Transcript for UCStrategies Experts Discuss Channel Conflict

Nancy Jamison: Welcome to UCStrategies weekly podcast, I am Nancy Jamison and I am here today with the UCStrategies team to talk about the sometimes controversial topic Channel Conflict: is it a myth or not? Over the past several years we have heard numerous vendors talk about how they are changing their sales models to a more indirect partner model. We have companies like Avaya and Siemens and Mitel and others that they are moving towards more indirect models but as I am sure you have seen, this is not without consequences. We at UCStrategies certainly know the value of the channels, so much so that we hold this celebration every year. Actually I am kidding about that, but we do hold a conference on the channels (The UC Summit) because we are very serious about it. One of the issues we repeatedly hear about is channel conflict. This can come in many forms from vendors using different forms of compensation for the indirect versus the direct sales force. We have heard about favoritism when doling out leads, and it can come in the form of technology vendors selling equipment to another vendor and then competing in that same arena, and that certainly happens in one of the areas that I track, contact center and IVR, where the speech technology vendors sell to the IVR and contact center vendors, but they also sell their own contact center stuff and then this can cause conflict. I have heard this anecdotally all the time. I have heard one vendor will say that Senso teaches classes in channel conflict or that they invented it. And I have heard one reseller will come in and work on a deal and then the vendor that they are representing will undercut them on price and all sorts of stories like that. So, we thought that this would be a really hot topic to talk about, is this real or is it a myth, do these issues happen a lot or are people just bitching about an occasional account?

So I think I will start with Don Van Doren who has a lot of interesting and insightful thoughts on both pre- and post-sales on this subject. Don?

Don Van Doren: Thanks Nancy. I want to comment actually on both of those. Especially in the post-sale situation, I think what we are finding is that the vendors often use the channel to be a buffer between themselves and the customers. Here are some examples that my partner, Marty Parker, has pointed out recently.

First the systems integrator generally has to pay the vendor for the product before it is installed and accepted. That really means that the SI is at risk for any failure of the product other than what might be covered in the warranty.

The second issue is that the vendor’s warranty generally starts when the product is shipped, not when it is accepted by the customers. Most of the VARs or SI’s cover that gap through their own maintenance plans. At the end of the warrant and maintenance period, the customer sometimes finds out that they have to pay for that renewal much sooner than they expected or than they might have budgeted for.

The third thing we see quite often is that the vendor is not involved with and doesn’t really have to agree to the customer’s terms and conditions. Customer negotiates those terms, acceptance terms and service level agreements, etc., with the systems integrator or the VAR, not with the vendor. Because the vendor does not have to agree to those T&C’s, they may not be obligated by them.

Fourth, we find that maintenance terms in general are often just a mess. The vendor typically sells the maintenance agreements through the channels at high prices with pretty low discounts. Yet, the systems integrator is fine with that sort of a process right up to the point that something does not work. Then the SI gets squeezed in the middle, does not have much control, possibly uncertain support, and very little margin with which to fund the personal touch needed to really maintain customer satisfaction.

Marty and I at Unicom recently have gone through a situation in which a VAR declared Chapter 7 bankruptcy. And because of this kind of buffering that I just described, the vendor frankly was all talk and little action claiming that there was little that they could do because it is in the hands of the bankruptcy trustee. The customer basically had to fend for themselves and we were helping them scramble and find some alternate resources. Several problems: one is just financially because some of the monies had already been paid to the now bankrupt firm. Secondly, in this particular situation the customer had a cut coming up in 30 days and no real way to get this thing accomplished. So there are some real challenges with this, certainly in the post-sales side, that we see.  

On the other hand I think that vendors who are seeking to broaden UC sales are increasingly going to need the VARs and need the VAR specialist to make those sales. I think that the best implementations, and a number of us have seen this commented on it, the best implementations of unified communications, especially UC-B where you are getting involved in the business process, really requires effective channels. As David Yedwab brought up on a podcast a couple of weeks ago (UCStrategies Experts Discuss CEBP), there really are significant opportunities in vertical applications for UC-B. The vendors cannot possibly address those vertical markets effectively, as they really require some very specialized knowledge and specialized configurations and in some cases, specialized interfaces into non-communications oriented business application software. So the vendors clearly need the specialist channels and they need to figure out how to eliminate the kinds of conflict that destroy the very interest of the people who make UC most effective and most transformational.

