EMC to clamp down on direct sales, clear way for channel with SMBs

EMC's efforts to repair its relationship with the channel include punishing direct-salespeople who poach deals that should belong to a partner.

EMC Corp. intends to punish its direct sales representatives where it hurts the most -- in their pockets -- if they are caught poaching sales from accounts that are supposed to be reserved for channel partners, according to Pete Koliopoulos, vice president of global channel marketing at EMC.

Reacting to years of partner complaints that EMC's direct sales representative have taken accounts away from channel partners, Koliopoulos said, the company had created entirely new rules of engagement designed to protect channel partners. It rolled those rules out to its staff in January, but it hasn't been clear until now whether EMC's own staffers would face penalties for violating those rules.

For example, if an EMC direct sales person were to quote a customer and then go to the partner, rather than allow the partner to quote the deal, under EMC's new rules a breach would be committed.

The most obvious violation would be if a direct salesperson were to try to take a deal direct, after a partner had identified the opportunity and registered it.

In these cases the direct sales representative would receive: "no commissions or compensation and neither would his managers up the line, no quota retirement and we'd probably give margin back to the partner," Koliopoulos said. "Also if you're the first partner in and you register the deal through our partner support center then you will be the only one entitled to special pricing," Koliopoulos added.

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"This is absolutely necessary for the health of the activity between EMC and the channel; I think it's just long awaited and a very welcome change in direction," said Nick Ganio, executive vice president, worldwide sales and marketing at MTI Technology Corp., an Irvine, Calif.-based EMC partner. "Now they have to make sure that they implement it and manage and monitor it," Ganio added.

"I think this is a move in the right direction and it shows that EMC respects the value that the channel brings to the vendor community," said Keith Baskin, storage practice manager at Optimus Solutions, Norcross, Ga.- based EMC partner.

EMC's own estimates show that revenues from its channel business is growing faster than the company's overall revenue, which grew 15% between 2005 and 2006. Revenue linked to registered deals -- which give system integrators an extra 5% discount off list price -- increased by 30% in the third quarter of 2006 compared to the same quarter of 2005. The company also said over 50% of its business is touched by partners.

EMC's numbers may have jumped, but profit margins at some partner companies were not as high.

"Companies were not achieving, in some cases, the revenues that they thought they would and that we thought they would," Koliopoulos said. "When we went back and looked at the root causes we weren't doing something right in the value chain that we were delivering to them; either we weren't offering them services, or people were getting in their way or they could not make enough margin for any number of reasons and that's what usually drives the partners to do something else," Koliopoulos added.

That said, EMC has declared 2007 to be the year the company focuses on partner profitability by changing the way it does business with its channel partners. The drive this year will be to encourage partners to invest in EMC's certification programs, and get partners to offer more services to small to medium-sized (SMB) businesses, which will grow revenues and help partners capture greater rewards offered by EMC.

Currently, EMC serves the SMB market exclusively through partners and has removed incentives for its direct sales force to sell services to SMB customers, clearing the way for partners to provide those services.

EMC defines small companies as having less than $24.9 million in annual revenues and midsized enterprises are those with $25million to $499 million in annual revenues.

"Growth in the SMB space around storage is strong for sure, but the battle ground is just as competitive as it is in the enterprise arena," Baskin said. "Margins are getting squeezed as all the tier-one vendors move to grab more market share, plus you have the tier two and three players trying to push upstream from the bottom. We are seeing the same margin pressures in SMB as we are seeing in enterprise," Baskin said.

Eric Linxweiler, senior vice president of managed services division at Logicalis US., a Bloomfield Hills, Mich.-based systems integrator and EMC partner, said while EMC is keen to have partners sell EMC hardware and software solutions the reality is many customers want to mix their product choices.

"We bid all the time a mixed response to a customer, we rarely ride one complete product set. We'll use an EMC Centera with Symantec software products in front of it, and there are people who are upset that you make that blend, but the fact is if you don't the customer is not going to buy that solution," Linxweiler said.

Still, with an eye to take advantage of opportunities in the SMB space, EMC wants its partners to become Authorized Service Network (ASN) certified as a way of providing greater service to SMBs, which is where the opportunities are.

Koliopoulos also said that smaller VAR partners have a chance to move up the four-tier partner program, which aligns a partner's investments with program rewards. The four tiers in its Velocity Partner Program are: associate partner, advantage partner, premier partner and signature partner, in that order.

EMC has also scrapped its points program, which was similar to an airlines' frequent flyer program, and has replaced it with a system based on revenues, training and accreditation to determine which tier a partner is assigned and what rebates and co-op dollars a partner is entitled to.

The company will accelerate a partners' ability to meet revenue goals by multiplying software revenues by five. For instance, if a company sells $20,000 worth of hardware and $5,000 of software on a deal it counts as $45,000 toward their tier requirements, executives said.

EMC is also boosting the number of technical engineers, solution engineers and system engineers to the channel, as well as increasing its advertising campaign to end users, telling them of the benefits of working with an ASN certified partner.

Let us know what you think about this story; email: Nicole Lewis, Senior News Writer.

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