No reseller wants to compete head-on with its technology vendors for the same margin. That’s especially true when margins on hardware and software continue to shrink and cloud technology is having such a disruptive effect on traditional go-to-market models. Last year, analyst Blair Pleasant from COMMfusion LLC explained the value added reseller (VAR) dilemma in a podcast, in the context of unified communications. She predicted vendors would have to get inventive with their channels.
“Really, the only way to make money in the near future is going to be in the value added offerings like customisation, integrating solutions with business processes and other professional services. Most of the vendors have their own organisations to do this, so they’re really competing with their channel partners – they’re making a lot of their money from professional services. So the vendors need to come up with ways to ensure that their channel partners can still make money from professional services without harming their own offerings in this area.”
With such a situation developing, it would be reasonable for vendors to ask themselves: “How do you get your channel to continue to invest in you?” It’s a question Matthew Barker, country manager for Sub-Saharan Africa at Aruba Networks, poses. Aruba operates within a 100-percent indirect model.
“A vendor, even one operating indirectly, should drive its brand, create awareness with the public, and ensure channel conflict is kept toa minimum,” says Barker. “Too many channe partners for a small market create problems. If you, as vendor, want to drive incentive and certain behaviour in the channel, you have to incentivise the channel, and that means margin, not carrying your brand. The likes of Cisco get it right with measures like deal registration. There they say, ‘You bring us the business, and we give you the better price, protect you and only work with you.’ This is critical, because there are thousands of products and lots of competition. If one vendor assists you in making margin, you as VAR don’t have to turn so much money to make money.”
Custom support
Big or small, all players in the market, including vendors themselves, face aggressive competitors and margin pressure, says Barker. In response, resellers invest heavily in technical skills, but, as highlighted before, often end up competing with their vendors. He reckons a vendor can take a much better approach towards its resellers.
“If I, as vendor, can get resellers to invest in my channel, they can make the money back on me. Then I get the benefit of not having to carry the extra staff. If we incentivise them to do it, they will drive more and more investments. The more professional services people employed, the more salespeople they need to keep them busy.”
Reseller incentives are relatively easy before implementation, but much harder afterwards, says Barker.
“How do you, the reseller, support your customer going forward, and how do they log calls, on their own resellers or always on the vendor? And how do you incentivise your channel to take on that role for you as well?”
One of the answers lies in customised SLAs for customers, delivered by resellers and backed by the vendor, he explains.
“We say, Mr End-customer, you can buy support post-implementation directly from Aruba, such as telephone technical support, or delivery of kit next business day. Some of our global customers like Microsoft and SAP insist on this, but it’s very structured.
“However, some customers require something different, a different type of SLA. When our partners carry certification to deliver and support our technology, we allow you the reseller to buy a small SLA contract at a very reduced rate, only available to certified partners, not available on the market. For example, we will back the reseller at third-level, advanced support. The reseller then takes that SLA from us, and builds his own for his customers, with significant profits. So you, the partner, can choose to sell our direct support and make a bit of margin on it. Or you build your own specific SLA for the customer who may need a one-hour response requirement, and you charge the revenue for it,” continues Barker. “The margins in that space are very high, because it’s customised, or because it fits in with all the technology you support at the customer.”
Barker says a lot of customers in South Africa are moving towards this because they have a lot of faith in their reseller. After all, a reseller could have 600 or 700 people locally and turn a few million a year, with operations bigger than the technology vendor.
Custom implementations
“If you, as vendor, want to drive incentive and certain behaviour in the channel, you have to incentivise the channel, and that means margin, not carrying your brand.” Matthew Barker, Aruba Networks
Meanwhile, another dynamic can leave doors open for resellers in the contact centre industry, where technology implementations are as varied as the customers themselves.
“With cloud computing, the middle man is taken out of the configuration. Most organisations deploy cloud solutions hosted centrally, and the services around that offering are controlled by the vendors themselves. So the space for the reseller to add value is shrinking all the time,” says Deon Scheepers, regional business development manager at Interactive Intelligence Africa.
Similarly, cloud software offerings, such as ERP software as a service, leave very little room for resellers looking to offer unique services, he says. Salesforce is another example of a cloud offering cutting out resellers with a fairly standard offering, with low levels of customisation and integration.
“In the contact centre and communications space, services are still quite unique. A contact centre requires a lot of distinctive skills and services to meet the customer’s individual requirements and integration into applications. The workflows and processes are still specific to the customer,” says Scheepers.
“This creates a lot of room for services in that space. That is an advantage for us and our resellers, the opportunity to make money on our cloud software and also on services within that cloud scenario.”
Slower cloud arrival
Resellers in Africa and South Africa still have some time to make their plans while the full cloud revolution rolls in, however.
“The adoption of cloud solutions is pretty slow. People are still a bit nervous and asking questions about security, and whether these fit business models. In Africa, we have issues around bandwidth availability, reliability, speed and cost. The reseller in Africa or South Africa sees a slower cloud wave approaching than in the rest of the world, but it is definitely coming,” says Scheepers.
“The more unique the software solution hosted in the cloud is, the more opportunity there still is for resellers to make revenue.”
With hardware, software and some services morphing into commodities, resellers can look at offering unique support services or customised, integrated solutions for continued revenue opportunities, in collaboration with channel-savvy technology vendors.