So in summary I see it as both excellent opportunities and some really big challenges. And it is going to be interesting to see how some of the vendors are seeking to address those issues.

I am going to turn it over to Blair. Blair you have some recent learnings from Mitel.

Blair Pleasant: Thanks, Don. Last week I was the Mitel Partner Conference and they also had some analysts there. (Also see "Mitel – Changing Engines in Mid-Air," by Blair Pleasant.) It’s funny because we actually had set up this podcast topic a few weeks ago and it’s kind of interesting that the big thing that Mitel was talking about channel conflicts and how they’re changing what they’re doing. So we got to hear from the new CEO, Rich McBee, and he was very open and forthright and basically told the audience, yeah we realize that there have been a lot of channel conflicts and we’ve basically been competing with the channel and we’re going to change that now. So he talked about when he got the company there were a lot of inherent go-to-market and channel conflict problems. He even said in some cases, buildings were divided by direct and indirect sales people who couldn’t really talk to each other. Obviously, that was a big problem, and he admitted that the company was competing with itself and that’s going to be changing now. So at a general session with the channel partners he told the audience that in the past we’ve had some competition but going forward you won’t be competing with Mitel, and there was a big round of applause from that. Then he explained the new strategy for, not only how they’re going to be changing their channel strategy but also, some of the product changes that they’re going to be doing.

So as far as channel changes the new sales model is going to be to replace Mitel’s current direct sales team with a direct touch sales team. That direct touch team is going to act as an external sales team focused on prospecting for new opportunities in medium-sized companies. So all sales in the mid market are going to go through the channel although they’ll make the exceptions as necessary. So they expect to grow from 35 direct touch people to about 60 in a short amount of time. For large deals, the partners will work with the direct touch team and for smaller deals they’ll work with their channel account managers instead. Now, obviously, it’s going to take some time for this to really work out and for everything to get finalized, but Mitel is definitely on the right track with this. Basically, they’re going to take all the direct opportunities that they have and companies that they’ve been working with and turning that over to their partners who can work with a direct sales team to work with those customers. So the partners that I’ve spoke with at the conference were very excited about it and they said that they’ve already seen a lot of changes and are very encouraged by it. So I think Mitel really is setting a good example of how to fix a system that was broken when it comes to channel conflict.

Nancy Jamison: Pam, do you have something to add to this?

Pam Avila: I do, but I am going to kind of tag on to what Don was saying and Blair as well, and talk about a couple of areas of not so much channel conflict as not really understanding what the channel is about on the part of the vendors. There is a huge chasm between what the vendors think the channel does, how they think the channel operates, and how it actually functions. I think that creates some major problems. And one of the areas that I have seen is this whole issue of loyalty and the loyalty bonuses that some of the vendors pay in the hope that their channel partners will sell only their product or feature only their product. And especially in the UC environment that can create some major issues. Even Gartner has come out and said that in unified communications it really comes down to best-of-breed solutions rather than proprietary or single-source solutions. And I think Don was alluding to this a little bit when he was talking about some of the integrators and the UC-B solutions that they were providing. But the whole concept of an integrator or a reseller focusing on just one manufacturer’s products today is not really effective. That integrator can be much more effective talking to the customer saying I am going to provide you with the best possible solution out there instead of, I am going to shoe horn your needs into the product that I carry and that I get a loyalty bonus for. So the whole issue of loyalty, I think, or special loyalty bonuses, is one that is creating some problems in the channels, especially on the telcom side.

The other issues that I am seeing, and again it is talking to that chasm is that today still so many vendors are focused on providing training and education especially on the sales side that focuses solely on their product. As we are moving forward and seeing that today customers are buying answers to their business needs, answers that solve business problems, they are not buying technology per se or buying specific products. When the manufacturers are training the sales people to sell one way, namely product sales, and the sales people really need to be focused more on a solution sale or consultative selling process, then it is really not benefitting the channel at all.

So those are my thoughts and comments and Nancy I am going to pass it back to you.

Nancy Jamison: Okay. I do have a question, Michael you are on the call, right?

Michael Finnernan: Yes I am.

Nancy Jamison: Did you have any comments about channel conflict with the mobility because we kind of hit contact centers and UC?

