Oracle VARs Worry New Channel Incentives Mean Delays, Lower Prices

Oracle's hardware solution providers are concerned certain changes to parts of its channel program could hurt their profitability, but the vendor said that the changes are actually good news for partners who focus on selling Oracle's "strategic" products.

Oracle last week unveiled the changes to its Oracle PartnerNetwork (OPN) program, including new rebates for registering deals and selling certain strategic products, including SPARC servers, ZFS storage appliances, and StorageTek tape automation products.

Under the OPN Incentive Program, Oracle is offering rebates to solution providers and value-added distributors (VADs) that sell combined Oracle hardware and software products in registered deals outside of the 2,000 top accounts Oracle sells to directly.

The company is also offering rebates for selling "strategic" products, including SPARC T-Series servers, ZFS unified storage appliances, and StorageTek tape automation products.

The rebates are on top of standard margins resellers earn on those products.

Some of Oracle's solution providers said the structure of the new incentive rebates means a long delay in getting paid and could drive down street prices.

One solution provider, who declined to be named, said the new rebates for selling Oracle's strategic products, which add up to about 8 percent including the deal registration rebate, could mean a lot of trouble for partners.

The first problem is that Oracle will not pay the rebates until as long as two quarters after they are earned. "So they're telling our sales reps they can get an extra 8 points," the solution provider said. "Guess what? You need to fill out a bunch of forms, and then wait a quarter or two to get paid. And Oracle expects us to manage this while our people are screaming for their money."

In addition to the "management nightmare" from the rebate delays, the solution provider said the new rebate could lower the street price for Oracle hardware without providing partners or the vendor any additional benefit.

That kind of discounting can go to the street pricing, said John Murphy, executive vice president of Advanced Systems Group, a Denver-based solution provider and Oracle partner.

"With any vendor, rebates always get calculated into the price, and could drive street prices so there's no profit," Murphy said. "So in general, I prefer backend rebates. But I haven't had time to fully look at the impact."

The time it will take Oracle to pay the rebate will be a challenge, Murphy said.

"Most resellers don't pay their reps until they get paid," he said. "That's hard for sales reps who get paid commissions."

Oracle's new rebate program also means a cut in some backend rebates, which partners used to fund some of their marketing programs, the first solution provider said.

"We used those backend rebates to fund events for customers, hire people, and send our people to training," the solution provider said. "Oracle just took all that away. So guess who's not coming to our events in the future."

Not every solution provider used those rebates to fund marketing. "For some VARs, they maybe used the backend rebates to buy a plane or a racing car," the solution provider said. "But even if the owner wants a new race car, or to upgrade their older race car, guess what the owners will do? Tell their reps to sell more."

Jim Standard, Oracle group vice president for global channel sales, said the OPN program enhancement include some of the first rebates Oracle has offered partners, and are aimed at rewarding partners who work with the vendor to sell those strategic products and increase the attach rates of Oracle services to the hardware.

NEXT: Oracle Says Its Program Changes Are Good For Channel Partners

Oracle wants to offer its solution providers consistency, predictability, and transparency in its partner rewards, Standard said. The company can also be flexible with those awards.

"Our strategic product category is something we can change every six months," he said. "There will be other products VARs can be asked to sell, and we'll add those products to the strategic category."

As for the rebate payment timeline, Standard said the rebates are paid based on the net sales to Oracle, and that the company will wait until the end of the quarter to start the process.

"So after the close of our books, the day we announce earnings, we can start reconciliation with our partners," he said. "We need time to do this. We've deal with the channel for many years. For us to be able to account for the rebates and be exact, we need to wait for the quarter to close."

Oracle also believes the new rebates should have little or no impact on street prices, Standard said. "But we're offering no definitive restrictions for what VARs do with the money," he said. "Oracle's goal is to get additional sales on specific products and services."

Standard said that Oracle did end the old Sun Microsystems' Partner Growth Fund (PGF).

"However, that was a percentage of a percent of sales, a very small amount," he said. "It's hard to accrue, and hard to monitor. So it now falls into our new incentives funding. Sun's PGF was very restrictive about what could be done with the funds. Our program lets VARs do what they want with it. If they want to buy a beach house with it, they can."

Murphy said the new rebates offer potential upsides for solution providers, depending on which accounts Oracle keeps as named accounts.

"Oracle is seeing they need the channel business, and they're coming out with specific incentives to support us," he said.

Andy Kotarba, president and CEO of Dewpoint, a Lansing, Mich.-based solution provider and Sun partner, said his company, like most ex-Sun solution providers, has had to make a lot of adjustments to their business after Sun was acquired by Oracle.

That included adding staff, database administrators, and consults to help build new offerings based on Oracle's product line, Kotarba said. "So for us, new rebates for hardware and software, and new rebates on strategic products, are for Dewpoint all upsides," he said. "We weren't expecting it. It's a better economic model than a month ago. So we are aligned on it."

The delay in getting paid the rebates, which could amount to two to four months, is a challenge, Kotarba said. "We need the details," he said. "For a company like ours, we need to know where any dollars are coming from if Oracle wants us to compensate our sales team."

For Kotarba, the biggest challenge working with Oracle is the need for the vendor to improve its field engagement with its partners. "We're still running up against direct sales in small accounts," he said. "But it's changing for the better. Oracle knows it needs to engage to channel to grow the business."

Murphy said he misses the rebates channel partners used to get from Sun before it was acquired by Oracle.

"Oracle has a different model from what Sun had," he said. "But this could be good, given Sun's financial model. But it's not always as good for the channel."