HP To Cut Server Agent Fees

HP solution providers who have embraced the agent model say the cuts could wipe out their entire annual profits. "This will cost me hundreds of thousands of dollars and could potentially wipe out my profits for the year," said one of HP's largest solution provider agents, who requested anonymity.

The cuts are more ominous, resellers say, because they come as new HP President and CEO Mark Hurd is evaluating the cost structure of all company operations.

Solution providers say HP informed them July 1 it intends to cut agent fees to 4 percent from 8 percent on industry-standard servers it discounts more than 25 percent below Internet list prices.

Dan Smith, HP's director of U.S. partner programs, said it was "a tactical decision for this specific product group that was driven by a very competitive business climate to make sure that both HP and the partners are mutually profitable. We are not trying to take margin away from the partners."

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Smith declined to comment on whether there was a corresponding cut in compensation for HP employees involved in industry-standard server sales where discounts exceeded 25 percent off Internet list price.

"It's very unfortunate for those people who have built a business around this to take a 50 percent hit in pay," said Bruce Geier, president and CEO of Technology Integration Group, a San Diego-based solution provider with annual revenue in excess of $200 million.

Geier has largely disdained the agent model. "This is why I maintain we have to keep the customer relationship between us and the customer," he said. "When times are tough, everyone has to squeeze, and [agents] are going to be the first ones they squeeze."

With the Influencer Tool, HP sells products directly to the customer and largely controls the sales price and discount structure. Solution providers receive an agent fee on product sales to their accounts. In turn, agents provide installation, configuration and other support services to the client. HP has touted this as a superior alternative to Dell because it gives customers a direct relationship with the Palo Alto, Calif.-based vendor while having on-site solution provider support.

But some say that model is now threatened. "HP is dependent upon the VAR to support them in the field," said another agent who requested anonymity. "And now they are telling us that you are to do this at a 4 percent rate, and that's not going to cut it."