In any industry, the biggest companies will always hold a certain level of influence over the market. But in the IT channel, with its layers of partners all spun together in a web, the influence that the most powerful players hold has a huge effect.
In the early years of the channel, the likes of Microsoft and IBM may have held a dominant position in not only the market, but also the channel. But the industry has matured into a much more complex entity. Resellers always have to take market demand into account, and thus may tend to gravitate towards the larger vendors and become reliant on such relationships. But no VAR wants to be controlled, dominated and left vulnerable to change from their vendors.
Tom Mulvaney, managing director of third-party services firm Networks First, believes that in the past the big boys of the vendor world did, on the whole, hold dominance over the smaller resellers, and certain partners were heavily reliant on some of the large vendors.
"In the Cisco world, Cisco controls the customer, Cisco controls the services and as a partner you are a puppet"
He says that, previously, Networks First became too focused on its relationship with 3Com, and this reliance ended up hurting his business when the networking vendor decided to unceremoniously exit the enterprise market in 1999.
This idea that resellers can become dangerously dependent on certain partnerships is echoed by Juniper's regional partner director for the UK and southern Europe, Darryl Brick. He says he is seeing a trend of many Cisco partners looking to "mitigate risk", as they have become too reliant on their relationships with the networking giant. He adds that Cisco today wields too much power and influence over some of its partners.
"In the Cisco world, Cisco controls the customer, Cisco controls the services and as a partner you are a puppet," explains Brick. "This is what the partners tell us. They are happy to take those millions in revenue at low margins, but if Cisco changes the rules, they will go out of business."
Cisco and HP can also exercise control over their channel by favouring the bigger players, according to one partner who did not wish to be named.
"If you want to deal with Cisco, you have to do as you are told; there is no question of that. If you want extra margins or interest, or if you want to get on board with anything, you have to follow their programme, and as a small partner that is actually quite difficult, because it's expensive and you are immediately disadvantaged against the bigger players," the partner says.
"The big boys control the market so they can make the most money, and vendors such as HP are interested only in the bigger guys, not the smaller ones. We fall into the mid-market, selling to people with 100 employees plus, and we can get 10 to 15 per cent adrift on price for HP and Cisco equipment against the bigger partners."
The partner also said this discrepancy in treatment from HP and others is pushing his business, along with other resellers, into the grey market, where they can buy at a better price.
When asked whether Cisco has too much control over its partners, the networking giant's Richard Roberts, managing director for UK partner and commercial sales, said: "Vendors like Cisco are often attractive prospects to partner with because their scale and reach offer the best capabilities to capture available opportunities.
"Over the past few years, some vendors have changed the rules, making it more difficult to resell their products"
"Tiered, specialisation-based membership programmes firmly put partners in the driver's seat and allow them to choose the level of engagement and the right level of support, whether technical or in marketing or sales, that best complements their needs. With Cisco, where such programmes focus on value over volume, then even the most niche solution provider has the opportunity to partner with confidence."
Christa Norton, marketing director at Calyx, also feels that there can be a disparity between how vendors' newer and more established resellers are treated.
"Over the past few years, some vendors have changed the rules, making it more difficult to resell their products," she states. "For example, we at Calyx have some of the most highly trained and certified specialists in one particular brand. But it didn't matter that we could do a good job; we were a new reseller for that vendor and couldn't compete revenue-wise with their larger, more established channel. It was a difficult decision, but there was no future to the relationship; it was too one-sided."
Rupert Collier, senior channel manager UK and Ireland at Paessler, an IT monitoring vendor, said that in the past there was a situation whereby bigger vendors such as Citrix and VMware would be able to pressure their partners to shun rival products, but that now this pressure to be exclusive has largely gone.
In terms of the balance of power, Collier said that back-end rebates can tip the advantage towards vendors.
"Rebates are often brought in to reward the best-performing partners. But actually what happens on the coalface is they lead to too much power on the vendor side, with the vendor retaining the power because they retain the gold," he explains.
"Rebates can often lead to difficult situations for the channel as a whole and they can lead to alienation of other partners. They are good in some cases but can lead to fairly disruptive behaviour, and when that happens it is often the end users who suffer. Like we saw recently with the spat between Schweppes and Tesco, removing Schweppes from the supermarket shelves will not only cost both parties money, but it will also ruin my G and T on Friday."
But while Collier said that the big vendors do hold a lot of influence over their partners today, often smaller partners can greatly benefit from teaming up with the giants of the channel, and can dramatically grow their revenues by "hanging off the coattails of a couple of large vendors".
"If you want to join the club there are rules, but no one is forcing you to join any particular club"
He gave the example of a boutique reseller in the south west, which has 11 or 12 staff and a few dozen customers. The firm contacted Cisco, was assigned an account manager, was given sales and technical training and went from nothing to about £250,000 in revenues, six months after it started.
For small to mid-size resellers, gravitating towards the market's biggest fish is an easy choice, according to Collier, but he says that resellers now need to be more astute at selecting their partnerships.
"Resellers need to be very careful now about not going with what may be the market leader, [because] in a few years that may have changed. They need to hedge their bets a bit - you don't necessarily have to tout your business to all and sundry, but I think every reseller needs to be aware of what is going on around them," he said.
Today, resellers are not forced into partnerships with the biggest players, Mulvaney said, and he did not "subscribe to this view that the vendors are some Big Brother personality".
"If you want to join the club there are rules, but no one is forcing you to join any particular club. I don't buy into this victim story - if I don't like the way a vendor is treating my business, I will go somewhere else," he says.
And indeed going somewhere else is becoming more of a viable choice today, according to Norton
"In recent years, technology itself has gone from being a cost centre to a strategic enabler so there's so much pressure to do more with less. Consequently, many businesses have had no alternative but to look at alternatives to the Ciscos and the EMCs," she said.
"Suddenly there's a realisation that a solution that's different to the market leader can achieve the same results, at a significantly lower cost. Some challenger vendors are building incredibly successful propositions around the financial alternatives they offer."
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