Tuesday, April 13, 2004

Issue: Recognizing Oppressed Channel Partners

I read a Financial Times column by Amity Shales last week on a flight from London to Seattle. It was about Peruvian Economist Hernando de Soto's research on how businessmen in developing countries view outsiders as threats unless they are included in the formal economy. This article made me think about the similarity to vendors channel programs, and how they often drive legitimate partners into grey markets. Many channel programs today go to great lengths to exclude legitimate customers.

Small partners, resellers and influencers alike are pushed out of programs because they no longer meet value-added criteria. Usually this is caused by the natural progression of the Technology Life Cycle, not by any specific reseller activity. However, once outside of formal programs, the reseller has no incentives to promote your products or support your supply chain. Further, the vendor has no tools to manage the account’s behavior. Worse yet, like the oppressed entrepreneur, the reseller may decline into irrational anger against the arrogant vendor.

While I am a believer in tiered programs that support key players for their contributions, the “you do not belong” mentality often spills over into the broad channel. Excluded from even minimal recognition as an unmanaged account or alternative channel, these companies are pushed to the very edge of the channel ecosystem.

What are the costs to vendors of exclusive practices? It's not uncommon for unauthorized resellers to move as much as 20% to 25% of a vendor’s product. Furthermore, the margins on unauthorized product can be 10% lower than authorized products. Finally, the anger directly reduced brand equity and increases sales and marketing expenses.

All together, lost sales, depressed margins and diluted equity may erase millions in channel profits that could be captured with a more inclusive approach.

Scott Karren, The Channel Pro

Thursday, April 08, 2004

Trend: Mature Technologies to Drive Continued Channel Consolidation

As I talk to channel providers in the US and EMEA, it is clear that the storm is not over. Although the economy is improving, margins at many reseller organizations continue to struggle. Three related issues are driving this decline in profits. First, users are demanding clear links between the technology to be purchased and business issues. No longer is it taken for granted that the technology will automatically improve productivity or cut costs. Second, the solutions offered are no longer well differentiated. With Dell offering $500 SLAs for servers, even services are under significant margin pressure. Third, channel customers are losing large medium and enterprise sales to more efficient national and global players. Even small business, the presumed market for small integrators and VARs, is being aggressively targeted by large direct players.

This is all due to the natural progression of the Technology Life Cycle. As technology moves from the "growth" phase to the "mature" phase" power in the channel shifts to more efficient volume players. In Ziff Davis' March 29th eWeek, Bill Gates is quoted on his top of mind technologies: Wireless, Ultra wideband, WiMax, Mesh Networking, Voice, video and data unification, security and machine translation. While I am sure there are techies who stay up nights dreaming of this type of technology, it does little for me as a business executive and even less for me as a channel provider. Evolutionary progress in wireless, connectivity and security will not bring back yesterday's beautiful margins.

The impact on the channel will be continued consolidation. Look for small and mid size companies to be hardest hit. This market will reward only those reseller who are efficient and professional in both their operations and go-to-market approach.

Scott Karren, The Channel Pro

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