In Your Own Words: VARs Reveal the Pros And Cons of Channel Programs

It's as certain as death and taxes: IT vendors of all sizes extol the virtue of their channel programs, while their solution-provider partners voice plenty of pet peeves about those offerings. That includes a laundry list of issues. Chief among them: the lack of leads and how VARs--and vendor channel executives--are compensated.

While vendors constantly are talking about their lead-generation systems, which guarantee a partner special terms on deals if they're registered, many VARs complain about a lack of quality leads. Too often, they say, vendors lure VARs into reseller agreements by promising qualified leads and then fail to deliver--either on the number of leads or the quality, with many leads that turn out to be time-consuming dead ends.

"It has gotten to the point over the last three or four years where even if you sign on to a top-tier vendor's program, you have to assume you will get about half the leads they promise, and you will have to generate the rest," says one San Francisco-based solution provider who deals with several large suppliers, including Cisco Systems and IBM. The solution provider, who was among many who attended CMP's XChange Solution Provider conference in Atlanta last month, spoke on condition of anonymity for fear of retribution from his vendors.

Others, however, were more candid:

"Our biggest challenge is finding qualified leads and prospects," says Ron Glassner, vice president and general manager of Premier Computer Solutions, a VAR based in Moline, Ill. "We do not get leads."

Interestingly, leads are the only thing Glassner wants from his partners. Other offerings, such as marketing collateral, are less useful. "We don't want to use their marketing materials because they claim to do the same things we do, so we use our own materials," he says.

Indeed, some vendors are sensitive to this complaint and not only pass leads directly to VARs, but take the time to qualify those leads beforehand.

"We make concerted efforts to pass along leads to VARs that are generated by us and those by other VARs, but we qualify them first," says Wendy Petty, vice president of sales for FalconStor Software, based in Melville, N.Y. "This ends up saving VARs the time of having to find out for themselves if the lead was good or bad."

Some VARs and vendors say they believe each party must be held accountable for the lack of successful lead generation, and that finger-pointing is a fruitless exercise.

"VARs are always dissatisfied with the number of leads vendors provide, but at the same time VARs need to report back to vendors once they have pursued a lead to let them know if it panned out or not," says Joe Heinzen, president of e-Convergence Solutions, in Centreville, Va. "But [VARs] rarely do that. There has to be accountability on both sides, and right now there isn't enough of that."

Heinzen hopes to put in place over the next year a CRM system that will do a much better job at tracking leads from the time they are first generated until the deal is made or falls through. The system will be available to all of his vendors and other business partners so they know the status of a lead throughout the cycle.

Ripped Off?

Another common criticism of vendors' VAR programs is the compensation plan. Most VARs say they think their plans too often do not reward them fairly--with the vendors' own direct-sales force unfairly taking monies away from them. This sort of situation typically leads to unraveling any sort of cooperative sales efforts.

"The fundamental flaw almost always is the compensation plan at the manufacturer's level," Heinzen says. "When it is not balanced, or is otherwise unfair, it often deteriorates the whole relationship."

What typically happens in the wake of inadequate compensation plans is channel conflict, either between the vendor's direct-sales force and its VARs, or among several different kinds of partners a vendor might have.

Indeed, many vendors are aware of the issue, and some say they are taking steps to remedy it. Among those that have lately talked up such efforts are CA, Toshiba and Xerox.

"Our goal all along has been to create pricing parity," says Jerry Lumpkin, Toshiba's vice president of business channel sales, adding that the notebook supplier will be rolling out a program in the coming month that addresses the issue. "We want resellers to be able to go out and win based on their value-add; we don't want to have someone go out on a deal for two to six months and then have someone take it away because of price."

Toshiba believes it has found the solution: It is restructuring its rebate program. Currently, the company offers Gold and Platinum partners 1.5 percent rebates, with the latter able to achieve an additional 1.5 percent. Silver partners do not get rebates. Under the new plan, Silver partners will receive 1 percent rebates, Gold will receive 2 percent and Platinum 3 percent.

Toshiba is also implementing a new customer program that will award an additional 3 percent to those solution providers that sign on new customers, which is being defined as those that have purchased less than $25,000 in the prior six months (based on Toshiba's own databases). "It's a growth-oriented objective," Lumpkin says.

For its part, CA is looking to make its partner program more appealing. This time last year, the company had launched its named-account program, designating 12,000 customers as so-called named accounts. In the coming fiscal year, which begins April 1, CA will shift thousands of customers from that named-accounts program to be served only by the channel.

