March 21, 2001

The (reseller) channel is everything

Author: JT Smith

- by Jack Bryar -
Open Source Business -
Linux marketeers, repeat after me: "The channel is everything, the
channel is everything, the channel is everything."

It's the hardest lesson for most new software and system developers
to learn. You can't get to the market without help. And that help is going to
cost you money, time and aggravation. If you want to be a player in the
enterprise marketplace you have to figure out a way to work with the established
channel of VARs, integrators and resellers. You might not like the fact. You
probably shouldn't like it. But you can't avoid it.

There's been a lot of chatter in the I.T. press speculating about
why so many of the major Linux players seem to be crashing when they try to sell to
large corporate accounts, and nearly all the theorizing has missed the point.
The reason many of these firms have failed has little to do with the
supposed flaws in Linux as a platform -- the flaws are there, but they aren't the
reason. It's also got little to do with the fact that even the largest Linux-only
vendor is microscopic compared to established vendors Dell or IBM, although
that's not a small problem, either.

The biggest problem has been the fact that most vendors don't want
to play by the rules of the I.T. game. Linux is different, but not that different.
Most Linux developers will need to identify, feed and care for a set of local
resellers who can work the end user market for them. And most of the Linux
specialists haven't tried very hard to do that.

Take good ol' Red Hat. At least the company has a partner
program for the VAR and reseller community. It hopes to grow that program to the point
that it generates 60% of gross sales. CEO and president Matthew Szulik was featured in VAR Business a couple of weeks back. It's just that most
established VARs don't think Red Hat has put together a very good program. According to the recent VAR Business poll, Red
Hat was dead last in its categories among the VAR community,
despite a top-rated product. Why? Because doing business with the company was so
difficult and the company's management of its VAR program was so inconsistent and
disorganized that some key partners wondered if the company was all
that committed to having relationships.

While Red Hat may have been trashed by the VAR and reseller
community, at least the company showed up, which is more than could be said of most
other Linux-focused product developers. A scan of the VAR
Business Partners database
was significant for what wasn't in it.
Namely a whole bunch of the Linux company names you might have expected. You
can't win the channel if you don't try to compete for it.

This is not to say that winning the hearts and minds of the VAR
community is any guarantee of financial success. Developers have noticed that Sun
Microsystems has managed to survive quite nicely despite earning blisteringly bad
reputations for directly competing against its channel partners.

And Novell has
served as a cautionary example of just how badly the channel can treat a product
developer. Until recently most resellers loved Novell. And many of them proved
their love by abusing the company -- taking leads to grow their own support
businesses, while neglecting to sell any Novell product whatsoever. In a number of cases
they were reselling support services Novell provided to them for free.

Stories like that are not uncommon. Many Linux developers are no
different from other smaller I.T. developers. They worry about reseller loyalties,
fear reseller competencies (or lack thereof) and deeply resent the loss of
as much as 30% of their price point to the channel.

This is even more of a problem in the Linux arena. Vendors like VA
Linux (which owns NewsForge) are depending on the growth of their own systems integration businesses as a means to generate badly needed revenue. Many of them have no other significant revenue stream outside of systems integration. Is there room for such companies to develop a VAR strategy?

A couple of Linux firms have tried, with mixed success. Linux
NetworX recognized that it would need channel partners if it were to make
headway selling its cluster management technology outside selected niche markets. It
recently developed a specialized VAR program, called the LNXI Cluster Partner
Program for "VARs of all sizes" to help that effort, but the program didn't
preserve the company's independence. A few days ago EBIZ Enterprises agreed to
purchase the company.

Caldera Systems has taken a slightly different approach. The company
has had a pre-existing reseller program. A few days ago it announced that its
Open Linux Workstation had "entered open beta" and the company was encouraging software downloads by would-be resellers and integrators. Among the bait to attract
developers was a particularly rich set of development tools, including the tools that
Caldera will give to its own professional services group. The company promises
that the final version of the product will come with a complete commercial
development toolkit.

There are plenty of reasons to think that Caldera's plan for the
channel will succeed. Despite grumbling in the channel, Sun has succeeded in selling
directly and through its VAR program. IBM has one of the strongest professional
services business in high-tech, and it still manages to generate a significant
portion of its sales through VARs and other resellers. In fact, much of the logic
behind Big Blue's commitment to Linux involves a major expansion of the reseller
channel and the company's in-house integrators.

In fact, there's also plenty of reason to think that resellers will
stick with a small set of Linux vendors if they are treated right. The diversity
and (dare we say it, forking) that has occurred in the Linux marketplace
means that VARs and downline application developers have a choice. They could build and distribute and support multiple versions of their product, specific
to each distribution. They could write their own installation routines (adding
greatly to cost). Or, they could they could pick a closely related set of
vendors and become a partner in the truest sense of the word.

That is, if the major Linux developers want to have partners. If
they want to stay in business they may find they have no choice.

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