Bypassing Partners
Direct selling by vendors is a cause of worry for solution providers
By K R Nambiar
If I were to make a list of business lost over the last two years due to direct selling by our principal vendors it could very well be in excess of Rs 50 crore. We have lost at least 30 deals during this period in customer accounts that we have managed for years," says Ranauq Singh, Director of Delhi-based system integrator, Targus Technologies. 
A large deal Targus lost last year was from telecom-major Bharti, an account the company has serviced for several years. "It was one of the largest customers for Targus and we enjoy an excellent rapport with the customer. But last year, HP said they would manage the account directly as Bharti has grown to a size that warrants it being treated as a strategic account," adds Singh.
Targus is not the only company that has suffered due to increased amount of direct selling by vendors. Bangalore-based system integrator, Frontier Business Systems, too, has been at the receiving end of its vendors’ inconsistent and opportunistic policies. Ravi Verdes, Managing Director of the company is vociferous against the increasing number of direct deals by vendors. In the past, he has accused his exclusive principal IBM of poaching customers and deals without taking him into confidence. Last year, Verdes even considered discontinuing his long and exclusive relationship with IBM. "It was so disheartening to see that the vendor with whom we have shared a strong relationship was poaching even small deals of 2-3 servers," he avers.
While Verdes continues to sell IBM as most of his enterprise customers are on the Big Blue platform, he is no longer an exclusive and loyal partner. The company has recently signed up with Dell as an enterprise partner.
Bangalore-based Dreamquest Infotech has also suffered heavily due to direct selling by its exclusive vendor HP. Sachin Rao, CEO Dreamquest, accuses HP of snatching as many as 22 accounts over the last 15 months. "You can imagine the business loss suffered due to this. HP has given us no good reason for taking away the accounts," rues Rao.
Another leading system integrator from South is also livid. The reason: "Our key principal recently snatched away one of our largest accounts. We had put in a lot of effort to convert this MNC customer from Dell to HP. We set up their global support center in Bangalore. But a year and a half later once the account matured to a certain size, we were curtly told that its now been classified as a direct account and we will only get an over-riding commission," informs the CEO of the company who preferred anonymity.
Excuses vendors make
According to partners, the common excuse vendors give is that of customers wanting to buy directly from them. Vendors claim that even in instances where customers buy directly from them, partners continue to get ORC and also continue to provide post-sales support. "One thing that vendors keep saying is that customers increasingly want to buy directly and hence they are forced to sell direct. But I don't see why any customer would want to buy direct unless they are getting better prices. Now if they want to give special rate to any customer they should do that through a partner rather than going direct," reasons Singh.
He further adds, "I am not against HP or any other vendor selling direct to a few strategic accounts. But a partner is pained when the vendor sells directly to accounts we have spent years developing. Initially, for such accounts they do offer us ORC on direct deals, but later they turn around and ask us why should they provide us any commission if we are not providing any value addition, and use that pretext to stop paying the ORC."
According to partners, the other popular reason given by vendors to justify their direct customer engagement is to blame it on Dell's aggressive pricing. "Last year, both IBM and HP went aggressive and started selling directly to combat the increasing influence of Dell. If you were an HP or IBM sales head, last thing you wanted is an order being lost to Dell. But the question is could they have done these deals through their partners," reasons Girish Madhavan, CEO of Chennai-based Quadsel Systems, an HP partner.
E Manikandan, CEO of Bangalore-based Vitage Systems agrees: "One can understand vendors' need to keep competition at bay but that doesn't necessarily require them to go direct. They could work with partners.
Vendor apathy and lack of consistency are the biggest problems. In many cases, we are the last person to get information that a customer is being serviced directly, even though when that customer has been mapped to us. I cannot blame the customer, but at least vendors can inform us."
Agrees Rao, "HP has still not given us a clear reason for making our 22 accounts direct. They simply insisted that it was the customer who wanted to buy directly. I feel that all these accounts could have been serviced through us even today and there have no significant value addition for the customer because of the vendor getting involved," believes Rao.
