Constructing The Ultimate Product And Vendor Portfolio

"Not all vendors are alike when it comes to relationships," he says. "A bad one can be as deflating as a good one can be uplifting." His company should know. One of IBM's top business partners--it was recently recognized by IBM as its most outstanding partner in the Americas--MSI has dropped a few companies with which it just couldn't effectively align. Simpson won't name names (hint: someone big in storage with a three-letter name).

For MSI and scores of companies like it, managing vendor partners effectively is a science, complete with a well-thought-out methodology and purpose. In this article, VARBusiness examines some of the strategies that solution providers can use for better vendor management, while highlighting some of the latest changes in vendor partner programs. Herein, we look at the decisions that VARs need to make when it comes to the products they get behind, the programs they join and the best practices they should look for from vendors.

Building a Product Portfolio

For some companies, building a product portfolio is easy: Get behind the hottest-selling product and enjoy the ride. But often such a feeble approach produces less-than-satisfactory results. That's because hot technologies often attract more product sellers than a market can effectively support, which results in less-than-appealing product margins if and when these resellers start engaging in price wars to win business. Many partners, including Milestone Networks of Parker, Colo., have purposely decided to align with "alternative" vendors, figuring they can make better margins on underrepresented companies than overrepresented ones. In its case, Milestone Networks chose Juniper Networks over Cisco Systems for that very reason.

Experts and many VAR business owners suggest the best way to look at building a partner portfolio is to recognize that vendor products fall into three basic categories: core technologies, gap products and emerging innovations. Each is defined by its own set of criteria and characteristics.

Core products, for example, are defined as those technologies that drive a business--i.e., the ones that generate the most revenue for VARs or the ones that help define an organization's area of focus. For a network-integration company, for example, these may be core-routing and switching technologies, or even security products. For companies with a vertical-market focus, these may be a line-of-business application, an application server or a database that supports these technologies.

Core products come in two flavors: leading-edge products that have high margins and trailing-edge products, whose profit margins may have slipped but that still generate cash flow. (Think mature routers and servers, for example.) Both have their place in a vendor's product portfolio. The former may be technologies that drive new product sales, while the latter are ones that are likely to drive services revenue.

Core products should never be brought into an organization without a thorough review of where they fit into a VAR's overall strategy. That's because they often include significant training, if not certification commitments, which means extensive investments into personnel training. These products tend to have higher customer support costs, as a result.

That's why smart VARs, including Pronto Solutions of Lawrenceville, N.J., have put together formalized strategies for adding key vendors to the company's product family. Pronto, for one, examines a vendor's products carefully to see how they fit in with its existing offerings--do they fit in with its pricing plans, do they offer complementary service opportunities, etc.--and whether the vendor offers much in the way of free or subsidized support. It also looks at prevailing street margins on such technologies and what kind of leads and/or market support a vendor provides.

In contrast to core technologies, VARs often need what are commonly referred to as "gap," or stretch, products. These are often the glue that holds or ties complete solutions together. Though not particularly strategic or critical, these technologies cannot be taken lightly. Many times VARs sell these products without specific authorization or approval from vendors. They pick them up on an as-needed basis from distributors and other providers, and they add them to RFPs, solutions sales and their own recommendations as they see fit.

That's not to say, however, that these technologies aren't important or, moreover, not worthy of formal consideration. In fact, many experts believe these products should be as thoroughly vetted as other technologies before bringing them on as core products. That's because vendors tend to change their policies and prices governing these technologies more frequently for loosely or unaffiliated VAR partners than they do for their most committed partners. Another thing to consider: Vendors don't typically support or assist unaffiliated partners as much as they do more committed, higher-end allies. That means support costs could be higher for gap products than core products.

Like core products, gap products can be leading-edge or more mature. In some ways, going with a mature gap product that has a significant installed base, well-defined routes to market, and understood and anticipated support needs may make more sense than representing an emerging gap product. (That may just be the reverse of core products, which are looked to for higher margins.) That's not to say that gap products do not generate margins; often they do. Think print-and-file servers for document-imaging solutions, or backup-and-recovery software for security and compliance implementations.

