Time To Rethink Channel Partnership

By Lawrence M. Walsh, Editor-in-Chief, Channelnomics.com

Influencing behavior changes often takes place through a system of rewards and penalties. Do something right, you get treated well and are allowed to advance. Do something poorly or, worse, negatively, and you’ll be punished. It’s the classic “carrot and stick” approach.

The channel is built on just such a system of rewards and penalties, although few vendors would actually admit they penalize solution providers for nonperformance. Rather, vendors’ focus on “incentives” and “rewards” (the carrot) for those partners that meet or exceed expectations. Solution providers that fall short are “excluded” from certain benefits (that’s the stick).
The measure of success is ultimately sales bookings, revenue and profitability. But is it possible for a solution provider to be a successful business and still be a poor partner? Absolutely.

A huge disconnect persists between vendors and channel partners because, as they say, partnership ain’t what it used to be. In fact, partnership rarely exists in the channel.

Solution providers, in all of their various flavors and stripes, are rarely “partners” in the legal definition of a business relationship. They’re more the vendor’s “customers,” as they buy product from a supplier for use as components in the sale of larger combined systems to downstream customers. Think of it this way, a sparkplug manufacturer like Champion would never call General Motors or Toyota a “partner,” because no carmaker ever goes to market leading with the brands of their components.

Evidence of this disconnect is found in the earnings reports of major technology vendors for the most recent quarter. Microsoft revenues are off 22 percent. IBM posted a rare miss in its quarterly stats. Chip makers Intel and AMD had down quarters and their forecasts aren’t much better. And the list goes on. At the same time, though, many solution providers continue to report solid to robust sales, revenues and profits because, in many cases, their fortunes are not always tied to products; they’re driven by managed and professional services.

Solution providers tell The 2112 Group, the parent company of Channelnomics.com, that the end of the quarter is always the worst period for them. It’s not the mad scramble to close sales and book revenue, but rather the pressure put on them by vendors to sell more of their products and services. Vendors treat solution providers as extensions of their sales forces, when they’re really customers whose business needs to be earned.

Vendors incent solution providers with “channel programs,” in which the rewards – upfront discounts and backend payments – increase based largely on sales volume. Vendors will also provide rewards for solution providers that attain certain technical certifications and market specializations. These reflect incentives for “investing” in vendors. The theory behind certifications and specializations is entanglement, in which solution providers become so vested in a particular brand that they are less likely to stray to competitors.

As low-hanging fruit disappears and competition increases for more market share, vendors need to rethink their relationships with solution providers. As the channel earns more of its revenue and profit from services, they will become less dependent upon vendors and their incentives to make money. This will erode the effectiveness of the traditional tools in the vendor’s channel toolbox. Vendors need to start thinking about how they earn channel business and look for ways to reward around future potential rather than reflective performance.

If services make conventional hardware and software products less relevant, what value is there in technical certifications as a carrot? Some vendors are already experimenting with alternative reward systems, such as price locks for equipment used in managed services infrastructure. Rather than forcing solution providers to buy replacement or expansion equipment at stepped up prices, some vendors are locking prices at a set rate, so MSPs know what their future infrastructure investment costs will be. For vendors, it’s a smart way of creating a reasonable return on repeat business.

Automated partner portals with self-guided training resources, more webcasts and endless streams of newsletters will only go so far. If vendors want better channel performance, they have to eat their own dog food and practice the advice they often give partners: get to know your customer. By aligning business initiatives with the partner’s model and practices, vendors will stand a far greater chance of reaping better sales with and through the channel.

Just expecting the partners to respond to retread incentives won’t work. Getting more out of the channel requires true partnership between vendors and solution providers. It will require more effort, which comes with more costs, but the rewards will be so much greater than the current systems of high expectations with limited returns.