8x8 Promises Big VAR Returns In New Cloud Networking Channel Program

As the VAR and telecom agent channels converge and IT solution providers look to cloud-based services to fortify their margins and customer bases, the ideal service provider channel program for VARs is going to be the one that eliminates channel conflict from the get-go and promises VARs revenue streams that they can be comfortable with, at margins they can live on.

8x8, the longtime VoIP provider and, more recently, hosted networking specialist, thinks it has that program.

Next week, 8x8 will formally debut an authorized reseller program designed by IT channel veterans to appeal to VARs that are skeptical of service provider compensation schemes, but who are embracing hosted and cloud-delivered services to buoy their traditional reseller businesses going forward.

"We're repositioning 8x8," said Kim Niederman, senior vice president of worldwide sales operations for 8x8, in an exclusive interview with CRN. "What sets us aside from a lot of the cloud SaaS and IaaS service providers is that we want to go through the mainstream data VARs as opposed to the interconnects."

Sunnyvale, Calif.-based 8x8, which has been publicly traded since 1997 and is one of the country's largest VoIP service providers, claims about 25,000 businesses in its customer base and is increasing that base by about 1,000 businesses a month, Niederman said. It has six data center locations in the U.S., and focuses on SMB customers with an appetite for cloud-based networking services.

8x8's roots are in producing chips and software for the videoconferencing market as well as chips for VoIP manufacturers, and it began selling end-to-end VoIP services in 1999 following several acquisitions. In 2010, 8x8 shifted its focus to providing cloud-based hosting services following its acquisition of Central Host.

It's in the cloud-based networking services arena where 8x8 sees a monster channel opportunity in front of it, Niederman explained -- particularly for VARs who want to offer cloud-based VoIP to replace traditional on-premise phone systems, cloud-based contact center, cloud-based managed hosting in an infrastructure-as-a-service (IaaS) format and cloud-based video services.

"If we can offer that by one provider as a solution rather than four providers, that'll have a big impact for the end user," Niederman said.

8x8's flagship VoIP service is 8x8 Virtual Office, which is a SaaS-based hosted PBX offering unlimited calling and various enterprise business phone features delivered over public or private broadband networks.

8x8 offers several flavors of Virtual Office, including Virtual Office Solo -- a single-line business service and softphone designed for small office/home office (SOHO) users -- and Virtual Office Pro, which bundles 8x8's Virtual Meeting video web conferencing, Internet fax and other unified communications features for use with IP phones, softphones and mobile phones. The Pro solution is priced at about $50 a month per line.

Video services are newer to 8x8, which in April launched Virtual Room, an SMB-centric, cloud-based video service that can be launched from 8x8 Virtual Meeting and uses 8x8's SIP-based technology. The service is powered by Polycom's UC Intelligent Core platform and 8x8 has established a $200-a-month flat rate per system use.

The other two elements of 8x8's four-pronged cloud networking services approach are managed hosting and cloud-based contact center services. The company plans to use the provisioning, virtual private service, managed DNS and various monitoring tools 8x8 bought with its recent acquisition of Zerigo as part of the managed hosting offering.

Support for 8x8 services -- including software upgrades and bug fixes -- is included in the flat rate pricing, according to the company, at no extra charge.

Structurally, 8x8 will continue to put resources behind its inside sales teams and also direct market resellers, but the bulk of its new channel recruitment efforts will focus on enterprise VARs and systems integrators, SMB-focused VARs that work with distributors, and master agents and their sub-agent communities.

It's in the design of its new channel program where 8x8 is relying on the specific expertise of Niedermann and Vice President of Channel Sales Don Trimble, who like Niederman, joined 8x8 in February. Both executives have deep expertise in networking sales and lengthy IT channel backgrounds, with channel-facing executive stints at Cisco, NComputing, 3Com, HP ProCurve, Polycom and a number of other companies between them.

Trimble has no doubt 8x8 has what it takes to draw in data networking VARs, and it starts with the compensation model 8x8 has created.

"The whole mentality of a VAR is getting something at the time of sale," Trimble said. "I wanted to make sure we baked that in, because I think that's how we're going to hook them, and get them to understand how to shift to a residual-based model going forward."

