Vendors killing the golden goose
The channel has become a competitive food chain with vendors at the top and resellers running around to catch the scraps, says Liz Maloney.
There is a rumour of an IT recovery but the reality is that, for most of the channel, life is still a struggle.
Why are so many vendors treating their VARs badly when they should be nurturing them for the recovery?
The pressure is always put on VARs to change their business models to increase margins. And they are advised that the way to make money is to stop selling hardware or software alone and focus on value-added services.
Because of this, VARs have become experts at understanding their customers' businesses and tailoring solutions and support services to meet their needs.
However, there is an increasing trend where part of the vendor community appears to be 'stealing' these opportunities from its resellers.
Part of the vendor community appears to be taking an 'everyone for themselves' view, and increasingly stories appear about them coming down on VARs by taking the cream of sales for themselves.
This isn't a great surprise - we have all been trying to ride out this economic climate - and it isn't unheard of for VARs to make eight times the revenue on a software sale by selling services off the back of the deal.
Facing shrunken profits, some vendors are whipping the carpet from under VARs' feet and laying down the law about what sales they can go for. Many VARs are finding themselves left with low-margin sales while the vendors take what they see as the best for themselves.
By definition, VARs add value to the sale, but some vendors are killing the golden goose by taking the bigger and even mid-range sales for themselves.
This approach might boost short-term revenue but it sucks in the long term. The VAR community is the one that has the expertise for selling customers the best products at the best prices.
It is no wonder vendors are reporting growing sales but financial losses.
They are slowly learning that despite the fact they have taken the bigger accounts, for them services are actually low-margin. Value-added services are not the core competency of a vendor. Many vendors have to employ armies of consultants for service contracts, pushing costs up and affecting profits.
By trying to boost revenue in the short term, many vendors are having minimal impact on their profits and also alienating their once-loyal reseller base. In the long term vendors that are stealing the value now will realise that taking services on themselves is not the answer.
When they do make the connection, they will look around for their once-extensive 'outsourced salesforce' to find it has gone elsewhere, to vendors that understand the business value in a solid and fair partner programme.
Liz Maloney is UK managing director of Hummingbird