Finally, there are emerging innovations and technologies. Because of their advanced nature, these technologies often carry some of the highest gross margins in the business. That's because fewer partners resell these products or have the wherewithal to install and support them. In many instances, such is the case with Cisco, which limits the number of partners it allows to resell some of its most sophisticated technologies; being part of an exclusive group of select solution providers chosen to sell a particular product can be tantamount to printing your own money. While gross margins on emerging products may be higher, net margins may not necessarily follow suit. That's because these products have long sales cycles and may require that partners do extraordinary things for customers to secure a sale. That can entail funding the installation of demo equipment or running a subsidized pilot project for a customer--either one of which can eat into profits.

Terry Calloway, president of Data Technique, says his company looks carefully at emerging technologies before making any decisions. That's especially true if an emerging technology is coming from a new vendor rather than an established player in the market. He's looking for vendors that can ultimately enhance his core relationships or help him expand into vertical markets.

Programs On the Move

Evaluating a vendor's product portfolio is but one of three things a VAR should consider before taking on a new vendor partner; the other two, of course, involve assessing a vendor's partner program and its best practices associated with that program. In this, our 11th annual Partner Programs Guide, VARBusiness notes several key developments in programs' best practices. When asked what the best thing is about their programs for 2005, several vendors touted their consistency and predictability. That includes IBM, Intel and Lexmark. Many more, however, identified the revenue and profit potential they have worked to ensure as their single best attributes.

Avocent, for example, singles out its deal-registration program for helping it reward partners who initiate sales opportunities as its best program feature. So did Symantec; it has a Partner Opportunity Registration program that it is particularly proud of. It pays a cash rebate to partners who cultivate new customers for its products.

Citrix pays partners a fee for the deals they register with the company, regardless of whether the partner that registers the deal ultimately wins it.

"We have managed to identify, nurture and reward the partners that actually invest and drive customer demand for Access Solutions through our Advisor Rewards program in an industry-differentiating way," says Ross Brown, Citrix's vice president of worldwide channels and operations.

BMC, meanwhile, singled out its Solutions Ladder, which provides a framework for helping partners cross-sell and upsell more of the BMC software portfolio and helps partners get into higher-margin sales opportunities. That's similar to what Oracle is emphasizing this year. It says the best characteristic of the Oracle PartnerNetwork (OPN) is "the ability to sell and install a product line that is relevant from the enterprise to the small and medium business customer; and technology [database, application server] across to ERP, supply chain and customer relationship management."

Exabyte, too, says its programs and products "offer superb margin opportunity in a seemingly mundane area of IT." Konica adds that its new incentives make selling its products more profitable than most. Ricoh also has new incentives for 2005, at both the front end and at the back end of a sale.

Several other companies are investing in lead-generation systems. That includes Network Appliance and Captaris.

Also new for 2005: vendor-recruitment drives. After spending the past few years reducing the size of their channels to a "meaningful few," many vendors have recognized that they simply do not have a sufficient number of partners to go after all of the customers they desire, especially midmarket customers that are best served by the VAR channel. Ladd Timpson, Novell's director of worldwide channels marketing, for example, tells VARBusiness that "moving to a partner-led territory and midmarket model, combined with our successful demand-agent program, has created great incentives for partners to work with Novell."

SAP and McAfee also are looking for new partners. And NetIQ, for example, lists as its No. 1 challenge in 2005 "recruiting go-to enterprise partners across NetIQ's core solutions in each geography."

A number of vendors are simply trying to get better organized this year. Take Oki Data, for example. It says the loyalty it enjoys comes from not selling direct and for being innovative and organized. Its new Color Power Pack Program, for example, helps solution providers develop quarterly marketing programs that showcase customized direct marketing pieces. More than 60 percent of Oki Data's channel partners have taken advantage of this opportunity, the company says.

Then there's perfecting best practices. Symbol, for example, went to an outside, third party to review and assess its PartnerSelect for the financial impact it provides to channel allies.

Considering how partner satisfaction has ebbed industry-wide during the past few years, such an investment may make as much sense as any other.