Reality Check | Ephraim Schwartz » The channel makes a comeback

December 18, 2007 | Comments: (0)

The channel makes a comeback

TAGS: Business, Channel sales, IT strategy

Resurrected by enterprise vendors discovering the midmarket, the channel delivers high strategic value -- and confusion

For a while, it seemed as if indirect sales -- aka the channel -- went away, as e-commerce enabled vendors such as Cisco, Hewlett-Packard, and others, to manage coordinate, and sell their products directly.

Of course, the channel never really disappeared; it just ceased to be top-of-mind for strategic thinkers at large hardware and software vendors.

Watching with envy as Dell came out from a dorm room to become the largest purveyor of PCs in the world by going direct probably had something to do with that.

The channel bounces back

But now there is an obvious reversal of fortune. HP, for one, used its quarterly report to Wall Street analysts as a platform for reaffirming its commitment to the channel. SAP's entire midmarket push is through the channel, especially since its acquisition of BI vendor Business Objects.

Even Dell is getting in the game, having announced it will tap the channel as well.

And then we have Information Builders, one of the few remaining stand-alone BI vendors, appointing Tom Rydz, formally of Accenture, as its new vice president of channel.

“This is a focused, dedicated position. We have had internal people who managed the channel, but it was never a dedicated role,” says Michael Corcoran, vice president of corporate strategy and chief marketing officer at Information Builders.

If there is renewed recognition of the channel, why now, and what does it mean for IT?

The answer to the first question is simple. Corcoran, for example, told me that 75 percent of Information Builders' new business is coming from the midmarket.

To some degree, this is true across major vendor sales. Everyone is waking up to the enormous opportunity in the midmarket, says Josh Greenbaum, principal at Enterprise Applications Consulting.

“This is by definition a channel play,” says Greenbaum.

Simply because there is an exponential increase in face time and hand-holding pre- and post-sale in the SMB market and it is impossible to serve those customers without the channel, Corcoran adds.

At the same time, there is an interesting change taking place among channel partners.

Information Builders' Rydz told me that rather than selling and buying technology, as was the previous case in the channel, now customers are demanding strategic business solutions.

The problem is, there are a finite number of channel partners that possess those kinds of business skills.

In search of strategic channel solutions

Enterprise Applications' Greenbaum says the market is demanding simpler products to implement, with the result that channel revenue coming from dealing with the complexity of the product goes away. So how does the channel make its money?

“Volume,” says Greeenbaum.

So we have a fundamental contraction: How does the channel offer high strategic value and yet sell its products in high volume?

The answer is that vendors now need experienced channel partners that can go to a CEO in the midmarket and talk business, industry, and strategy.

Greenbaum sees a looming war among the major ISVs to grab the best channel partners.

“If you are in enterprise software, there is no better and more mature channel than Microsoft. If you are SAP or whomever, you want those guys,” Greenbaum tells me. I can’t see him over the phone, but I think Greenbaum is smiling now.

Everybody likes a good fight.

So, if you’re the customer, how does this play out?

Well, with everybody throwing everything they have into the midmarket, you will be visited, not by the ghosts of Christmas past, but by a confusing array of smaller companies representing larger vendors all selling similar products.

SAP, for example, has three different midmarket product lines.

“In the scramble to build these effective channels, there is a high probability that executives will peak out into the waiting room and see two or three different Microsoft channel partners all vying for the same business,” says Greenbaum.

Buyers should be careful not to settle for good product alone. That is only half the battle. Finding the right partner to work with is the secret.

In other words, while the products get simpler, the buying experience gets more complex. Imagine a large menu with column A listing the services and column B listing the products. Your job will be to choose the right combination.

Happy shopping.

Posted by Ephraim Schwartz on December 18, 2007 03:00 AM

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