Achieving Balance in Partner and Vendor ServicesBy Chris Talbot | Print
Vendors and IT solution providers both recognize that the higher-margin opportunity comes from consulting and services. How will they share the opportunity?
Vendor support of professional services has changed in recent years, and there are two tactics they are taking today – sell services through the channel or enable the channel to build their own service practices. No matter the strategy vendors take, the relationship related to professional services between vendors and channel partners is changing.
Some of the key vendors supporting professional services are IBM, HP and EDS, and Cisco Systems. Cisco has taken a very channel-oriented focus on professional services and is trying to help partners build their own practices with Smart Services and Collaborative Professional Services offerings. According to Ken Presti, president of Presti Research & Consulting, Cisco has taken a different tactic from IBM and HP/EDS, but professional services are important to all three organizations and their channel partners.
Professional services are such an important part of a vendor’s value proposition today that they have to be careful how the services are delivered, Presti said. There’s a delicate balance between cultivating the ability to deliver services and offering services without stepping on partners’ toes.
"That’s been something they’ve been trying to finesse for the last few years. And that’s an ongoing thing for them," Presti said.
Providing professional services to customers is something that can make up for the margin that has slowly disappeared on product sales, and it’s an area where partners are focusing to improve their revenue.
"Different vendors are going about it in different ways. They’re seeing the benefit of having a strong services footing, and some of them are trying to figure out how to do it internally ... and some of them are trying to figure out how to do it through the channel," Presti said.
At Cisco Partner Summit in March, company executives talked a lot about enabling the channel to develop and sell professional services. One of the big services announcements at the conference was for Collaborative Professional Services (CPS), which offers partners the methodologies and help they need to get started in offering professional services to their customers. As part of the CPS offering, Cisco took what it had learned from the deployment and integration of its own products and made it available to partners in tried-and-tested methodologies that partners can build professional services on.
According to Lane Irvine, network services practice director at IT solutions and services provider Long View Systems (www.longviewsystems.com), hardware has such low margins that Long View has to offer services to customers. Long View, which is partnered with several vendors, including Cisco, HP and IBM, has its own professional services practice, but Irvine said he is interested in the shared support model that is part of CPS.
"Our organization is built on professional services. At the end of the day, that’s a big chunk of what we do," Irvine said. "We’re really glad to see Cisco focus a little bit more on our professional services organization and take a really strong interest there."
The opportunity for both vendors and partners in providing professional services to customers is increasing rapidly. Raja Sundaram, senior director of the worldwide services partner organization at Cisco Systems, said there is a $41 billion opportunity in Cisco’s current fiscal year just in professional services. By 2013, that opportunity is expected to be worth $52 billion annually.
"Our strategy, fundamentally – and it’s not right or wrong; every vendor has its own business model – is we are very partner-centric in our go-to-market, particularly in services, in enabling our partners to drive their brand of services," Sundaram said.
Although professional services offer good margins and plenty of opportunities, channel partners are faced with a huge challenge.
"The big challenge is it takes a lot money to do," Sundaram said.
Setting up a professional services practice won’t be profitable in the near-term, because methodologies have to be developed by engaging with customers and determining what works best. Tools, resources and skilled staff are all necessary to make a professional services practice work, and that takes a lot of start-up cash.
"You have to have battle scars. You learn and burn. And by learning and burning, you go 'oh shoot.’ That’s how methodologies are developed," Sundaram said of the traditional way of developing professional services practices.
Reselling professional services isn’t nearly as costly, but the Cisco way is to enable partners. The other way vendors are handling professional services is to have partners sell the vendors’ brand of professional services.
Although there is more support from vendors, the industry is going through a transition period. Some vendors are still competing with their partners instead of enabling them – something that is more evident with larger clients than smaller ones, said Michelle Warren, president of MW Research & Consulting.
"The solutions providers and vendors seem to compete for the large fish," Warren said. "The lines/terms of engagement become murky because more people are involved in the solution design. So, vendor contacts and SP contacts are involved. With smaller clients, the situations/solutions aren't necessarily as complex, so the number of hands involved is smaller."
Irvine, who deals with several different vendors, said he prefers Cisco’s approach, but that doesn’t mean he’s not cautious.
"It’s heading in the right direction. The key is we want to make sure that Cisco professional services is not competitive with our professional services. That’s something that we’ve got to continue to work with to make sure they’re not doing that," Irvine said. He added that the story from the Cisco team is that the vendor wants to be supported of partners services instead of competitive.
"There’s definitely more of an awareness. Cisco has been one of the most supportive vendors out there of our professional services organization. Over the last three years, how that’s changed is the field model. Previously, the field may not have recognized our professional services as that important to them," Irvine said about the changing relationships between vendors and channel partners.
Inside sales representatives were less likely to support partners’ professional services because there wasn’t anything in it for them, Irvine said. That’s changing, though. Cisco has made changes to their sales organization to give incentives to their reps for helping drive partners’ professional services opportunities.
Although Irvine said other vendors are moving in the same direction, Cisco is furthest ahead in their initiatives.
"They’re recognizing more and more that what the VAR brings to the table is the ability to tie all those solutions together," Irvine said. And that’s where professional services are key.