Animosity Festers Throughout HP's Channel

Since the very beginning of the glory days of Carly Fiorina's leadership (I call them glory days because she was always searching the spotlight and not building the necessary infrastructure needed to compete effectively), HP has had trouble convincing channel partners that they are indeed instrumental to the company's future and success. For five-plus years, HP has been consistent in sending only mixed signals to its channel.

With the appointment of new CEO Mark Hurd earlier this year and the recent departure of a very friendly channel supporter, Kevin Gilroy, you've got a very interesting situation brewing inside the walls of HP right now.

Hurd is not even six months on the job and he is causing VARs fits and has the new HP channel chief, John Thompson, already mopping messes he created when he reportedly said he was going to reward VARs more for upping their commitment to HP and get tougher on those that don't. My dollars to your donuts says Thompson will be doing a lot of this custodial work in the future, and not by his choice.

While rewarding VARs that tie more of their own business to HP is a sound strategy and a necessary one, Hurd needs to tone down his tough talk targeted at those channel partners that aren't ready to drink more HP Kool-Aid.

What Hurd has failed to realize, probably because of his past at NCR, where "channel" was a dirty word, is that emotions are running high among HP's VARs. Backing them into a corner and delivering ultimatums will backfire, big time. Many VARs are still convinced that HP really wants to mirror Dell's direct strategy and Hurd and the HP channel executives need to bend over backwards to convince them otherwise.

I know many HP channel partners, and I am telling you many of them are growing extremely hostile towards the vendor. The anger is something I have not seen since the days of Apple's channel relationships in the mid 1990s.

I warned HP this was brewing just a few months ago. But you don't have to take my word for it; here are some excerpts from conversations I have had with HP VARs this past week.

"As for HP's compassion and understanding, my experiences with them over the last few years have only shown me lip service," said one. "Whether it concedes to doing so, HP has been competing directly against the channel for years. It's almost impossible for me to move HP 'reseller' products because end users can basically buy the same items, from printers to servers, directly from HP on the Web or with a phone call. With the lack of profit margin, it's not even cost-effective for me to offer HP products. No matter what hardware I provide, the service revenue I gain is pretty much the same and there are competing products available, which offer my customers equal or better quality, while providing me with better margins."

He went on to say, "I believe the ultimatum is an act of desperation, as HP is reaping what it has sown for the last few years. VARs are always looking for quality products, which provide greater profit margins. While HP's quality is respectable, it's not setting the standard. And if I haven't beaten this dead horse enough yet, VARs can't profit from HP products. Between that and the loss of market share to Dell, HP is bleeding profusely and trying to fix the gaping wound with a Band-Aid. There is no way they can effectively force the channel to focus on moving HP products. Every channel partner is more concerned about their own survival in an increasingly competitive market than they are about keeping HP's fanny out of the fire."

And this guy claims he was toning it down. Imagine if he really let it rip.

But let's move on. Another long-term HP channel partner put it this way: "I think it's the same conflicted feeling that manufacturers have always had with the channel. We heard the same message from Compaq 10 years ago. HP looks at Dell and sees a direct strategy that works. If HP could wake up tomorrow and know that the channel could disappear and they wouldn't lose revenue, they'd ax the channel in a heartbeat. The problem is they don't know that, and the uncertainty drives them crazy. Add to that that HP thinks the channel is diverting some of their business (which it probably is) and you get to Hurd's reaction. Also you do need to take into account that Hurd comes from NCR with a very limited channel play, and so I'm sure he has to be convinced of the channel's necessity. There's not much room for compassion in HP's strategy."

HP's ProCurve sale rumors leave VARs wary. Click here to read more.

But wait, there is more. This one I had to bleep a bit, but you can see where I am going with this.

"Some VARs do not complain but many are not happy. If they had an alternative they would take it. Some very large players are very disturbed… I have believed many [HP executives], going all the way up to Gilroy, only cared about their own options and salary. None seem to care about HP succeeding. They do not do much to help you. It is like the 'good' old days of Apple when they had all of those $250,000-a-year salespeople who did nothing at all. It just has to catch up with them sometime. Being that big, however, with the cash-cow printer business, which I am sure saves them…none of the executives at the distributors like working with them. They are getting BLEEP as badly as we are."

Ouch. It is evident that VARs are not happy with HP right now and it is reaching a fever pitch. Hurd is not helping the cause and if he believes he can move HP forward without the help of a loyal channel he is in for a rude awakening.

Elliot Markowitz is Editor-at-Large for the Channel Insider. He is also Editorial Director of Ziff Davis' eSeminars. He can be reached at elliot_markowitz@ziffdavis.com.

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