Happy New Year for the Channel?

Economic upturn may mean that investment levels are on the up with organisations beginning to leverage technology change to adopt server consolidation, ebusiness processes and high availability solutions. But without differentiation resellers are going to see cost of sale escalate and margins continue to fall, argues Neverfails Neil Robertson.

The UKs resellers may be hoping for a happy New Year in 2005 as the economic upturn prompts organisations to relax the investment ban and address the huge pent up demand for technology, from ebusiness solutions to server consolidation. But those Microsoft resellers expecting to simply sit back and rake in the cash are in for a rude awakening: customers may be more confident but they are still savvy and for those resellers offering no differentiation, low price will win out. That means more business but ever lower margins on everything from product to maintenance.

Add in the escalating cost of sale associated with increasing competition and the New Year may not be looking quite as profitable despite the economic upturn. Resellers have got to differentiate or miss out on an unprecedented money making opportunity.

Tough times over?
The last four years have been tough for the IT community, particularly the reseller channel. As organisations have focused on cash retention rather than investment, IT expenditure has been slashed to the bare minimum, focused exclusively on areas with high demonstrable payback or corporate governance led necessity.

But things are looking up: as the economy emerges from recession, organisations are gaining confidence in their ability to attract business at a decent margin and, as a result, beginning to invest in IT solutions to support new business initiatives. And there is some serious catching up to do: during the past four years technology has changed beyond measure with ebusiness practices, for example, now an accepted part of every business activity.

The four year hiatus in IT investment will undoubtedly provoke a serious review of existing systems. Many companies will have to upgrade servers or face prohibitive maintenance charges. Yet, as real time analysis of 500 Microsoft Exchange and SQL servers across the UK and US demonstrates, most UK organisations are utilising only 30% of their server capacity. With new server products available at a fraction of the price, yet offering up to four times greater capacity, many companies will simply be adding unnecessary oomph to their IT infrastructures.

But, with the increasing availability of virtual machine technology, server consolidation is prompting significant interest; enabling organisations to consolidate multiple applications onto one server. The solution ensures better server utilisation and reduces the maintenance time and costs associated with hardware investment. However, this trend increases the risk associated with business downtime. And, combined with the need to deliver 24x7 access to business systems, places an increasing demand for high availability and disaster recovery:

Escalating cost of sale
So this is good news for the reseller: investment ban lifted, demand for new technology, plus the not so subtle nudge from Microsoft insisting customers upgrade from Windows NT to Windows 2000/3 to prompt the less optimistic into re-evaluating the IT infrastructure. Or is it? How can any of the plethora of Microsoft resellers achieve differentiation from the pack? With marketing campaigns typically achieving less than 0.5% response rate and even short listed pitches winning out only 25% of the time, the cost of sale is constantly increasing. If customers have little chance of differentiating between potential suppliers, they can only opt for the lowest price offering squeezing margins on both products and services ever further.

Microsoft resellers have got to find an opportunity for differentiation. But, with innumerable vendors offering fantastic new products to add to the portfolio, just how easy is it to find the right solution? How quickly can the up front investment for the privilege of selling the product, added to a significant training cost, compounded by the lost sales and technical consulting time whilst staff receive training, be recouped by a sales force loath to add yet another product to the portfolio? Indeed, why should a reseller pay to undertake the marketing and sales of yet another product that may or may not deliver the goods?

Marketing support
Just why are vendors providing such poor sales and marketing support to the reseller channel? One of the problems is that vendors understand the reluctance of the sales team to step outside their comfort zone by introducing a new product that could potentially jeopardise existing or new customer relationships which is why they charge such extortionate amounts up front for training, in the hope that the cost will prompt the reseller to adopt a serious commitment to the product.

But this approach is simply a cop out. Vendors have got to take a more proactive approach to sales and marketing in support of resellers if both are to maximise sales opportunities. And a critical component of this support must be to address not just the hot leads, those already in the market with budget and a commitment to buy, but those companies in the process of ascertaining needs and allocating budget. Too often this latter group which will represent up to 85% of generated leads are overlooked by sales people desperate for the hot body.

At best the larger group of prospects will be offered some marketing material of variable quality and relevance, possibly followed up by a call a couple of months later. But getting into the tender process early is key if the reseller wants to differentiate themselves from the pack by introducing new technology

A good example of this would be in the High Availability market. Marketing is delivering a 7% response rate of organisations that have an interest. Whilst only 1% of these are actively in the market, the remaining 6% are investigating what is possible and the associated costs for planning and budgeting purposes. More often than not, this investigation process is usually driven by a recognised need to improve data availability. A Partner can immediately differentiate by offering application availability (protecting the data AND seamlessly keeping the user connected to a working application). What is required is a highly cost effective way of delivering this education component

Webinar presentation
By using online technology, notably the webinar, a vendor can provide resellers with a forum for educating and presenting to customers without incurring the massive costs associated with face-to-face presentations.

As the marketing delivers a high volume of interest, the prospects are invited to spend between 30-60 minutes at their desk (either in a live webibar, or pre-packaged download) to gain a detailed understanding of the solution. The salesperson just has to point the prospect at a web page to sign up and the rest of the process is taken care of.

Furthermore, the vendor should leverage joint buying power to produce high quality marketing material, personalised to the reseller, which ensures consistency of information and brand and is supported by a focused joint lead generation campaign.

This online technology can also play a key role in providing education to both sales and technical staff without requiring extended periods out of the office. Backed up by rigorous examination, elearning ensures the resellers staff achieve a level of technical and market understanding to deliver the confidence in discussing issues with customers that is key to ensuring the product becomes a core component of the portfolio.

The edge
Resellers know they need to achieve differentiation to stand out from the herd but the cost of entry with most vendors is simply too great. This approach, leveraging the webinar to educate potential customers, removes not only cost from the sales process but the complexity of the sales process can be handled by the vendor, leaving the reseller to simply quote a price. Critically, the approach ensures a low cost of sale that enables up to 40% margin.

Not every sale will include this new technology, but the ability to offer this service to potential customers should get a reseller onto the short list and hence the sales force through the door more often than the competition, providing the chance to sell every relevant product and service in the resellers portfolio. Without this differentiation, Microsoft resellers may find 2005 a less than happy year after all.

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