Is 'channel-first' just lip service?

One of the most alluring songs sung by vendors is, “Sell from us, we put the channel first.” 

To resellers, this should mean a cheque to fund a marketing campaign, contact details of prospective customers ready to close a deal, or personal introductions into large companies looking for a reliable IT supplier. It sounds like easy money; it’s no wonder that so many vendors claim to be ‘channel first’.

When vendors don’t emphasise their channel tendencies, resellers might assume the worst: that they will be competing with a far better resourced internal sales team which will hoover up the best leads, poach resellers’ customers and offer discounts unavailable to external sales staff. 

Some vendors practise what they preach and shower their partners with leads and attention. But too often, vendors use the ‘channel first’ slogan as a siren call to build a channel, then fail to rein in their direct sales force from competing against partners. 

The question for resellers is working out which vendors are selling dreams and which are selling reality.

Show me the leads

One thing to make resellers happy is a hot, qualified lead. This is the basic currency of sales, says Sean Murphy, principal of Sydney-based Nexus IT, a diverse systems integrator that counts Citrix, Microsoft, VMware, Symantec and many more among its long list of vendor partners. He says that resellers who bring leads to their vendor should expect leads in return.

“If you’re an established integrator and you pick technology X, you’re guaranteed to deliver technology X to a section of your customers. So technology X should deliver you a couple of customers as part of the deal,” Murphy says. “It’s not just about vendors keeping the leads to themselves or their mates. That’s not a fair partnership.”

The most effective source of leads from a vendor are inside sales from the company’s own marketing. If the vendor’s sales rep calls up and says, “I’ve got one for you,” the reseller has the chance to position several products in a business solution so they can show their value beyond a box sale.

This requires the vendor’s sales team to have a good knowledge of each partner to make sure that the lead is a good fit, says Murphy. “The rep needs to know who you are and the market you’re working in. If you’re not putting effort in, you’re not a very effective vendor, are you?” 

Murphy cites Veeam as one vendor that went from poor to excellent over the course of a couple of years. “I don’t know if I was off the radar but they had a terrible marketing program three or four years ago. Now they do it extraordinarily well. They have a very hard-working inside sales team. We would get three to six leads a month, some very small, some middle-sized and in my market. It creates opportunities to talk about all sorts of things.”

EMC is another great turnaround story, Murphy says. Years ago, EMC used to sell predominantly direct. Then general manager David Henderson, now retired, changed the incentives for sales reps so that they received a couple more points if they sold through a channel partner. 

“They did a really simple thing. You put the money on it,” Murphy says. “Hendo did a magnificent job.”

It wasn’t just the money. EMC also published incredibly clear and detailed rules of engagement. If a partner could service the deal they got the lead; if not, they were helped by the vendor. “Everyone knew the rules and they stuck to it. I had a lot of success with it,” Murphy says.

Murphy’s wooden spoon goes to Symantec. “All the people who I knew have left and their program rewards registration for the masses rather than support for the specialists,” Murphy says. 

Remarkable turnarounds 

One of the better stories in the channel is Dell’s amazing turnaround from pioneer of direct sales to a channel-friendly player. Could you call Dell channel-first? Chris Mearns, chief executive of Melbourne-based Dell Premier partner Murdoch Webster Technology Group, thinks so. 

“Dell has had documented problems and we certainly had issues where the direct team were crossing over into our accounts,” Mearns says. That was several years ago and Dell has changed its tune after head office ordered all Dell sales globally to move through the channel. Dell still offers the customer the choice to go direct but it protects partners through deal registration and has hired dedicated channel people to support them.

As evidence of this turnaround, Dell appointed Ingram Micro as its first-ever distributor last November, starting out with the enterprise range of servers, networking and storage, then expanding to include its Latitude notebooks and Optiplex towers. 

Mearns, whose business sells to enterprise and data centres, says Dell has put the right structures in place. “We have our own partner development manager and an internal channel account manager and an internal tech resource and all these people we can call on.

“We’ve been working very closely with the internal account executives. If they see an opportunity, they pass it onto us. If we think it’s best for direct sales then we will get them involved. It’s really a partnership.”

In 2010, Murdoch Webster cut back from nine vendor partners to focus on just two. The selection process was based on volume of deals and the quality of the relationship. Murdoch Webster has been part of Dell’s channel program from the beginning and stuck with them in part because they now have an end-to-end solution for data centres.

Mearns says he prefers to deal directly with the vendor, rather than through a distributor. A distie has its own priorities and targets and the vendor is one step removed. “It’s a negotiation, not a proper relationship.”

The other vendor Mearns chose was Palo Alto, with which he has a great relationship. “We put events on, we get leads from the direct team, I can’t talk highly enough about them. The relationship is always more valuable [than leads]. Without a relationship you might get leads but they could be cold as ice.”

Next: Major vendor U-turns

Another landmark channel U-turn came from Oracle. In March, CRN broke the news that the software giant was giving local partners access to thousands of “named accounts” that were previously the domain of its direct sales force.

At the time, John Walters, managing director of Nextgen Distribution, told CRN: “If they execute on it – and I have no reasons to expect they won’t – I think it will be good for the channel, both Avnet and ourselves, and really importantly, good for the channel partners and a better results for the end customers.”

