The VCE Co. last week revamped its partner sales model to eliminate redundancy in its channel organization, two VCE executives said this week.
That news, which was not communicated broadly, may come as a relief to VCE partners that, over the past few weeks, said the company has cancelled appointments, phone calls and seminars, sparking concerns that VCE might be toggling back its channel focus.
First of all, the company, which is a converged infrastructure effort launched two years ago by Cisco Systems, EMC Corp. and VMware Corp., had overlapping channel organizations. One addressed service providers, another public sector companies—federal, state, local and higher education— while a third focused on geographies for any business not covered in the other two categories. Those duplicative organizations as well as the various channel and sales groups at the parent companies cooked up a recipe for confusion.
Last week, those overlapping VCE structures were converged (excuse the pun) into a single geographic organization. “We’ve gone to a straight geo model except for a few named service providers,” said Tim Page, senior VP of global sales for the VCE Co.
There were some layoffs, but the number could be counted “on a few hands,” Page said. “In some cases, in major geos, we had seven, eight or nine people in the same area. Some sales people were let go and some were moved to the back office,” he said.
The company also merged field and channel marketing into one group.
An executive with a VCE partner in the Northeast said this reorg, which he had not heard about, meets the smell test. “They did have too many people in the same area—a geo focus makes sense.”
Many VCE partners were concerned of late because of missed appointments and a lack of communication. Some feared this was blow-back from Cisco layoffs or a retrenchment to a more direct sales model. Many VCE partners early on complained that they lost Vblock sales as EMC sales people, in particular, broke up Vblocks in order to take the storage component sale direct.
Both Page and D Martin, VP of global channels for VCE, said EMC changed its compensation model specifically to address such conflict. They noted EMC sales people now actually make more if the storage component goes via Vblock versus separately.
That change, they said, happened six months ago, although at least one current VCE partner executive said he’s seen little improvement in that time. “It always seems that some sales rep—EMC or Cisco—has some quota to fill at the end of whatever quarter and we run into trouble,” he said.
This partner, who requested anonymity, said he uses the deal registration system VCE built to protect partner-led deals but that his company still feels compelled to register every Vblock deal with Cisco, EMC and VMware as well. This is not the most efficient way to do business, he noted wryly.
Page acknowledged some conflict early on but said it was spurred because VCE couldn’t keep up with “an overabundance of demand” for Vblocks, and the channel conflict has been resolved since then.
VCE partners' concern was exacerbated when they learned that Pete Koliopoulis, the VCE partner exec that many had worked with, left the company earlier this summer.
VCE a loss leader?
Because VCE is not a company onto itself—EMC owned about 58% of outstanding equity as of June 30, 2011, and Cisco owned about 35% as of April 30,2011 according to the companies' respective SEC filings—it’s hard to tell how it’s doing financially.
According to their most recent 10-Q statements, EMC has lost $132.3 million and Cisco $40 million on VCE since its inception.
Those numbers led to speculation that VCE Co. itself is bleeding red ink or that the parent companies might pull out. But VCE insiders who requested anonymity, said that those reported losses have more to do with how revenue and expenses are recognized than with how well Vblocks sell.
These sources said that revenue generated by VCE flows back to the parent companies rather than being recognized by VCE itself, while investments are counted as losses by those companies. Revenues are then attributed to the specific product lines and are not publicly broken out except at a very high level by the parent companies. That makes it hard to figure out how much money VCE is really generating, they said.
Some technology analysts publicly refuted reports that the EMC and Cisco filings are a sign the joint venture is a failure. “VCE has spent heavily,” wrote Wikibon.org founder and analyst David Vellante in a blog post last week. “It’s had to restructure strategy and messaging to protect its partners. It has been spending money like crazy and has had to get more disciplined. It will continue to alter the operating model. But to conclude that VCE is failing is in my view way off base and at the very least grossly premature.”
“I have no doubt VCE is currently losing money, but the question is how much they’re losing and when they’ll turn a profit,” Vellante added in a separate interview. “If I had to guess, they’re planning for two to three years of losses before breakeven. They’re easily spending hundreds of millions, but that’s chump change for companies of this size.”
Page and Martin said they are happy with Vblock sales and the proportion of those sales going through the channel. They said channel business had doubled between the first and second quarter this year.
Several VCE partners said they see a lot of customer interest in Vblocks but actual sales have not met expectations.
Tony Berg, on the other hand, is pleased with his Vblock business. Berg, director of the data center practice for World Wide Technology, said WWT has sold Vblocks into about 20 accounts, ranging from mid-sized companies to service providers and government agencies.
Berg said VCE recently changed how it breaks out pricing so it's easier for partners to understand. Previously, they saw VCE's overall price as opposed to line item costs from each OEM, which is more useful.
In general, "we're still trying to learn out to dance" and engage with VCE reps at the field level, Berg said. But there have been improvements including a bigger variety of Vblock configurations.
"They were more rigid on the configurations before, but they're starting to get into [allowing] more exceptions," he said.
Vblocks vie with FlexPod for VAR attention
None of the internal wrangling or channel conflict may be as important to VCE as the perception—even among VCE partners—that the FlexPods pushed by EMC storage rival NetApp with Cisco hardware, are an easier, more flexible sale for partners.
Several VCE partners that also rep FlexPods, said that confusion over VCE’s organizational issues has helped FlexPods.
Page said that Vblocks remain the converged data center infrastructure of choice for enterprise-class customers. “FlexPod is more a reference architecture type sale …. We can do that and we did that, but we don’t want to go back and do that again,” he said.
The issue with reference architecture sales versus an actual preconfigured hardware-software product is that things get added to the architecture that were not originally in the spec. Then, when it comes to updating code, problems arise. Updates and fixes can become a nightmare, Page said.
“We’ve spent millions remediating” early reference architecture type sales, he said.
“If the [VAR] skill set is to resell components, it would be easier to push NetApp and Cisco [in FlexPods]. But if you’re talking large-scale enterprise CIOs, they want converged infrastructure, where all the code changes that happen are taken care of. …Vblock is an actual product,” Page added.
Still many data center VARs view VCE as neither fish nor fowl. “What are they -- A vendor or a super-VAR? If they’re putting stuff together from different vendors, isn’t’ that really what we’re supposed to do? We’re good at that. I’m not sure they are,” said one Boston-area VAR who sells Cisco and EMC gear.
This story was updated Wednesday with additional VAR comment.
Dig deeper on Technology Vendors-OEMs