The relationship between vendors and their top resellers always has its ups and downs. And none more so than between Microsoft and its Lars (large account resellers), particularly at this time of year when Microsoft overhauls the Ts&Cs for its contracts.
Recently, Microsoft finally admitted that three of its Lars had been put on a 90-day trial period, following months of speculation. The resellers are not about to be dropped, the company stressed, but are to be helped to ?get up to speed? on various issues (PC Dealer, 2 July).
Select, Microsoft?s volume licensing programme, was introduced in 1993. Changes were made in 1995 to encourage corporates to take up volume licensing: the minimum entry requirement was lowered from 1,000 units to 500. By mid-1996, Microsoft had more than 800 partners selling Select.
But in June 1996, it cut the Select channel right down, eliminating distributors and indirect resellers from the picture and leaving about 20 Lars to share the business between them. The number has subsequently crept up to 35.
Chris Lewis, enterprise partner manager at Microsoft, acknowledges that it was painful for resellers to lose the Select business, but insists it was necessary. ?When Select was available to all it became clear that customers weren?t being served properly. We had feedback from some large customers which suggested that those resellers without direct relationships with Microsoft tended not to be up to speed.?
In 1996, Select generated a third of Microsoft?s UK turnover, but indirect resellers only generated about a quarter of that. As a result of cutting back the Lars, Lewis estimates that the portion of UK turnover generated by Select is now closer to 40 per cent, so the stakes are higher. ?If you offer it to the whole of the channel, it becomes a commoditised sale. Resellers were making no margin, and there was little investment in support or value-add.?
Of the 35 remaining Lars, the biggest each turn over about #20 million a year on the programme. So resellers were understandably upset when the programme was cut back. One Lar told PC Dealer before the cull that it would ?burn down Microsoft? if it was cut out of Select, demonstrating how positive the channel view was of sales through Select.
The requirements for direct Lar status are rigorous, and from this month they will be tighter than ever. It is clearly a volume game. Lewis says there is no blanket minimum spend, but one Lar estimates that most are expected to commit at least #750,000 a year.
One of the major perks associated with Select is a quarterly four per cent rebate for marketing spend ? four per cent of a possible turnover of #20 million is not to be sniffed at. Before 1 July, one per cent of total rebate could be lost if bills were not paid on the nail or accurate reports generated on time. Now, the full four per cent can be lost through non-payment or inaccurate reporting.
Lewis defends the revised rebate model. ?In the past, we found that some people were earning their rebate even with poor payment and reporting. More importantly, if licence reporting isn?t smooth and accurate, customers can be in breach of the law.?
He stresses that Microsoft needs its Lars to be active in creating markets. Support, services and maintenance are increasingly important. More fine-tuning of the 1997 rebate model means one percentage point is payable for hitting volume targets in specific business categories. For example, Lars need to sell a certain volume of 32-bit operating systems, Backoffice product and Office 97 migration sales. There is also an incentive to hit breadth sales targets: resellers are encouraged to recruit customers who have not previously been buying through Select.
Most resellers accept the need for exclusivity. But there is a growing feeling among direct Lars that Microsoft can, and does, abuse its position. One reseller said the sales projections required by the vendor in the revised contracts were unrealistic. ?Microsoft asks us questions like ?how many certified professionals will you have by the end of the year?? It?s almost impossible to predict things like that.?
Microsoft?s punitive attitude towards dealers that slip up on the fine print seems even tougher in the light of a botched price list sent out to the channel earlier in the year. For this reason, resellers have discussed setting up a direct Lar council. The project is currently on hold, but several say it is high on their agenda.
Lotus and Novell are making aggressive noises about recruiting those who have lost out. Trevor Ward, Lotus? UK & Ireland partner sales manager, believes that by neglecting resellers further down the supply chain, Microsoft may lose the ability to create new markets. ?The fastest-growing sector of the IT market is the small to medium enterprise sector. You?ve got a greater chance of reaching those markets by opening licensing sales up to the channel.?
Lewis is adamant that Microsoft does not want to lose more Lars. There is, as one reseller puts it, ?a feeling of slight paranoia? among the Lar community. But another thinks the established few have nothing to fear. ?My gut feeling is that Microsoft needs its Lars as much as they need Microsoft. It has nothing to gain by slash and burn tactics and it does seem to genuinely want to help.?
Most Lars think is right to create what Lewis describes as an ?elite tier? in order to sell the product properly and police it accordingly. But the feeling is that the vendor cannot afford to lose any more big resellers, and will be actively helping Lars make the grade rather than dumping them.
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