VARs Force Vendors to Go DirectBy Lawrence Walsh | Posted 2010-03-15 Email Print
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Solution providers are increasingly alarmed at vendors shifting more of their sales to a direct model. Not only is this trend real, it’s being caused by underperforming VARs who would rather complain than invest. Here’s the real cause behind the direct trend.
About a month ago, Kaseya CEO
Gerald Blackie tapped out a blog about his company’s commitment to its channel
partners and indirect sales. The motivation behind his post was simple: an
attempt to dispel rumors that Kaseya intended to take more of its business
"Recently, there has been some concern in forums and other postings about Kaseya competing against its partners. Nothing could be further from the truth. Kaseya believes in and supports its MSP partners whole-heartedly," he wrote.
After listing a litany of reasons and examples of Kaseya’s commitment to its partners, Blackie closed with this statement: "Kaseya does have designs on being a major competitor in Enterprise markets. However, it will never relinquish its commitment to its MSP partner base. Kaseya values its MSP customers and understands that long-term success can only be achieved by supporting our MSP partners."
Where were these blog posts coming from? Blackie wouldn’t name them specifically, but alluded to a subset of the channel that is exceedingly vocal but underproductive in terms of the value they deliver to their customers and their vendor partners.
In an interview shortly after he wrote the blog post, Blackie explained the situation to me this way: "We live in a world where these people can be influential with the ones who are trying to get on with their business."
Kaseya isn’t the only vendor caught in this paradox where smaller, underperforming and disgruntled partners have a larger share of voice than more-productive solution providers. And the fuel that feeds their flames is simply the truth: Vendors are taking more deals direct.
According to the Channel Insider 2010 Market Pulse Report, one out of four solution providers said they witnessed their vendor partners taking more business direct in 2009, and about the same ratio expects that trend to continue through 2010. At the same time, solution providers say the prices vendors charge for product and their cost of doing business with vendors are increasing.
Vendors may protest talk about their direct sales increasing at the expense of the channel, but it is the reality. They will use terms like "market development" and "customer choice" as thinly veiled covers for their direct sales efforts. Whenever a vendor like Hewlett-Packard announces a funded partnership with CDW or Dell enters into a call-center deal with Ingram Micro and Tech Data, it’s really an effort to get more direct touch on end users. Should the customer at some point in these sales processes express an interest in a direct relationship, the vendor will say it has no choice but to honor the request.
But what’s the root cause behind this trend? Yes, it could be argued that vendor executive teams are looking at their channel programs’ total cost of sales and administration and seeing them as too expensive to maintain in a down economy. Taking more sales direct, in theory, would capture more bottom line revenue that would ordinarily be surrendered to channel partners who also want a boatload of expensive pre- and post-sales support.
The truth is that many vendors are supporting their partners and expanding their relationships with them. IBM, for instance, is increasing its support and dedication to select partners that have demonstrated performance capabilities and capacity to assume full ownership of accounts that will return high dividends to the partner and Big Blue. Dell is experimenting with ways of returning more managed services business from its direct sales to its channel partners. And McAfee is pouring more incentives into partners who are displacing competitors from key accounts.
Now you would think IBM, a stalwart of the channel, is a prime example of a vendor’s commitment to partners. However, only about one-third of IBM’s sales goes through its partners; the balance is through direct account sales and its massive IBM Global Services division. As for the partners receiving Big Blue’s increasing support and autonomy over accounts, well their numbers are measured in the hundreds, not thousands or even tens of thousands.
Again, a vendor going direct is interpretable as an attempt to recapture margin that ordinarily goes to partners. However, the other side of that equation is an attempt to make up for a partner ecosystem that consumes expensive support but doesn’t deliver returns in terms of unit sales, market share and revenue.
It’s a hard pill for many solution providers to swallow, but the reality is they are a major contributing factor to vendors taking their business direct or allowing their customers to have "source of choice."
If you are a solution provider concerned that one of your vendors is taking more business direct, you should undertake an exercise of introspection. What are you prepared to do to expand sales and market share? How much are you willing to invest in your business to keep your vendor from interfering in your territory? And how are you going to add value to the sales and marketing equation to help keep your vendor in your corner?
Vendors spend billions of dollars in training, certification, channel marketing, lead generation, market development programs, pre- and post-sales support, technical support and field operations. It’s expensive and time consuming, and it’s often an expense that senior executives would rather live without if they could. What many solution providers fail to understand is that their vendor channel executives wage a nearly daily internal battle on their behalf. They exhaust huge amounts of personal capital and effort to justify the indirect sales model and keep their direct counterparts from overwhelming their partners.
Vendors will always have a certain amount of direct touch and sales with customers. But rather than worrying about vendors expanding their direct sales, solution providers should look at how they will increase their value to the vendor and the customer. That is the best way to keep direct sales at bay.
Lawrence M. Walsh is a vice president and member of the Ziff Davis Enterprise Market Experts team, specializing in channels and security. He also writes the Secure Channel blog (http://blogs.channelinsider.com/secure_channel/). Follow him on Facebook and Twitter at lmwalsh2112.