Navigating the vendor merger and acquisition binge

VARs need to prepare themselves in case their primary vendor gets bought or disappears.

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A common pitfall for many VARs is to get too cozy with one vendor and rely on that single relationship for way too much of their business. But if there’s one thing IT solution providers cannot be, it’s fat, dumb and happy—at least not if they expect to survive.

It’s fine to be a “preferred” reseller for Vendor A, until Vendor A gets acquired or gets new leadership that does not see the value in the value-added channel. Just ask any number of VARs that made their living selling Sun Microsystems hardware, support and maintenance.

There are a heck of a lot fewer of them today than there were a year ago. Why? Because of Oracle Corp., that’s why. Oracle completed its $7 billion-plus acquisition of Sun in January 2010, more than a year after it announced its intention to buy.

Oracle is famous for its complicated relationships with channel partners. The company is well known for its direct sales preference and for the fact that all maintenance and updates after the first year flow directly through Oracle, not via partners.

“There were some partners who leveraged that Sun relationship over the years and built their business on just processing support renewals for Sun,” said a former account manager for one of those impacted VARs.  “Those companies are no longer there. People went out of business,” said the former account manager, who is now a partner account manager for a storage vendor.

What those companies should have done, knowing for more than a year that Oracle was buying Sun, was figure out contingency plans, he said. They should have evaluated alternative hardware providers and prepared themselves by obtaining new certifications and authorizations.

“Sure, Oracle told them they’d continue to be a preferred partner,” the former account manager said. “Oracle needed to keep that pipeline flowing. But when the deal was done, they were done,” he said. Smart Sun partners fared better. Without fanfare—and certainly without alerting Oracle—they got their HP or IBM or Dell credentials and started moving some business to their new vendor partners even before Oracle closed the Sun deal.

That same story played out when Avaya bought Nortel Networks, and Nortel VARs weighed their options. Some stuck around. Others defected to Juniper Networks or other vendors.

Merger and acquisition roundup
A quick look at high-tech mergers and acquisitions in the last few years tells the story. Hewlett-Packard and Dell fought over 3Par for months before HP won the company and its innovative storage technology. Dell took consolation in buying Compellent Technologies, sparking big fears among Compellent VARs fiercely loyal to that company.

They were right to be concerned. Compellent’s sales model was 100% through the channel. Dell, on the other hand, is not renowned for its channel friendly culture. At first blush, though, Dell seems to have assuaged their concerns.

To get an idea of the scope of IT mergers and acquisitions in 2010 alone, HP completed buyouts of 3Com, Melodeo, Palm, 3Par, ArcSight and Fortify Software.

Cisco Systems’ acquisition of Flip illustrates the pitfalls of vendor mergers and acquisitions. Two years ago, Cisco dropped $590 million to buy Pure Digital Technologies, the maker of the hugely popular Flip digital video camera. In April, Cisco Chairman John Chambers—facing Wall Street pressure—said Cisco would drop Flip. Granted, Flip phones are a retail consumer electronics product, but the demise of that line shows what can happen if a VAR depends too much on a product that gets caught up in the whirlwind of vendor mergers and acquisitions.

In addition to Sun, Oracle bought nine other companies last year, including Phase Forward, AmberPoint and Art Technology Group. Given all that moving and shaking, there will likely be channel changes at these vendors, and even loyal resellers may get squeezed. Smart VARs need to be realistic and proactive.

Market yourselves, not your vendors
One long-time Hewlett-Packard partner summed it up at the recent HP Americas Conference in Las Vegas. “We’re stripping all the vendor signage and brands out of our office and off our website,” he said. “Going forward, the only brand we’ll actively market is our own.” It’s important to note that the partner said he is not unhappy with HP or any other of his vendors, per se, but that self-interest dictates that VARs do what they can to promote their own solutions and expertise.

Similar sentiment is reverberating around the channel. “We don’t sell the product, we sell ourselves,” said Marcus Smiley, CEO of Epoch Concepts LLC, a Highlands Ranch, Colo.-based VAR.

Epoch takes a consultative approach to selling. “We don’t go in and discuss what products we carry. We come in, we ask what their problem is, and we listen all the way through,” Smiley said. “Then we get up and draw pictures on the white board about what sorts of technology would solve their problem, and we don’t mention any vendor names. Oddly enough, that’s not the norm in the channel,” he said.

Many VARs say they are solution providers, but many of them lead with vendor products and back into their solutions. And even though big vendors such as Cisco, HP and others preach a one-stop, one-vendor approach to many data center IT buys, the reality is that every data system is a unique multi-vendor solution.  “It’s hard for us to do business with vendors like that because they don’t align well with our customers. They think they do, but they don’t.” Smiley said.

Tread carefully in vendor relationships
It can be tough for a small VAR to withstand pressure from a large vendor to be exclusive. HP is famous for asking its VARs to “double down” and sell more HP products across technology areas. Smart VARs will link up with a couple vendors per technology area but not flaunt that fact.

The critical point is that VARs need to stay close to their customers and respond to their needs, not serve vendors. That way, VARS will have a backup position should a primary vendor be swallowed up or go out of business.

When it comes to vendor mergers and acquisitions, there’s not much VARs can really do except be prepared and hope for the best, said Rick Chernick, CEO of Camera Corner/Connecting Point, a Green Bay, Wis.-based VAR. Chernick said he was concerned when Cisco bought Tandberg in October 2009.  “We carefully watched the results, and fortunately we are OK. We were lucky that this didn’t change much,” he said. “In this case, we already had a relationship with Cisco, too, so that helped.” 

But when one vendor buys another, it’s typically the resellers that lose out, Chernick said. “The buying firm may have a new distribution reseller plan, and it could cut out the reseller who has had it in past,” he said.

Barbara Darrow is senior news director for TechTarget’s Data Center and Virtualization Media Group and has covered technology, business and the channel for more than 20 years as reporter and editor. Prior to TechTarget, Darrow worked at CRN where she focused on channel issues and software news. She has also written for InfoWorld, ComputerWorld, Network World, InfoSec Magazine, eWeek and other publications. Contact her at bdarrow@techtarget.com.

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