Sonus Networks' partner strategy a lesson in channel integration

Only two months into its inaugural channel program, Sonus Networks revamped it to include partners of the newly acquired NET.

A year ago, Sonus Networks Inc. had a brand-new, one-tiered channel program, channel partners numbering in the single digits and no distributors.

Today, it has about 300 channel partners, a two-tiered program and more than a dozen distributors.

That's a monumental shift for a 15-year-old company that until a few years ago sold only direct and only to telecommunications carriers. And it's a surprising one, given that when Sonus Networks' channel program -- the Partner Assure partner program -- was established in June 2012, the intention was for a single tier and a very small group of resellers.

Joe McLaughlin, vice president of channels at Westford, Mass.-based Sonus Networks, explained how the company made the transformation -- a story that provides a lesson on the pace of change, as well as on how channel integration is handled during vendor acquisitions.

Transitioning to indirect sales to the enterprise

"Sonus had a great run in the early days," McLaughlin said, referring to when Sonus sold only IP communications infrastructure directly to telecommunications carriers. As that market cooled off, the company set its sights on expansion from the service provider market into the enterprise.

Around 2011, Sonus began building scaled-down versions of its products, making them more user-friendly and usable by enterprise customers.

The company determined that the best path to distribute products to the enterprise was by establishing a channel program and selling through VARs and systems integrators. It came up with a simple, one-tier channel strategy, with a goal of recruiting 20 to 25 partners worldwide, McLaughlin said. "We were focused on PBX players like Avaya and Cisco, partners that sold their infrastructure. We thought that our solution would work well with theirs, so that's where our focus was initially. "

"We were going to make sure it was only a small number per country or region and theater, so the ability to maximize on profitability was there for the ones that invested in us, and we would invest in them," McLaughlin said. Sonus announced its products were channel-ready in May 2012, and its partner program was launched in early June. By August, it had 10 partners and was well on its way to fulfilling its goal of 20 to 25 partners worldwide.

Acquisition of NET

But that same month, Sonus bought Network Equipment Technologies, whose NET UX 1000 and NET UX 2000 (now SBC 1000 and SBC 2000, respectively) session border controllers gave Sonus greater reach into the SMB market, beyond what the company's higher-end products could deliver. "We were working on our product roadmap to get a lower-end solution, but timing for us was going to be 12 to 18 months out," McLaughlin said. "We were quite a ways away from delivering that solution. So [the NET acquisition] got us to market faster."

Channel partner programs are typically not a major consideration factor during an acquisition. [That consideration] is done at a much later stage, sadly much later.

Tirthankar Sen,
senior analyst for Partners and Ecosystems, Forrester Research

While the acquisition extended Sonus' product line, it had an unexpected impact on the company's partner program, which had launched just two months previously. NET had a two-tier partner program, 300 partners and more than 40 distributors. It also had strong ties to the Microsoft Lync community and customers, since the NET products are certified for Microsoft's communications server.

With the much larger and more complicated NET ecosystem to contend with, Sonus had to make an immediate change to its partner program. "We wanted to embrace all of the NET partners into our Partner Assure program," McLaughlin said, explaining that changing the rules on the NET partners would have risked revenue and relationships. "Because the business was spread out over 300 partners, we really didn't know where [revenue] was coming from. We didn't know the way they were doing business. There's a lot of things we didn't know."

Sonus' remedy was to split its one-tier Partner Assure partner program into two tiers: Partner Assure Authorized and Partner Assure Select. All NET partners were funneled into the Partner Assure Authorized program. Sonus' legacy partners were funneled into the higher-level Partner Assure Select. And then the company moved some Authorized partners -- about 20 in all -- into the Select program.

"It's [now] a nice mix of both Avaya/Cisco partners, as well as the Microsoft Lync partners," McLaughlin said.

One NET partner that made the transition to Sonus' Partner Assure Select program is Dimension Data PLC. Anthony Vitnell, Dimension Data's senior solution architect, said that the acquisition has meant more business for his company; Dimension Data has become a Sonus-certified support provider under the new relationship. "Sonus brings to the table a larger footprint, and there's more structure [than there was with NET]. Sonus had a gap in the smaller space, and NET had a gap at the higher end," he said. The acquisition filled those gaps, Vitnell said.

