Nortel Growth Rebate Payouts Triple, Execs Say

Nearly a year since it revamped its channel partner program to reward value rather than volume, Nortel’s channel executives are taking stock of the progress and preparing to launch some new partner specialties.

“Some partners were saying, ‘Nortel is driving more cost into my business than I’m getting value out of it,'” said David Wilkinson, the company’s vice president of channel strategy. “So we reduced our administrative costs, offered more transactional discounts and uncapped our growth rebate. You get paid for every dollar volume of growth over every half year.”

It’s been a complex program to revamp. Nortel’s partners range from the very large service providers such as AT&T and Verizon to systems integrator arms of companies such as IBM and Hewlett-Packard to the small-business VARs selling equipment into other small businesses.

But an assessment of partner satisfaction revealed the same complaints from many sectors. Partners were unhappy about profitability levels and what they said was a rigid business model.

In response, Nortel made several changes, and so far those changes are appealing to many partners, including the smaller ones that Nortel was especially seeking to attract.

For more on Nortel’s channel changes, click here.

Nortel doubled the number of reseller partners from 480 12 months ago to 1,000 partners at the end of December. Most of those new partners came in the SMB (small and midsize business) space, according to John Stasick, director of channel management.

“We’ve traditionally been underserved in the SMB space,” Wilkinson said. “This new program has allowed us to offer differentiation and a value proposition to those new partners as they come onboard.”

Nortel’s old program rewarded partners based on growth in sales of particular product families and offered marketing funds based on those families.

“It was forcing the model,” Wilkinson said, adding that market demand is what drives product sales.

“With the old program if you wanted to get higher levels of benefit you had to sell all of our product categories in high volumes,” Stasick said. “Now we will reward partners with the highest levels of support, even if they are not giants.”

Nortel paid out three times the growth rebates in the first half of 2007 than it did in all of 2006, said John Stasick, director of channel management at Nortel. The company expects to pay out five to eight times the total payout for 2006 by the end of fiscal 2007.

“Partners are very excited about that,” he said.

Nortel also loosened up the parts of its business model that were designed to serve a large group of partners focused in the traditional voice space, Wilkinson said. Now the program is more geared to also serve converged players as Nortel bids to win in the unified communications space.

The company has also put an emphasis on creating specialties among partners, and has plans for a handful of new specialties during this calendar year. Likely new specialties include networking and mobility.

Those specialties follow advanced unified communications and advanced services specialties launched last summer, and an SMB specialization launched in December.

Nortel plans to also take its value-based partner program next to its distribution partners including Ingram Micro, Westcon, Synnex and Tech Data.