HP Opts For Growth Rebates Over Attach On Servers, Storage
Designed to boost solution providers' ESS product sales, the move -- which applies to business-critical servers and enterprise storage -- comes just a year after HP launched Attach Plus rebates as incentives for VARs to sell more HP offerings in a single sale. The ESS Attach Plus rebate was intended to get solution providers to sell HP enterprise storage with HP enterprise servers.
The change also comes on the heels of a disappointing first quarter for HP's ESS business, which grew 5 percent year-over-year to $4.5 billion for the first quarter ended Jan. 31. Operating profit for the period was $416 million.
In the first-quarter earnings conference call, HP Chairman and CEO Mark Hurd expressed disappointment with the vendor's storage and business-critical systems business. Storage, for example, grew 3 percent year-over-year, but Hurd said, "We need to drive stronger top-line results in this business."
Larry Holzenthaler, executive vice president of sales and marketing at TotalTec Systems, an Edison, N.J.-based HP enterprise solution provider, called the changes "minor modifications to a good [PartnerOne] channel program."
Still, Holzenthaler said he's not a fan of growth rebates. "I would have preferred that HP would have figured out how to reward solution providers that sell HP storage with HP servers," he said.
Tim Joyce, president and CEO of Roundstone Systems, an Alameda, Calif.-based HP enterprise solution provider, said HP hasn't briefed him on PartnerOne program changes.
"I'll reserve judgment until see them," Joyce said. "But the sooner that you make the program clear to partners, the sooner we can all go do more business. We spend a lot time trying to understand, trying to participate in it and being audited [for compliance]. All of that is all time we don't spend selling. We hope the program becomes a lot of easier to administer, because it has become unwieldy."
Joyce said the ideal partner program is one that is simple to understand and participate in and has lots of money behind it. "If you do those things, sales will take off," he said.
HP executives said the incentive change is designed to drive growth in ESS.
"For me, [the change to growth rebates for ESS] is about how you create that focus of growth," said Adrian Jones, vice president and general manager of HP's Americas Solution Partners Organization (SPO). "We heard loud and clear from partners that when you are up against stiff competition in that space, margins are going to be slimmer. We hear that resellers want to make more margin and more money, so that was one of the components for why we changed it, to create more focus around HP products vs. competitors like NetApp or EMC."
Jones added that HP must do a better job targeting its competitors in the storage arena, including potentially recruiting additional solution providers that aren't currently selling HP storage.
"We need to start targeting all of our competitors, not just NetApp and EMC," he said. "Sun is doing pretty well in that space. You are going to see us getting more aggressive in that area."
Solution providers expressed initial concern that the formula change for ESS rebates would result in a reduction in rebate money.
But Tom LaRocca, HP's vice president of partner development and programs for the Americas SPO, said the new rebate plan, called Growth Accelerator, could result in substantially more money for solution providers that exceed ESS sales goals. He said the rebates could reach "double digits" for the new growth plan.
Attach Plus rebates will remain in effect for industry-standard servers, LaRocca noted.
HP had a growth component as part of its Attach Plus plan for ESS, but it was calculated on a quarterly basis with a look back to the year-earlier quarter, according to LaRocca. As a result, solution providers complained that because of the cyclical nature of the business, they could have an exceptional quarter one year that would prevent them from earning a growth rebate in subsequent quarters. Solution providers acknowledged that they sometimes played games of delaying or accelerating customer payments to make sure they qualified for growth rebates.
But LaRocca said HP has fixed the problem with Growth Accelerator. He said the growth goals will still be based on how much ESS business the solution provider did for the year-earlier quarter plus "a reasonable market growth." But he said at the end of the year, HP will "true up" the annual growth to remove the cyclical nature of the business. So if a solution provider's annual growth hits its yearly growth target, LaRocca said HP would pay the growth rebates even if the partner missed a growth target for a quarter.
"We are telling solution providers to just take care of the business, and if you get it in another quarter, you are going to get paid by me later on. Don't worry about it," he said.
HP also introduced a new growth rebate for its Imaging and Printing Group (IPG) products and changed the Attach Plus rebate formula from attaching multifunction printers (MFPs) with color printers to attaching IPG hardware with services and accessories.
"That's the true attach," said Scott Anderson, HP's vice president of IPG commercial channels.
The new IPG growth rebates feature individual growth targets and rewards for MFPs, color printers and overall IPG hardware, he said.
Beginning May 1, MFP sales would now be eligible for HP's New Business Opportunity program, which allows solution providers to register accounts to protect margins, according to Anderson.
"NBO for MFP will help," said Pete Busam, COO of Decisive Business Systems, a Pennsauken, N.J.-based HP solution provider. "These are just minor changes [to PartnerOne]. They continue to evolve the program."
HP said it's also adding a new Elite status for HP Services for solution providers that can demonstrate capabilities in offering mission-critical services.