In recognition of channel partners' power to sway customer IT purchase decisions, IBM Corp. is starting to compensate partners for their influence as opposed to just product fulfillment.
Buell Duncan, general manager of ISV and developer relations at IBM, in Armonk, N.Y., said the company recognizes that software developers and integrators who build applications on IBM platforms influence customer decisions to buy IBM at least 40 percent of the time.
That number is considerably higher when taking into account the VARs and solution providers that compose the overall channel.
Some VARs, particularly those who sell products and services to small and midsize businesses, say customers follow their recommendations on what brands and which products to get at least 80 percent of the time.
The idea behind IBM's value-based compensation is to reward partners not just for product fulfillment but also for the development and integration services that play an important role in getting the IBM brand into customer sites, Duncan said.
The Armonk, N.Y.-based vendor has started paying what Duncan called "influence fees" and is planning to further expand its value-based partner compensation programs in the coming year.
"Increasingly those that are successful in the channel are going to be those that provide value-add," Duncan said. "What customers value is deep skill. What clients want more and more is people who understand their business."
Channel companies that deliver services are becoming more entrenched in their customers' businesses, not only selling them products and developing applications or providing integration services specific to their needs, but also increasingly delivering round-the-clock service through remote systems management and monitoring over the Web.
Even though ties between provider and customer are getting tighter, research firm Gartner Inc. predicts at least 40 percent of channel companies in business today will no longer exist in three years. Gartner attributes this to a struggle with "basic business viability."
Vendors that invest in their partners' business viability, according to Gartner, stand to benefit from the resulting increased loyalty of partners.
"Nothing ties two companies together in partnership better than the joint development of account plans and business plans, capturing the details in writing and mutually committing people and budget to the successful fulfillment of these plans," Gartner said in a report published in October.
Duncan said vendors have to earn their partners' loyalty, and that is why IBM has invested significantly over the past decade in helping partners create demand.
Increasingly that investment focus has shifted from primarily product fulfillment to rewarding partners for their skills and services.
The investment is paying off.
IBM estimates the ISV market at about $70 billion, and for every dollar a customer spends on applications, on average the customer also spends 50 cents on hardware, 70 cents on middleware and $5 on services, Duncan said.
That all adds up to a $400 billion market, one that Duncan said IBM is better positioned to leverage because of its partner-centric approach.
Since IBM does not develop its own applications, relying instead on partners to do so, the company has an advantage over such vendors as Oracle Corp. and Microsoft Corp., Duncan said.
Oracle and Microsoft develop their own applications and, therefore, potentially compete with channel companies that develop applications, he said.
IBM in 1999 decided to abandon application development and instead focus on providing the hardware and middleware on which developers build their applications.
Duncan said the company's emphasis has and will continue to be working with partners, embracing industry open standards and offering a strong solution portfolio.
Through the IBM PartnerWorld Industry Networks program, IBM supports partners in all steps of the business cycle, from identifying sales leads to closing the deal to getting technical assistance in building a solution.
The program covers ISVs focused on various vertical markets and VARs, consultants and integrators working in the public and health care sectors.
In its report, Gartner said competition between IT vendors with large partner populations is intensifying so loyalty-building programs are critical.
"IT suppliers with large channel partner communities, by driving small increases in average partner loyalty levels, can realize many times that impact on revenue," according to the report.
Duncan noted IBM has come a long way from a strong emphasis on direct sales in the 1980s to its channel-centric approach of today. The company recognizes the channel is vital to its sales strategy.
"Any company's ability to reach the total market by itself is impossible," he said.
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