After Oracle-Sun deal: Some good news for Sun VARs

Sun channel hopes for Oracle licensing changes and less-than-expected channel conflict on hardware deals.

As the dust settles from the Oracle-Sun deal, at last some good omens for Sun VARs buffeted by the nine-month-long buyout saga.

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First, Oracle and Sun partners fully expect Oracle Corp. to adjust its licensing metrics to make Oracle software running on Sun SPARC chips more price competitive with that same software on Intel and AMD processors. That move could jump-start more SPARC-Solaris-based business, they contend.

Second: What seemed to be a major direct sales push of Sun hardware now appears to be less draconian than it first appeared, and the emergence of Tom Wagner, Sun's former vice president of North American sales, gave some Sun VARs reason to cheer.

Oracle licensing changes expected to boost SPARC

Resellers are checking Oracle's licensing website daily, anticipating a change that would bring Oracle core pricing more in line across the SPARC/x86 divide.

"You have to count the cores in the processors and apply different multipliers based on who makes the chip. Right now, the factors range from .25 up to 1 and for a long time Sun/SPARC has been sitting at .75 while AMD and Intel are at .5. That's a big difference when you're talking about $40,000 list-priced software," said one long time Oracle VAR that requested anonymity.

On the downside, because this change was so widely expected, many customers are holding off on purchases until it happens, several other VARs said.

Oracle is known for changing the all-important core multipliers based on which CPU is in favor at any given time. Right now, SPARC is clearly in the pole position given that, finally, Oracle owns it. Oracle has also pledged an array of SPARC/Solaris-based data center appliances that bundle the full Oracle soup-to-nuts stack.

Oracle hardware sales -- less direct than expected?

Last week, Oracle CEO Larry Ellison rocked the Sun channel when he said that the top 4,000 Sun accounts would go direct in terms of sales, service and maintenance. Earlier that day, Oracle co-president Charles Phillips had put that number at 1,700. Now it appears that the real total will be lower even than that.

Sun partners were later told that the 4,000 figure was for worldwide enterprise accounts, and in the U.S. the number will be much, much smaller. One VAR that has been briefed said the real number in the U.S. was more like 150 accounts.

For Sun VARs -- that made good money not only on hardware sales but also by participating in Sun's renewal program -- the issue of renewals remains huge. But one VAR said that Oracle told him last week that "they still want partners that add value included in the maintenance renewal program."

It would be a huge relief if Oracle continues to allow Sun partners to keep a piece of the renewal pie, although one long-time Oracle partner said that the chances of that happening remain a "pipe dream."

Oracle partners can participate in the first year of renewal/ maintenance, but afterwards, all of that revenue goes directly to Oracle.

Even as Sun struggled in the past few years, it sustained a good number of profitable partners at least in part by letting them participate in renewal contracts and by not penalizing Sun's sales force when a deal goes through partners.

The whole notion of "value add" is very much in play here. Ellison repeatedly invoked the need for high-value-add partners, not box pushers. Although, of course the notion of who defines "value" is very much in play here.

Mike Davis, CEO of Applied Computer Solutions, a big Sun partner in southern California, like many VARs, said his company will be fine, but others not so much
"The big guys with lots of add-on value and great relationships will do well, but the bottom 70% [of partners] are dead meat," he noted.

Sun VARs worry about Oracle channel model

The biggest difference between Oracle and Sun has been in the way their direct sales forces have been compensated, said the executive at another big Sun/Oracle VAR.

Generally, an Oracle rep gets more money if a given sale goes direct. If a partner is involved, the rep's cut gets smaller -- whatever margin the partner gets is lost to him. Channel conflict is built into the Oracle model while Sun treated sales differently, he said.

In the Oracle world, "it's not just commission but quota. If a partner is involved [in a deal], the Oracle rep gets less money and fewer quota points and, in some cases, the quota points are more important," he said.

Ellison has repeatedly said over the years that he will not pay twice on one sale, so the notion of a compensation-neutral model is anathema at Oracle.

Sun partners were also told by Oracle that new business they bring to the table will be protected once they register it in Oracle's deal registration system.

"If you register, they won't compete [with you]," said one Sun VAR. "The proof is in the pudding, but with Ted Bereswill at the helm and Tom Wagner back in charge of the Sun channel, we have a good chance I think." "They all said that Larry is much more channel aware than he has ever been after learning more about the Sun business. The PRM process, if managed properly, addresses Larry's issue of not paying twice or too much." Bereswill is Oracle's senior vice president of North American Alliances and Channels.

An Oracle partner, however, said that rosy view will darken with time and experience. He and other Oracle channel veterans also laud Bereswill's efforts to curb conflict but maintain that one good way to lose a deal is to register it with Oracle.

"Somehow they always find a way to say that it is not net-new business and thus it's not a new opportunity and thus it's direct, not ours," said this partner in the Northeast.

On the plus side, Tom Wagner's emergence at Oracle was welcomed with a sigh of relief by Sun partners. Wagner was widely respected by VARs for promoting a fair and straightforward channel program. He left Sun for Agilysys several months ago but surfaced at Oracle last week. Sun VARs said Oracle's decision to bring Wagner aboard shows that the company is starting to see the value of a strong channel for boosting hardware sales.

Alex Barrett contributed to this report.

Let us know what you think about the story; email Barbara Darrow, Senior News Director at bdarrow@techtarget.com, or follow us on on twitter.

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