Who Knows Your Customers?

Jay Tipton, vice president of Technology Specialists, a Fort Wayne, Ind.-based solution provider, was shocked earlier this month to hear from two customers that Novell had contacted them regarding their Novell Small Business Suite 6.6 Upgrade Protection renewal plans. The renewal notice quoted a full list price to the customers and told them to contact their reseller for a discount, but did not specifically name Technology Specialists.

Tipton said he was caught off-guard because he didn't know Novell was sending the e-mail. And, he added, it just confuses his customers.

"I don't care if they contact the client directly as long as they give me the same opportunity to make the same margin as the direct sales initiative, and they should list our name and number," he said. "I don't think that's asking too much. If they want me to stop selling their product, this is the way to do it."

The increase in drop-shipping, deal-registration programs and service contracts has led to more customer information being asked for—sometimes even required—by vendor partners.

But few solution providers say they know what actually happens to that information once it's collected. All they know is that more vendors, citing the need for better control of their products or to crack down on fraud in the channel, want more end-user information these days. It's a trend that makes many of them uncomfortable.

In a recent CRN survey of 779 solution providers, 26 percent said they regularly share customer contact information with vendors. Of those who share the information, 21 percent said they share the names under duress to maintain a vendor relationship. Of that group, 38 percent said sharing that information is driving them to seek a substitute vendor.

Art Torres, president of Post Computer Systems, Wilbraham, Mass., said flatly that he won't give vendors any customer information. "I don't want them back-dooring me," he said.

Vendors tell solution providers the information is necessary to ensure their products end up in the right hands. Novell, Waltham, Mass., said it requires customer information from any VAR placing electronically delivered software at a customer site. "Our practice is to involve our partners in the renewal process whenever we can " Novell said in an e-mail response to CRN. "When we do contact a customer, it is not our policy to take the order direct."

Collecting customer information is a necessary part of doing business with Cisco Systems, said Keith Goodwin, senior vice president of worldwide channels at the San Jose, Calif.-based company. Cisco doesn't recognize revenue until a product is sold to a customer, not when it's sold to distribution, Goodwin explained.

"Our VARs have always been pretty good about providing us with sales information because that's how we pay our sales force," he said. "If they want to be aligned with our sales force working on their behalf, it's important to provide that information."

That said, Cisco's sales force is seeking to foster tighter relationships with solution providers that buy through distribution, an effort the channel chief hopes will yield more in-depth sales data.

"Strengthening that relationship with two-tier VARs will help us get more information on customers to [help us] sell more to them ... not just that a customer buys a Catalyst switch and three phones, but how customers are using them, more about the environment they're selling into, what the future plans are," Goodwin said. The result of gathering such details should be more product sales through distribution, Goodwin said.

While many VARs say they understand why vendors might need to gain a window into the end user, several told CRN they are afraid the information could end up used against them by competitors—or even the vendors themselves.

"We've been burned in the past," said Audrey Levi, president and owner of Altek Computer Group, a Miami solution provider. "I'm always willing to give vendors one shot, until they burn us. They say the customer has to purchase the way they want. But that only seems to work in the vendor's mind if the customer wants to buy direct. When a customer says I want to purchase from [a VAR], why is that not OK?"

Next: Hungry For Information

Hungry For Information
Of course, channel conflict is not a new issue. For years, solution providers have swapped horror stories of losing customers after sharing information with a third party. What's changed now is the fact that vendors have become more comfortable with their own CRM, PRM and other supply chain systems that track product sales. The functionality of those systems has led manufacturers to develop an insatiable appetite for customer information. And therein lies the problem, say some solution provider and distribution executives.

The executives feel manufacturers now are more likely to misuse the new information than in the past. It took years for distributors to earn the trust of solution providers regarding end-user information. But now more than 70 percent of shipments from distributors are delivered straight to end users, according to the Global Technology Distribution Council.

Sharing customer data also has become a more pressing issue because of the increased interest by larger vendors in targeting small- and midsize-business customers. And the Internet has made instant software subscription renewals and updates via a customer credit card a reality.

Share And Share Alike?
Tracy Butler, president of Acropolis Technology Group, a St. Louis solution provider, said he has no problem sharing customer names with longtime vendor partners like Cisco and Microsoft, Redmond, Wash., so he can obtain higher margins via deal registration and rebates. But sharing the information with other vendors scares him. He notes Citrix Systems' move last July to contact customers directly for license renewals as an example.

"We only share customer information with strategic tier-one vendors that can be trusted with that information," said Butler.

Last summer, Citrix told partners it was implementing an online license-renewal system and would handle all revenue from the transactions and that VARs would receive an influencer fee. Citrix said the policy levels the playing field for loyal partners who saw their renewal business poached by other partners.

But many felt it was just another example of a vendor finding a subtle way to appear channel-friendly without actually being so. They point to the marketing materials sent to end users, which referred to "your Citrix Authorized Solution Advisor" and nowhere provided a specific VAR's contact information. Citrix, Fort Lauderdale, Fla., declined to comment for this story.

Butler said direct subscription software licensing has become de facto for solution providers, and he has adjusted his business accordingly.

"You have to add value in the process or you're not going to be needed," he said. "So you need to figure out a way to add value or get out of the way. That is the way a capitalist system works. There are always going to be things that are commoditized. Our job is to find where Acropolis can add value."

Ross Brown, a former Citrix channel chief who is now a principal at Peak Consulting, said in an e-mail exchange with CRN that software is different than hardware, given that the license agreement is between the end user and the vendor. "Generally, software vendors feel that they have right to renew and expand the relationship with the customer and they are right—the vast majority of partner sales are project-driven and the economics of a license sale for expansion is a lot lower than the initial sale, so often it's a different partner or the vendor doing the renewal and expansion," said Brown.

Butler said the issue would be diminished if vendors laid out a clearer road map about their plans. "That is the thing I love about Microsoft," he said. "They telegraph to us at partner events well in advance, so we know where they are going and we have time to adjust our business model. That garners a lot of respect from us. It is vendors that don't telegraph well in advance that I have issues with."

Next: The Enterprise Question

The Enterprise Question
On the enterprise side, solution providers and vendors said there is generally less concern about sharing customer information, given the need to work more closely together because of longer sales cycles and more complex solution requirements.

Don Richie, president of Sequel Data Systems, a Hewlett-Packard exclusive enterprise solution provider in Austin, Texas, shares customer names with HP, Palo Alto, Calif., and it also has access directly to his CRM system so it can see his pipeline.

"In the past that was a definite concern," said Richie. "We always have been very guarded about releasing customer information to vendors. That has changed with HP. They always end up protecting us. We don't have to worry about sharing that information."

Another issue is that few vendors, particularly niche ones, have documented policies for customer information. For Paul Giobbi, president of Zumasys, a Lake Forest, Calif., solution provider, boutique vendors are more of a concern than major players.

"It's a real issue when you consider that the most valuable thing we possess is our relationship with a customer," said Giobbi. He said he's less worried about large vendors, which understand the waves they would create if they used customer information to go after that business, whereas boutique vendors that might be struggling to get a foothold in their market may be tempted to do so. "It is a concern for me," he said, "and it does keep me up at night."

JENNIFER FOLLETT, JENNIFER LAWINSKI & PAULA ROONEY contributed to this story.