Michael Finneran: We really don’t hit it that much because our primary channel really is the mobile operator. Possibly as time goes on one of the developments we are looking toward in mobility is eventually a separation of the device from the mobile service. Mobile carriers will be fighting that tooth and nail but for the time being really our role is geared or defined by the mobile operators themselves. So we really have not seen that great an extent, but it is certainly one of the things we’re keeping an eye out for.

Nancy Jamison: I have one more question for Pam, and that is the great comments that you made I was also curious if you have seen how the vendors are dealing with some of the smaller system integrator/VARs who really do not have the bandwidth to spread themselves out. So they may specialize in one or two vendors, but it is hard for them to branch out because in part because the requirements that certain vendors put on them as to having to be certified, or go through a lot of classes, and at that point if you are only dealing with one or two customers a year that may want a specific product you can stay with what you know. So have you seen any of the vendors do anything to deal with that issue?

Pam Avila: No, I really haven’t Nancy, and in fact, quite the reverse. I am seeing more and more of the smaller vendors, the newer vendors, that are demanding a lot of technical training and certifications. And as you said, for that smaller integrator or for that smaller VAR it does create a problem. If you think about it for the primary products that they are carrying, for those products that are a major component of their solution, then certainly that technical training or even a certification may be appropriate.

Nancy Jamison: Very Important.

Pam Avila: Yes. But for all of those other elements of the solution that are more—and I do not want to hurt anybody’s feelings, but I call them secondary elements—for those elements to have extensive training, to require extensive training, to require certification, is really fairly ridiculous and not very realistic on the part of the manufacturers because the channel just cannot afford that expense. And it is a time expense and it is a financial expense.

Nancy Jamison: I think it blocks them out and then I have also seen where not only does it block out somebody who may be doing one or two sales a year but then say, well, you are only doing one or two sales a year so we are going to cut you out. Well that might be a really good sale, or it may lead to something else, but they are kind of putting up a wall. So I think that issue needs to be addressed as well.

Pam Avila: I agree with you and I think overall there are just some...it kind of goes back to that whole chasm issue again that vendors really need to become much more aware of how a VAR, how an integrator, really runs their business; how they deal with their customers and how they make their sales. And they do not do it the way the vendor necessarily wishes they would, it is how they do it in order to survive and succeed.

Nancy Jamison: Yes. And the last words are the most important ones. Does anyone have any other comments?

Art Rosenberg: Yes, this is Art. One of the things that is happening, as everybody can see, is the shift away from premise-based hardware and even premise-based software to hosted services of various kinds. That is where things are going to be coming together for the channels to help their customers put all these pieces together and help integrate them. And it is not going to be from one provider, it is going to be from different forms of technology and also the different applications. That’s a little more complicated than it has been in the past; you cannot just buy everything in one box and be done with it. You cannot control end users especially your customers and that is where the money comes from. And so you have to be prepared to communicate and have applications communicate with people that you don’t own.

Don Van Doren: This is Don. Isn’t that the point to another key challenge upcoming for the channels? How do they work in the cloud environment very effectively? I mean it is complicated enough trying to have them understand the intricacies of the products that they are representing, but especially when you are involved in the cloud-based solution, that certainly as a minimum changes the whole concept of the business model under which these guys typically operate. So how is that going to work?

Art Rosenberg: Especially the CEBP area.

Nancy Jamison: Yeah.

Pam Avila: It is true in any area, and Do hit the nail on the head that it really does require a significant shift in the business model for the channel partners because the way they receive their revenue is different, the way they support their client is different. So it is a major shift for them and they are not getting much assistance from the vendors on that score.

Nancy Jamison: They are trying to figure it out themselves.

Art Rosenberg: Part of the problem is that the vendors are not sure how they fit in yet. Some of them are moving, but they have not done it yet.

Nancy Jamison: Yes, and then you’re going to have the issue of, some customers are going to want half and half and that is going to complicate it even further.

Art Rosenberg: That is right. Or the migration.

Nancy Jamison: I still think we need to go back to the fundamental things that we are talking about earlier which is that we have this channel conflict issue and we have as Pam pointed out we have vendors who do not really understand or do not necessarily want the people that they are supporting them to work the way that they are working and now we are going to throw this whole cloud issue on top of it and make things even more complicated. So it will give us more things to talk about.

I think that wraps it up, and thanks everyone for your thoughts.