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Partner up or partner out as programmes evolve

01 Mar 12

Changes are afoot in partner programmes around the world. Geoff Wright is well versed in those changes – and their potential impact on the New Zealand channel.
As the Melbourne-based senior vice president of international operations for Channel Enablers, which operates across Asia Pacific, North America and Europe, Wright works with technology vendors, including most tier one vendors, to build new programmes or audit and make existing programmes more effective.
"We’re seeing the same changes across all markets, though at different maturity rates,” Wright says. "And one of the key things which we’ve seen in the last few years since the global financial crisis is that vendors have taken a greater interest in the productivity of channel partners. At the same time, resellers have taken a closer look at the professionalism and productivity of the vendors they’re working with,” he says.
"There has been consolidation on several fronts with a consolidation of vendors as they have bought each other, a consolidation of resellers and then consolidation of the number of partnerships between the two,” he adds.
Wright says where once vendors could look to snaffle high performing partners from other vendors, now there is less opportunity to do so and vendors are focusing more on developing and building their own high value partners.
Those changes have meant a greater focus not only on technology enablement and sales enablement, but on general business assistance for partners, he says. Wright says a growth area for Channel Enablers is training programmes to teach vendor channel account managers about the business models of channel partners.
Vendors are also creating more defined categories for partner programmes to ensure the partners are getting the appropriate assistance to help them – and ultimately the vendor – be more profitable.
"Vendors are understanding that the partner who ‘just’ delivers product may be as important as those who sell, so we are seeing more defined categories – reseller, systems integrator, RSVs...”
EaaS changes everything
Neil McMurchy, Gartner research director for IT marketing and channel strategies, says changes are also, unsurprisingly, being wrought on programmes by technology developments – especially the move to everything as a service (EaaS).
"The move to everything as a service means changes to the business model for the channel – and it will not be a quick, easy change. This is not a trend without pain and you can’t turn around your business model in a month.
"Like it or not, believe it or not, everything as a service is coming and the channel need to think about what their business will look like under that model. Because really, it will cannabalise your revenue. We are in fairly mature markets which are not going to grow 30%. We’re not talking incremental revenue here. And that changes your financial structure and your business model.”
While partners are forced to look at changing their business models, vendors are also being forced to change their partner programmes and take into account partner’s changing business models – if not helping partners with those changes.
"They have to look at how to encourage channel partners to sell that way,” McMurchy says. "And that means having to provide greater margins for partners who are now putting in the same effort to get a $10,000 sale over five years, which would normally have been paid upfront.
"Programmes need to reflect that upfront investment [in selling customers on cloud offerings] as being as significant for cloud sales as for traditional sales.”
McMurchy says the programmes also need to focus more on retention, renewal and customer management – even more crucial for cloud services.
Going forward programmes will also need to reflect cloud’s impact on partners’ services revenue, he says. "If you had a product that required $2 of implementation costs for every $1 of software, now delivering the solution will require minimal implementation, so you might be getting 25 cents implementation services charges for every $1 of software.”
McMurchy says while some vendors are helping partners adjust their business models in order to deal with industry changes ‘I don’t think they’re doing enough, and I believe they need to take a more proactive role’.
He says decreasing profit margins and the disappearing middle – with mid-sized resellers slowly disappearing leaving either ‘massive’ or niche players – are also providing a backdrop for the programme changes.
"There is more of an emphasis on deeper specialisations and competency,” McMurchy says.
Wright says the decreasing margins have also prompted vendors to ‘wake up to the fact that partners don’t buy the product, they’re buying the chance for their business to operate around a product’.
"The reseller is a supplier to the vendor. They supply marketing, delivery, installation services... Vendors are coming to understand that and to reward resellers for each key attribute.”
He says dealer registration is a good example of that move, and answers a vendor need for visibility and communication, while providing the channel with assurance that there won’t be ‘a drive by shooting’ with a customer stolen at the last moment after the reseller has done the hard yards.
"Five years ago they weren’t prevalent at all, but they’re totally prevalent now,” he says.
Chop chop
But while both Wright and McMurchy believe vendors are increasingly focused on providing value for partners’ businesses and helping them in a time of transition, those partners who spread themselves far and wide could be in for a less attention from vendors.
Easy entry to the ranks of resellers, and the belief of many vendors that more was better, mean some vendors have an extensive channel community. But McMurchy says many are now looking to cull lower performing partners from the ranks – or at least invest much less time and effort in them.
"Most vendors know they have too many partners – often two or three times as many theoretical partners as they need, and while they won’t say it explicitly, they are essentially saying to partners, ‘get serious or we will quietly start ignoring you’,” McMurchy says.
He says vendors are no longer even pretending to be even handed, instead openly differentiating between high value partners and those who bring few sales.
In fact, McMurchy goes so far as to say that the medium term impact of the programme changes, including the increased emphasis on specialisations and competency, is to clear out channel partners.
"Most want to move faster in clearing out the channel,” he adds. "They’re saying, ‘we will treat you as a non-invested partner. We will treat you in an extremely efficient way, but not attempt direct contact except through low cost methods’.”
Wright says another change for partner programmes is the move by vendors to base marketing fund on merit, instead of simply being percentage based.
"It used to be you got say, two percent of sales as marketing funds and it didn’t matter how productive your spend of it was – you could use it for junkets or business development for example.
"Now vendors often give marketing funds as a budget and expect a return on that money.”
Wright says Channel Enablers has been called on to do a number of audits to see how effective channel marketing efforts are. The company has also seen increasing numbers of clients wanting it to monitor not just their programmes, but other vendors offerings to make sure they are competitive.
"The competitiveness of the vendor programme is considered to be a factor in partner recruitment. And with the consolidation there are only a certain number of high performing partners. Vendors have to compete to get mindshare or build partners up to that level – which can be expensive and time?consuming.”
Educate me
Both Wright and McMurchy agree that the issue of resellers having to pay for training is something of a hot potato.
Certification brings costs to partners – and not only the financial costs sometimes applied by vendors, but time and ‘opportunity costs’ – the time staff spend away from a business and the potential missed opportunities or work, says McMurchy. "And that can be quite significant,” he adds says. However, he says, getting resellers to pay for their training can ensure they take it seriously and turn up to it.
Adds Wright: "The likes of Microsoft and Cisco can get away with it because there is a value in having certification there. But if you’re a new vendor there is a question over whether you can do it. It’s a cost that may not have the same applied value.
"At the same time, for vendors having a partner trained to the right level is absolutely critical.”
He says a lot of vendors now allow partners to use market development funds, or other forms of funding, to be used for training purposes.
Make it business
Wright says his number one piece of advice would be for resellers and vendors to have a joint plan, with agreed key goals for the coming year or two. "You need to think through the situation and exactly what each party needs out of the relationship. And it needs to be at a business level.
"What revenue does the vendor want to achieve? What revenue is the partner at? Is it realistic for you as the partner to reach the revenue the vendor is looking for and what will be needed to do that?”
Says Wright: "Creating a profitable relationship with a vendor is based around focus. Vendors reflect the partner’s investment.

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