But not every reseller is easily convinced that vendors can change their stripes. As Dell and other famously direct vendors pivot towards the channel, they face an uphill battle to convince some resellers that they have changed. The channel has a long memory and it can take time for vendors to change preconceptions. 

The real test of channel first

So how does a vendor prove they are truly channel first? The real test is whether the vendor applies the consequences of breaking the rules of engagement, says Cam Wayland, director of Australian channel consultancy Channel Dynamics.

“If the vendor says, ‘We never give a price to a user’ then they do, what happens? The best practice is that there are consequences for whoever broke the rules and that those rules are enforced. There’s no point having rules if they’re not enforced,” Wayland says. 

At a minimum, the punishment should be the internal sales rep losing the commission on the sale, with no target or quota retirement on that against their overall target. If they do it again, their manager should suffer the same penalty. 

“If the rep is doing it and the manager doesn’t care then you’re reinforcing and condoning that behaviour,” Wayland says. “And if they continue to do it, it’s dismissal.”

Wayland, who advises vendors on their channel programs, says best practice also includes smartly dispensing leads. The vendor should direct to partners with the right specialty, aligned to their status in the channel program. A gold or platinum partner should expect more leads, not because they are bigger businesses but because they have more skills around that vendor’s technology. 

The rise of cloud services  has severely ruptured standard channel practices for some vendors. Business software is most acutely affected as vendors swing between delivering directly or selling through a channel. “Adobe is channel-first but a customer can still go to their website and buy full price Creative Cloud and it’s not supported. Renewals are done directly by the vendor and not by the channel,” Wayland offers as an example.

Speaking to CRN in April, City Software boss Lorenzo Coppa singled out Adobe for criticism. “We used to do over $4 million a year on Adobe and that has dropped by 80 percent – it’s the single biggest decrease I’ve ever seen in 23 years. Adobe completely changed the channel engagement partner programs, changed how they went to market... so there wasn’t anyone to talk with.”

But ‘cloud’ does not equal ‘direct’. Amazon Web Services was supposed to be a threat to resellers. However, the public cloud leader is rapidly ramping up its partner community in Australia: AWS has appointed massive trans-Tasman systems integrator Datacom as its top local MSP partner. The appointment is just one example of Amazon’s increasingly broad and deep partner base, which now includes everyone from web hosting firms like Bulletproof and Melbourne IT to outsourcers like ASG Group and Dialog IT to niche cloud integrators such as Base2services in Melbourne and Fronde, which was No.14 on the 2014 CRN Fast50.

While partners don’t make huge margins on AWS instances, there are plenty of opportunities in managing them. “Customers can buy directly from AWS but someone has to manage all the AWS services and make sure they’re the right services and that they are controlled and secured. That’s where there is value in the channel,” Wayland says. 

Not everyone agrees, though. Never one to mince words, Syd Borg of veteran Australian reseller PCS Australia, says: “To me, cloud is bad f&#@ing weather. I’m not making money out of it.”

While ‘channel first’ is a mantra often repeated by vendors selling technology for mid and enterprise companies, it’s not often heard in SMB land. PCSA has supplied a range of office hardware to SMBs in Sydney for 30 years. The phrase ‘channel first’ is replaced with ‘dealer focused’ in his line of work, but Borg doesn’t believe the vendors truly mean it.

“I say to them, ‘When are you going to give me a deal? When are you going to put money on my table? You seem to give it to every other bastard.’ It’s a sore point for me.”

Vendors that call themselves dealer-focused and have direct accounts are clearly competing against their partners in high-volume, low-margin IT sales, Borg says. Acer, NEC, HP and Fuji Xerox all have direct sales arms that PCS competes with. 

The problem is not just in SMB. HP negotiates government panel contracts directly, Borg claims. “HP will funnel it through a channel partner and give them a 2 percent rebate. So it seems to go through the channel but it’s not real channel business.” 

Borg says the shift to BYOD has really hurt resellers like PCSA because the business has handed over purchasing decisions to its employees. Borg sees the vendors’ support for BYOD as nothing short of betrayal.  “We have lost control. When you lose control you’re screwed. Anyone can buy anything from JB Hi-Fi or Dick Smiths,” Borg says.  

“Most of the vendors are trying to refocus on SME but it’s dead in the water. These five- to 15-seat businesses are going to Harvey Norman, putting it on 36 months interest free. Retail has had a huge impact.” 

BREAKOUT: Is your vendor channel friendly?

• Review the partner program: Understand the rules and benefits. With a channel-first company you will know where you fit and whether you can make money from the investments you need to make. Benefits could be discounts, marketing, joint engagement, etc. 
• Review the distie: Can they support that vendor? What’s their investment and what’s the vendor getting the distie to do? Are they tightly integrated or is there a disconnect between what the distie’s doing and what the vendor wants? 
• Crystal clear rules of engagement: Lots of detail about what happens in the case of a breach, accidental or otherwise. 
• Look at reputation: Every now and then vendors, disties and partners stuff up and break the rules of engagement. Was the transgression intentional or accidental? If the rules of engagement are broken, the vendor must follow through with the consequences.
• Back it with money: The incentive structure for internal sales should clearly favour the channel. If not, the leads won’t flow in the right direction. 
• Reps who understand: Reps need to know your market, your skill set, your preferred customer. The more effort they put into understanding your business, the better.

With contribution from Cam Wayland, Channel Dynamics