Being a “VAR” has been impossible for many, many years. Yet many channel partners still refer to themselves as VARs. The one thing that they should be thinking about is how this impacts the relationship they have with the brands of hardware and software they partner with.
You Just Can’t Do That
Back in the early 1980s when the original IBM PC and Apple ][ computers came out, resellers enjoyed a profit margin in excess of 40%. And most everyone sold at list price.
With everyone selling at the same price, each reseller was challenged to figure out how to get customers to buy from them. How could they stand out among all the other resellers?
Many started to offer free services to any customer buying these popular products from them. Preparation, configuration, installation, and orientation were among the many offerings customers could obtain at no additional cost. In this way, these resellers were adding value to the purchase without raising the price.
They soon became known as value-added resellers (VAR).
It wasn’t long before discounting replaced value-adding. Today, competition on price is so fierce there’s really no margin to justify the adding of any additional value at all. In fact, one could drive themselves out of business trying.
Adding value at no additional charge has been impossible for many, many years.
The Early Relationship Between VARs and Brands
Put simply, brands expected their resellers to push their products out to end-customers. They made funds and assistance available to help channel partners promote those products to their customers.
In addition to market development funds (MDF), brands provided channel partners with significant resources and an overall relationship that grew in proportion to sales growth. Channel partners had early access to roadmaps of upcoming product releases. They were given briefings on new technologies and new strategies. The more they learned, the more products they could push.
Then Came Cloud
It can be argued that the growing impossibility of making a profit reselling products drove many VARs to become System Integrators (SI), Managed Service Providers (MSP), Independent Software Vendors (ISV) or other.
Whether or not that’s the case, cloud provided the last peg in the coffin of reselling servers, storage, and other products that delivered the services that customers now largely obtain from the cloud.
Why stand up servers and have to maintain them when you can pay a simple fee and have that done for you? Server virtualization enabled cloud providers to achieve economies of scale by sharing resources among numerous customers. Each customer’s net price was significantly reduced.
The End of Push Selling Did Not End the Relationships
Now that resellers were no longer pushing their products to end customers – in fact they weren’t even selling them – what reason would they have to work with those channel partners?
Insightful brands realized that this new breed of channel partner was far more interested in selling their own highly-profitable services, and when they did they often pulled through sales of a variety of products. Not the former volume of servers and storage, but many related products and plenty of networking and communications gear. Their insight led them to help those partners improve the marketing and sales of their own services, knowing that many of the projects required their products that would be pulled through as part of the sale.
Margin Becomes an Anachronism
Most of the early discussions between brands and resellers centered around the profit margins that could be achieved pushing their products. That all became fantasy when the downward spiral of discounting hit its stride.
Today, smart channel partners ask what new services they can be providing to their customers around any product a brand introduces to them. There’s no talk of margin because everyone knows that will be discounted out from under them very quickly.
Brands are best served to invest time, talent, and funds into developing reusable engagement models they can suggest to their channel partners. The equation today is very simple. The more services an SI or MSP can add to their portfolio of customer offerings and sell to customers, and the more a brand is willing to help promote the partner’s brand, the stronger and more productive the relationship will be.
Howard M. Cohen is a 35+ year executive veteran of the Information Technology industry who writes for and about the IT channel. He’s a frequent speaker at IT industry events that include Microsoft Inspire, Citrix Synergy/Summit, ConnectWise IT Nation, ChannelPro Forums, Cloud Partners Summit, MicroCorp One-On-One, and CompTIA ChannelCon, and he frequently hosts and presents webinars for many vendors & publications.