Friday, April 25, 2014

IBM Channel Perceptions

If perception really is reality, then if you want to be seen in the most desirable light you’d better take great care when focusing a spotlight on yourself.

Hence, the advertising industry.

Channel partners provide IBM with a large portion of its revenues these days, and as the company increasingly looks to midmarket and, eventually, smaller-than-midmarket sales, the channel is the only way that they will ever have enough feet on the ground to support the revenue stream IBM requires.  The good news is that many of these partners find IBM to be the jewel in the crown of their vendor relationships: compensation is quick, supportive collateral is often quite good, in several areas IBM’s products are top-notch, and channel conflicts have become increasingly rare. 

That’s not the whole story however. IBM is asking a lot from the channel these days and in at least two cases there may be cause for concern. Here’s what I saw at PWLC, viewed in the light of what I subsequently heard both from IBM and from other vendors’ channel partners.

IBM’s channel ecosystem was presented with two major challenges in Q1. First was IBM’s PWLC announcement that the partners should begin shifting their software business from product sales to selling software as a service (SaaS). New business models can be a challenge. Secondly, the acquisition of IBM’s I-series servers by Lenovo caused significant consternation amongst the resellers, and it cropped up during many conversations I had with partners at PWLC. These issues, if not properly thought out, represent significant discontinuities for the channel.
Here’s what I think:
  • Discontinuity #1: shifting software sales to a SaaS model. The challenge here has relatively little to do with salesmanship and a great deal to do with compensation.  While there are lots of good reasons for moving to a services-based revenue flow – not the least of which is that it is increasingly clear that this is how IT wants to consume things – the shift from working towards the “big hit” to getting paid based on subscription sales is nontrivial, and is likely to be as challenging for many partners as it will be for IBM’s internal sales team.

A lot of guidance and perhaps some direct handholding are going to be necessary, particularly in the transitional quarters when partners who have not as yet begun to think along these lines begin sticking their toe in the service provider waters. There’s plenty of evidence out there to indicate that service consumption makes sense when it follows a utility model, and IT managers ought to be able to make a pretty good case to their CFOs about shifting from a Capex model to one based on Opex, but the issue of moving a sales force to an “annuity”-based comp plan has little enough history amongst IT vendors that it will cause even a good reseller to fidget if the company lacks implementation guidelines. 

  • Discontinuity #2: when I-series goes over to Lenovo, where do my marketing dollars go? Channel partners expressed concern to me about the following scenario: “I used to buy $2 million worth of kit from IBM, but half of that was I-series. Now what used to be a $2 million buy from IBM will be split between IBM and Lenovo. Will my marketing dollars come in at a lower rate because of that? And will my overall margins be affected because I now am selling only half of what I used to sell for IBM?”

It’s an old joke (but a truism nonetheless) that resellers are interested in three things – margin, margin, and margin. But these days margin doesn’t just mean the margin on a product. Take away marketing dollars and you are left with two bad choices: either the VAR’s total cost of goods sold increases or the VARs start thinking about cutting back on the marketing effort.

The shift to selling services certainly appears to be on the right side of history, reflecting what many IT managers already feel to be the consumption model of choice for the future. And handing I-series off to Lenovo also seems to make sense as this was a relatively low margin business; at a minimum this should be viewed as being consistent with IBM’s strategy for moving from product-based to services-based businesses. 

Even though the idea rings true, a question remains: will IBM make it possible for VARs, SI’s and other partners to follow them down this new path?
None of this will happen in a vacuum. We know from Meg Whitman that HP will be taking aim at the IBM channel, and it’s a pretty good bet that Oracle will do likewise. Look for both to emphasize the idea that neither company is “retreating from the product business,” and will offer the I-series acquisition to illustrate their interpretation of what IBM is doing.
Based on reality or based on FUD, the channel has cause for concern. 
IBM likely has at least six months to prepare for the I-series handover, but the shift-to-services issue is front and center today. IBM is rolling out a sales training program to help its resellers prepare for the new selling model, and expects to do as many as 400 sales training sessions worldwide by the end of the year. The sessions will be free, and will provide the partners with 30-, 60- and 90-day milestones.
IBM has turned the spotlight on themselves and their partners.  What is interesting now is the work they do behind the scenes to prep for the new route to market.  *

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#channel, #IBM, #i-series, #Lenovo, #reseller, #sales, #SI, #VAR,