Burning Questions: Channel Dollars and Drag

I am starting a new category of posts called Burning Questions – each on an technology industry issue to generate, hopefully, spirited reaction amongst my readers. Like last week’s Bluebird post. I have always liked the way Rich Karlgaard (editor at Forbes) posts leading questions and readers debate the topic.

 I am kicking this off with the role of channels in technology sales. How do vendors balance the benefit from channel partners with the impact they have on TCO?

• The first time I met Dave Duffield in early nineties he launched into me about how my firm Price Waterhouse was making PeopleSoft look bad because of our large implementation proposals. Of course, I had to defend PW but I liked the fact he was thinking of his customer dollars. 

• In the mid-90s, SAP faced with huge consulting bills around its projects, introduced its ASAP (Accelerated SAP) methodology to expose its customer base to vanilla implementation paths - to the annoyance of most of its SI partners which were proposing much more elaborate implementation paths

• In 2000, when I was running IQ4hire, a marketplace for IT projects, Cisco asked us to consider private labeling the exchange to monitor their implementation partner proposals and certifications. 

I bring out these examples to contrast against others than do not appear to worry as much about partner impact on TCO.

• Do telecom vendors care how hotels add significant premiums to their WIFI, long-distance and other  products - much to the annoyance of their customers? 

• Take Apple’s iPhone relationship with AT&T. The base pricing over two years of the mobile service is over $ 1,400. Add texting, Hotspot charges if you travel, international calling and roaming, international data plans. Over 2 years, you could easily be at 5X to 15X the cost of the iPhone . Did Apple try to influence the cost of the service to its customers?

• Back  to SAP. ASAP has been out almost a decade and its systems integration partners      continue to charge decent sized implementation fees. For the field sales person does a partner who may bring him/her in to other deals matter more or does the customer TCO? 

So here are some questions for my readers:

As a vendor how do you handle conflicting priorities between customer TCO and channel driven business? Has business development/partnering become easier or more difficult in the last few years? As a buyer do you depend on vendors for recommendations on partner products or do you make your own independent assessment? 

Other thoughts?  

Comments

[Nithin Kumar]

Hi,

Godd Dialog. As vendors the focus is much more on the consulting and services than the Customer TCO. Usually the Customer is smart and covers their TCO better than us. After the proposal is selected they will ask us to do a componentization of the project with cost and timelines. This is the document that decides the fate of the project. The client will remove the components from the original requirements after looking at the cost per component. Some components might be intorduced in the original requirements only to test the pricing.

[Charles Zedlewski]

It's a timeless topic. The economic principle is called double
marginalization. It's bad.

http://faculty.haas.berkeley.edu/rjmorgan/Double%20Marginalization%20v2.ppt

The problem is if you leave no profits to the channel, you have no
channel. So the net is there's no easy answer. Give market power to
the channel, you double marginalize your market. Take all market
power away from the channel, you have no channel.

[vinnie mirchandani]

Nithin: customers get smart but gradually. Apple risks anger over ATT spilling over to iPhone. SAP suffered through all the overruns even though it was not the software's fault.

Charles: not saying beggar your channel, but giving it 5, 10, 15X dollars?

[Michael Krigsman]

AcceleratedSAP was a great way to reduce implementation costs by bringing SAP, its customers, and its partners on the same page regarding the implementation process itself. Pulling this off required a massive effort, but in fact SAP did substantially accomplish this goal.

ASAP only went so far, however. As we know today, the roots of implementation failure generally lie in the non-technical complexity around politics, lack of consensus, inexperience, and so forth. My previous company, Cambridge Publications, developed the AcceleratedSAP tools (just the tools, not the methodology) for SAP. My current company, Asuret, is building tools that address the issue of non-technical complexity on software implementations.

As you pointed out, SAP annoyed its SI partners by demanding they follow the ASAP process. Why? Complexity breeds higher cost, which benefits the consultants' bottom line. This higher cost came at SAP's expense, however, as the the company came under attack due to spiraling implementation costs.

At the end of the day, and despite its limitations, AcceleratedSAP did serve customer needs: simpler, faster, lower-cost implementations.

Michael Krigsman
http://projectfailures.com