Naming accounts
All vendors without exception have a policy of naming accounts that it will target directly as they are strategic accounts for them. HP, for instance, has 3 different types of named accounts—HP Direct, where it deals directly with the customer. This list constitutes very large Indian enterprises and large global customers. The second set of named accounts are HP-led partner-managed accounts, which means that the billing is done directly by HP but partners manage customers by providing solutions and services. They also get ORC on the bill of material even though it's billed directly by HP. Mostly, this set includes dollar-billing accounts. The third type is partner-led and partner-managed i.e. customers who are managed totally by partners. HP claims that for this category of customers, even if they wish to buy directly from them, it insists they buy from partners. Beyond these named accounts, all customers are exclusively for channels to manage.
"It’s true that all vendors have a clear named account policy. But while the policy does exist, it’s not followed on the ground. If they continue to follow the policy we have no issues but in many cases there are blatant violations of it and that's where the conflict arises," explains Sudhir Kothari, Managing Director of Kolkata-based Embee Software.
Agrees Suresh HR, CEO of Bangalore-based Central Data Systems, "Vendors keep talking about the various policies they have to protect partner interests. But sadly, they don't work in reality. For instance, HP has sold service packs to customers mapped to us, without informing us before and after the transaction. It makes us look like fools."
Rajeev Mehta, CEO of Delhi-based Zest Systems reasons the culture of direct selling despite a strong policy framework present with vendors. “Making policies work requires people to follow them. It is up to the account managers to ensure that the named account policies are followed. In most cases, however, instead of working under the policy framework, vendor managers take decisions based on their equations with the partner. Sometimes confidence levels and comfort levels also play a role, and a decision is taken whether the vendor will handle the account or whether it will move to another partner," he says.
Countering direct-selling
Partners agree that the only way to counter direct competition from vendors is to either be broad based and become customer centric rather than being vendor centric.
"There is very little a partner can do if the vendors want to sell direct. You can’t compete with them as the prices and policies are decided by them," admits Raunaq Singh.
"The main difference between vendor and partner is the personalized service and support which is extended beyond contract. We normally offer a whole lot of services almost free which are beyond contractual obligations. We also provide extra reports on service related issues. All this provides a customer enough confidence to deal directly with us and customer stays away from dealing with vendors," says Yogesh Godbole, CEO of Ace Brain, a corporate reseller from Pune.
Customer centric approach is the best way to go, say most channel partners. "However, tuning yourself to customer centric approach is not that easy, after being associated with a vendor or a set of vendors for long," says Ajay Maitin, CEO of Patna-based Graphic Trades.
"If the customer is looking at a vendor purely from a price perspective and the business is just about box pushing, then there is nothing we can do. That is why we have positioned ourselves as a solution-centric company," says Ravi Verdes.
Verdes claims that the total cost of ownership of buying from Frontier will be cheaper compared to IBM. "When it comes to solutions we offer much better value for money than vendors," he says.
"It is all about building relations and showing the customer value. We have been successful in retaining very large accounts and getting them to stick to us, because of the relationships we enjoy with the customers. They know that a vendor can offer a great price, but when things go wrong, it’s the partners who are around," says Kothari.
Also, partners believe that vendors have been compelled by Dell’s aggressive foray into channels to review their channel engagement policies.
“Many of my peers have signed up with Dell only because they are frustrated with their present vendors and their direct selling. Many more partners will do so if IBM and HP don’t clean up their acts,” reasons Singh.
"There has been some improvement in case of IBM and they are now talking about becoming more channel centric. It could be because they are feeling the heat from Dell and also because they have recently got some old channel managers back. For instance, Anoop Nambiar, who had joined Lenovo, has come back to IBM and he has demonstrated proactiveness in addressing partners’ grievance," says Ravi Verdes of Frontier Business Systems.
“HP too has assured us to change the named accounts policies to minimize the conflict with partners. Their new policies ensure better enforcement of their partner friendly policies. They have a new program called registration of new opportunities, where a partner can identify a business and lock it by registering online, and HP will ensure that the account stays with us," says Suresh H R. |