In the daily fight for business, resellers often find themselves in a quandry: They’re duking it out with vendors selling mainly direct, but who may also have channel programs. At the same time, many manufacturers who say they’re friends of the channel are stepping on them by selling products and services direct in some way.
For VARs, it means doing fancy footwork to avoid being crushed. But it can still lead to conflicts.
Trump Systems, for example, which positions itself as a virtual IT department for small and mid-sized companies in the Greater Toronto Area, represents both indirect and direct vendors. “We sell more Dell than anything,” said Kevin Leach, president of the Brampton, Ont., company.
But it doesn’t cost him services business. “They’re not cutting out the middleman – who’s installing those servers?” he asked rhetorically. Trump is.
On the other hand, supposedly channel-friendly Lenovo recently cost him a sale of ThinkPad laptops to a client that had previously bought Dell. “We helped them decide to go with Lenovo because really, when it comes to Dell, their service is terrible,” Leach said.
However the client ended up buying the laptops directly from Lenovo, since they were each $209 cheaper than the price Trump could offer.
“When I raised the issue with my rep at Lenovo, I was told, ‘We have competitive programs that you can take advantage of to close the gap,’” he said. But he found the program requirements for reporting and meeting volume commitments to be barriers.
‘“Who’s got the time for that?” he asked, “especially when you stand to make five per cent?”
While he said this is not a common occurrence – it’s the first time this has come up in a while – he is concerned because the onus is on him to avoid potential conflicts by staying up-to-date with Lenovo’s marketing programs.
“In a business where you’re already deluged with information and marketing material, it’s difficult to say [you’re] going to be an expert on Lenovo’s marketing and channel programs because the payoff doesn’t justify it,” he said.
Blurred line
Conflicts in business aren’t uncommon, but the line between competition and partnership is getting blurred.
“We’re in the reseller business and we do have partners that go direct,” said Karen Jenks, vice-president of CCSI CompuCom, the Canadian subsidiary of CompuCom Systems Inc. with locations in Calgary and Mississauga, Ont. “Some are better than others at working with us and using the channel.
“For the most part we have very strong relationships,” she said. “At times they go direct and I think it would have made more sense to work through the channel. We have been seeing a trend lately of some of the bigger players going direct when it comes to just selling the box.”
There are some instances where it makes sense for a customer to deal directly with the vendor, she said. But in those cases, where the reseller has an established relationship with the customer and has brought business to the vendor, the reseller should get an agency fee and be involved in developing the overall solution.
CCSI is vendor-independent and helps companies plan, design, implement and manage multi-vendor environments. It deals with tier-one vendors like IBM, HP, Lenovo and Microsoft. “Dell sells direct, but we do a tremendous amount of services wrapped around Dell today because we recognize a client might buy HP servers but they’re buying Dell laptops and they want someone to integrate that,” she said.
When it comes to providing services around an IT implementation, having a vendor-independent approach could be an advantage for resellers.
If a customer has an installed base of one brand or manufacturer, then chances are higher of a potential conflict between vendor and reseller, said Harry Zarek, president of Compugen Inc, a national systems integrator based in Richmond Hill, Ont. In a multi-vendor environment, on the other hand, customers are more likely to look for someone who can help them integrate a multi-vendor solution. And those are opportunities the channel will be more successful at, he said.
Many vendors – including direct vendors – are sub-contracting break-fix work to the channel because it’s more cost-effective. “There are more opportunities to partner with them in reality than there are reasons to compete, so we generally see them as partners rather than as competitors,” he said, “with the exception being Dell, which you’re competing [with] all the time.”
Pressing VARs
Still, major manufacturers are expanding into reseller turf. IBM Global Services integrates hardware, software, business consulting and IT services, and says its IBM Business Consulting Services is the world’s largest consulting services organization. Hewlett-Packard is growing its services division, while Dell wants to control more of the services revenue from Dell platforms.
Dell has openly said it wants to drive down services margins, which many channel partners rely on. According to U.S. reports, while Dell is recruiting the channel to deliver services around its hardware, it will control the prices they charge for their work – which are much lower than regular rates.
Zarek doesn’t see this as a concern for his $225-million company, which deals with multiple vendors. “The opportunity with Dell is they really can’t service anything other than their own product anyway, so their role in the broad-based services business in terms of break-fix is very limited – besides which, they don’t have any of their own resources.”
Compugen doesn’t deal with Dell. “If the customer is a Dell customer, our perception is they’re really focused on price and delivery – they’re not focused on what we call lifecycle management and the total cost of ownership.”
But resellers should be careful what they ask for, he said, if they choose to provide services for Dell at a lower rate than they would normally charge. “I’m not sure why people would then turn around and complain that they’re getting squeezed. They do have the opportunity to say no.”
When it comes to break-fix work, products are becoming more reliable and price points are at the point where it’s harder to justify sending out a technician; instead, there’s a movement toward customer replaceable units.
However, Zarek thinks there are opportunities, even in a flat market, for consolidation of business.
For Compugen, this means tight partnerships with its partners, including HP, IBM and Lenovo – and not with direct vendors that will squeeze its margins.
But Dell could affect services margins for some resellers, said Albert Daoust, an analyst with Evans Research Corp. in Etobicoke, Ont.
Regular cheques
“That’s the idea. They’re trying to farm it out, they’re trying to keep most of the profits and trying to get you to charge a modest mark-up above your hourly rate that you’re paying your technicians,” he said. “But what other strategy could they possibly have?”
Why would resellers put up with lower rates for on-site visits? One reason is that Dell pays regularly, said Daoust. “They don’t pay much, but they do pay.”
Also, as long as a staffer is dispatched, the partner gets paid, even if no problem can be found at the site. By contrast, some vendors won’t pay unless a partner at least returns a defective part for exchange.
“It’s very tempting to take that Dell order. They’ve had a 15-year run of getting good quality technicians to do this because the [channel] organizations themselves weren’t selling equipment that well,” he said.
If Dell becomes reluctant to increase compensation or foot-drags on payments, he said, it might have more trouble finding technicians to do their services work.
“For the most part it’s always a threat when a large company like Dell tries to expand its business by moving into a new area,” said Dave Martin, senior analyst of customer segments with IDC Canada in Toronto, who covers Canadian strategic partnering and alliances.
“When there’s a new player that comes into your market, you have to be concerned that they’re going to try to steal some of your business.”
But it might not be such a big concern in certain markets. The small and mid-sized business market, for example, is quite fractured, and it might be easier for a localized reseller to provide services over a large direct vendor.
To stay competitive, smart resellers will target specific markets or technologies, as opposed to being everything to everyone, said Martin, which large vendors have the ability to do.
“Keeping that niche or technology focus may help them succeed.”