James Hanley, CA's senior vice president of worldwide channel sales, says those in the named-account program can be served by both the company's direct-sales force and partners. The goal now is to have its direct-sales force focus more on fewer large accounts. "We are genuinely pursuing a more effective coverage model," Hanley says.

Partners say they like that plan. "I don't know if we will see any of those ourselves, but I think it's the right thing to do," says Al Macmillan, owner of Intermountain Technology, Boise, Idaho. "If we ended up with one of those, my job would have to commit resources for those accounts and work with them closely."

NEXT: The friendliness factor

The way vendors compensate their direct reps often speaks to how partner-friendly they are: Equal compensation, regardless of who closes the deal--the partner or the sales rep--will provide far better collaboration. Many vendors tow that line.

Convergence Solutions' Heinzen and other partners say that among tier-one vendors, Microsoft and Cisco have consistently come up with balanced compensation plans.

"No one will ever say Cisco, for instance, is the most innovative company in the industry, but they are No. 1 at what they do because they have figured out how to avoid channel conflict through a good compensation plan for VARs," Heinzen says.

Still, some complain that IBM's mammoth services unit continues to knock heads with its own partners in pursuing deals involving services and support.

IBM, once again, was to shoeaddress that issue at its PartnerWorld event earlier this month, with plans to announce a series of managed services and consulting services that will be sold exclusively through partners.

"The value of these consulting services is to help partners get a foot in the door and either expand their footprint with existing customers or capture new business," says Steve Solazzo, general manager of IBM's Small and Medium Business division. "Global Services will be looking to have a collaborative relationship with partners on these programs."

Some resellers also commended Hewlett-Packard for its referral program, along with its level of support, from providing white papers to going hand-in-hand with a VAR to a customer site to work out the kinks in a complex implementation.

"I think HP has done a good job providing technical white papers to VARs that give real-world advice on how to install and configure servers and associated software," says Peter Busam, vice president and COO of Decisive Business Systems, based in Pennsauken, N.J.

Yet it is not uncommon to hear an HP or IBM partner complain that they've had deals snatched from right beneath them. "We've tried to deal with HP, but we never could deal with them," says Chuck Neville of Neville Networking Solutions, Shelbyville, Ky. "They don't understand their product line, in my opinion, plus their salespeople are turf-conscious, and they will lose deals."

John Thompson, vice president and general manager of HP's North America Solution Providers Organization, says, on the whole, partner satisfaction is up. Thompson points to partner growth, which has increased in each of the past nine quarters. The vendor's recent efforts to get more partners to attach HP gear to their sales appears to be paying dividends, as well, with increased revenue across product lines. And, as announced last month, those partners who grow attach rates by 20 percent in a year-over-year quarter will receive additional "significant" incentives, Thompson says.

Of course, every partner has a watchful eye on Dell. Long known for selling direct to users, Dell is hinting it may be softening its position on working with resellers. The company's Solution Provider division is reportedly redefining the rules for engagement for when a solution provider--vs. Dell's direct-sales force--gets to make a sale. The vendor, however, was mum about its plans at the XChange conference.

NEXT: Why partnering with smaller vendors could be the way to go.

Solution providers who hitch their wagons to vendors that are alternatives to market leaders in any given technology category have found they get more attentive support, often better products and, more than likely, higher margins. But they're also at a higher risk of experiencing problems, particularly with the smaller alternative players.

That was the consensus during a panel discussion at CMP's XChange conference last month. Ninety-eight percent of all solution providers offer products that are alternatives to the market leaders, according to recent VARBusiness research. Of those, 39 percent plan to significantly increase the amount of alternative brands and products they offer, while 56 percent plan to keep their investments the same.

"We are a small company. If I have to buy a product that SonicWall has vs. one that Cisco has, I'm going to be able to talk to people who are going to pay attention to me," said Pat Walsh, president of Longwood, Fla.-based Computer Station, and one of the panelists. "I don't have to buy $50,000 worth of SonicWall products to get what I need, nor are they going to kill me with certifications. I don't know why I wouldn't do that."

There are numerous reasons solution providers go with alternative vendors, the key reasons being they are able to provide a more varied offering, better technology and recognize the need to stay ahead of the competition. Improved margins are also key, said panelist Eydie Worley, marketing director of PCUniverse in Boca Raton, Fla.

"You've got to look at the margin opportunity with an alternative as opposed to a market leader," Worley says. "There is a whole process before you select an alternative vendor in terms of the quality of their product, their road map and their whole product offering."

Both panelists agreed that the process of evaluating vendors can be relatively quick, unless there are numerous players involved. Thorough testing of products is also advisable before bringing them to market, they said.

--J.S.