off for two weeks in the fourth [fiscal] quarter, then go back to business in the first quarter?"

The Sun partner e-mail blast ended with a place for feedback, saying, "Thanks and please let us know the impact the sale has on business as it progresses at: [email protected]."

One solution provider did respond to Sun about its promotion. "I told their marketing department last night that I hope this makes a good story for CRN," the solution provider said.

--Additional reporting by Paula Rooney