Next: The Nuts And Bolts Of 8x8's Channel Program

Under the 8x8 Authorized Reseller Program, VARs can sell 8x8 products and services to create annuity revenue streams using any or all of 8x8's four major hosted networking services. VARs in the program are supported by territory-based 8x8 channel managers and 8x8's inside sales team, and have access to web-based program tools such as deal registration to protect partner margins.

VARs who partner with 8x8 stand to make money off 8x8 deals in three ways. First, according to 8x8, is a one-time bounty paid as a fixed dollar amount per service, and paid out 30 to 45 days after the end of the month of the date the VAR makes the sale. Bounties for 8x8 Virtual Office sales, for example, can be $50 per line, and go up to $100 per contact center agent seat if the sale includes 8x8's contact center solution.

The second moneymaker is a residual revenue stream of 12 percent of total master resale rights (MRR) for 8x8 services sold under term contracts, and VARs make those residuals as long as the customer keeps active service with 8x8.

Finally, VARs can make a commission of 5 percent on equipment sold at or above 8x8's stated floor price for the Polycom, Linksys or 8x8-branded Aastra IP and conferencing phones, various routers and Plantronics headsets offered through 8x8. The commission for a single, $329.99 list price Polycom SoundPoint 560 IP Phone, for example, would be about $10 provided it's sold at or above the $199.99 floor price 8x8 has set.

According to Niederman and Trimble, those compensation methods can together lead to lucrative overall margins for VARs on 8x8 deal -- as high as 29 percent in year one on a higher-end Virtual Office Unlimited Extension deal with 50 lines, and up to 18 percent maintained in year three based on the ongoing residual revenues. That's not even counting professional services, additional hardware and other things VARs can bundle for customers, Niederman said.

Offering an "up front" return -- i.e. the bounty -- as well as residuals and commissions helps VARs get used to the more carrier agent-centric residual model while making some of their money in the format they're used to, he said.

"They're going to have a new source of revenue that they didn't participate in before," he explained. "In the past, the hardware channels sold the PBX but didn't see residuals behind that. Each one of these [services] can be resold by data VARs and they'll see residuals and bounties."

One 8x8 goal is to limit what Niederman called in-brand competition, and he and Trimble aren't looking to saturate the program.

"If you take a Cisco VAR and there's 50 other Cisco VARs in the same zip code, all they can do is compete on price," Niederman said. "No one wins."

What's required of VARs is that they bring a minimum of 12 new accounts or deals a year to remain an Authorized Partner. If they don't meet 8x8's requirements, they lose their Authorized status and become a referral partner for 8x8.

Next: VARs, Carriers All Have Place WIth 8x8

The carrier agent channel is an important route to market for 8x8, particularly because agents already understand the residual compensation model that dominates their channel world. 8x8, for example, signed an agreement with master agency World Telecom Group in May as part of its carrier channel recruitment.

But it's VARs who will define 8x8's channel in the future, Niederman and Trimble hope.

The goal, said Trimble, is to have 8x8's channel mix be about 60 percent to 40 percent VARs versus carrier agents, but as the program grows and more traditional networking VARs get the residual revenue piece to work for them, shift toward an 80 percent/20 percent mix in favor of VARs over the next several years.

"Obviously the whole market is moving to a more cloud-based set of solutions offerings," Trimble said. "Customers are asking for it from their current data VAR community. Customers are asking their current providers, what can you bring me from a cloud-based perspective?"

A service provider like 8x8 is an ideal vendor partner for smaller VARs that don't have means to build data centers and expensive hosting operations on their own, the executive said. Those VARs also need service provider partners who have clearly stated channel goals and aren't looking to cut VARs out of the cloud service sale entirely, Trimble said.

"I think in dealing with bigger service providers, there's always that concern for resellers," Trimble said. "Those providers tend to be resellers of hardware themselves, and with their buying power, they can take the hardware chunk of [the sale] right out of it [from VARs]."

VARs will be dragged -- kicking and screaming if necessary -- into selling more services on residual revenue models, Trimble said, once they start losing more hardware business to hosted providers.

He and Niederman acknowledged what's traditionally been reseller discomfort over the residual compensation scheme, but according to Trimble, VARs tend to get excited "once they see the residuals and the commissions flowing in and they've built a nice annuity revenue stream."

"What they're used to is the model where they install a box for $100,000 and get 20 points on that, one time," Niederman said. "So we're saying, we'll give you at least 20 points and now instead of selling a box you sell services you can make residuals behind, too. It's pretty exciting."