In age where product margins are increasingly razor thin, solution providers live and die by the value added services they provide. In that context, the products they are selling are a means to an end.
But in order to deliver higher value services, solution providers have to create and deliver combination of products that enable those services. And they are going to look to judge the vendors that they ultimately decide to partner with on two primary criteria.
The first is pretty straightforward, and altogether mercenary. They are looking to get the best price they can on the combination of products that they intend to make part of the solution. In a perfect world, these products would have plenty of margin.
But, in reality, solution providers are really trying to get as low as price as possible so that the end customer has more cash to spend on higher margin services provided by the solution provider. In fact, a joint survey conducted by eWeek Channel Insider and the Crimson Group, developing higher margin surveys is the business activity identified as the single most important thing that the majority of solution providers need to do today.
The second criteria is a little harder to judge, since it is determined as much by perception as reality. Solution providers attach a cost-of-doing-business metric to vendors that is in some ways measurable, and in others consists of intangible attributes that the solution provider attaches to the vendor. The most tangible way of measuring the cost of doing business that a solution provider has is how often they need to get special pricing on a set of products and how quickly it takes the vendor to respond.
Unfortunately, pricing across industry bears no relation to reality. Close to 90 percent of all deals require some level of special pricing, which suggests that the vast majority of the vendor community is completely out of touch with what really happens in the trenches. The end result is that the industry adds layers and layers of bureaucracy to manage the special pricing process, thereby adding cost to both the vendor and the solution provider that has to endure the agony of the process.
For years now, every channel chief in this business has known this to be the case--but due to corporate inertia, has been pretty much unable to do anything really meaningful about it. That's why the channel experiment that Network Appliance is trying to make work now is worth watching closely. Developed by NetApp channel chief Leonard Iventosch, the cornerstone of the new NetApp program is a more flexible approach to the concept of bundling, and a focused effort on providing services that are truly complementary to the services provided by the solution provider.
The first thing that NetApp has done is created a series of base system configurations that reflect more the way people are actually buying and paying for their products, rather than the way most bundles have been created in the past--which usually reflect deals on products that the vendor is trying to move in the absence of real demand. The base configurations are flexible, however in that there are still enough a la carte options to allow the solution provider to order a customized solution without having to haggle over every unique element of the bundle.
The goal, said Iventosch, is to take the number of deals requiring special pricing from NetApp down from 90 percent to 20 percent. In addition, he says that NetApp is working to make the upfront deal so attractive to solution providers that anything that comes back to them in rebates is considered gravy. That differs from a lot of programs where the margins are increasingly held back until a solution provider reaches enough volume to qualify for a rebate. Of course, the vast majority of solution providers never sell enough to qualify for the rebate.
The second compelling aspect of the program is that NetApp is piloting a professional service program designed to empower solution providers to sell their own services under a NetApp logo. NetApp is building out a series of services methodologies that it will certify its partners on the end customer knows they can have confidence in the services provided by the solution provider. Longer term, NetApp plans to increasingly compensate its own services people based more on partner satisfaction in order to stimulate the right kind of approach to the channel.
When you put all this together, Ivantosch appears to be doing something radical in the channel. He's trying to make NetApp a pleasure to do business with in the channel. Time will tell if he's successful, but after years of watching vendors consistently fail to create programs that enhance the business models of their partners, the NetApp approach is a refreshing change.
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