Another NET partner that made a similar transition from NET to Sonus Partner Assure Select status said that he was taken by surprise by the acquisition. Michael Cassady, director of operations for The VIA Group of The Woodlands, Texas, said, "A FedEx package arrived on my desk from one of the executives at Sonus announcing that NET was now part of the Sonus organization. … For me specifically, it was kind of a 'Who are you?' moment."

While Cassady said he had a lot of questions about Sonus and the direction it might take with the NET product line, The VIA Group is now more tightly aligned with Sonus than it was with NET. "We've seen some really good changes in terms of doing more joint activities that are generating customer leads that we're working together. That's something that we didn't see a whole lot of with NET," he said.

How channel integration typically happens

While it may seem strange that Sonus had plans for a very small, one-tier partner program but ended up just a few months after launch with a much more complex structure, experts suggest that such a shift in strategy isn't an unusual repercussion of vendor acquisitions. "Channel partner programs are typically not a major consideration factor during an acquisition. [That consideration] is done at a much later stage, sadly much later, but it can be due to some tactical reason," said Tirthankar Sen, senior analyst for Partners and Ecosystems at Forrester Research.

Leslie Rosenberg, network consulting and integration services analyst at IDC, noted the value of a vendor's channel ecosystem as part of an acquisition. "When there's an acquisition made, there is some consideration, I believe, of the acquisition in terms of a partner base, which is really valuable because of the relationships they have with their customers," she said. "So you're not only acquiring a certified and skilled channel that's already been trained on the products so they can continue to sell. You're also acquiring access to their customers."

Speaking about vendor acquisitions in general rather than Sonus' acquisition of NET in particular, Forrester's Sen explained that there are typically a few reasons for the timing of channel strategy decisions in a vendor acquisition. The first reason relates to the products being acquired. If the acquired products will be integrated into one of the acquiring company's existing products, the channel strategy following the acquisition may be different from the strategy used if the acquired products are not integrated. So, product strategy needs to be decided before channel strategy. And product strategy can take some time to figure out.

Then, Sen said, the acquiring company needs to map its acquired partners with its current partners to determine which ones are common to both companies, as well as the skills, locations, key clients and business potential of the partners. From that information, the acquiring company decides which partners to keep, according to Sen. "Companies do not want to increase competition within its partner community, and it is generally the acquired partners who are shown the door," he said.

Beyond those two factors, there are others that can complicate the process. "Incompetent channel team, lack of resources, lack of planning, complex partner programs, etc., also play a role in partner/channel program integration. At times, even the channel team [might not] know what to do with the acquired partners or how to integrate them," Sen said. "Companies [and the] channel team [do] need to plan in advance and work along with the product, strategy and M&A team closely right from the very beginning," he said.

A timeline provided by a spokesperson for Sonus suggests that there was a lack of communication between company management and the channel team regarding the acquisition of NET before that deal was struck, with just two weeks between the channel program launch and the company's announcement that it would buy NET. "Sonus announced our intent to acquire NET on June 19, 2012, and finalized the acquisition on Aug. 27, so the channel team was not aware of the NET dealings at the time of the Sonus channel launch on June 5," the spokesperson said.

In addition, the spokesperson said, "The channel strategy of NET was not a determining factor in the acquisition originally, but became incredibly important as we discussed the market opportunity with Microsoft and determined the significant value the legacy NET ecosystem brought to us."

Sonus' distribution strategy

Besides the problem of disparate channel partner programs, Sonus also had to figure out how to handle NET's 40-plus distribution partners. NET had acquired so many distributors because its sales territories operated almost as autonomous businesses, McLaughlin said. Without a companywide distribution strategy, regional managers would hire distributors that made sense for their territory without taking into consideration whether they made sense for the company as a whole. The result was a glut of distributors. McLaughlin explained: "Because the revenue [was] spread out so much around so many distributors, none of them was making enough profit to really give us the focus that we would like in order to build our business in different regions of the world."

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Sonus needed to scale down. It cut a few dozen or so distributors and now has 16 around the world, with Westcon and ScanSource having the most global reach, plus smaller distributors in strategic regions.

Establishing global distribution is expensive for vendors in terms of having enough product, being able to educate the distributor's internal sales team, supporting marketing efforts and providing the capital to cover the distributor's financial requirements, IDC's Rosenberg said. "But Westcon and ScanSource are extremely viable distributors with a strong partner community," she said.

So, what's the result of all the changes to Sonus' channel partner program?

Indirect sales at Sonus accounted for 17% of the company's revenue in the first quarter of 2013 (versus just 3% in early 2012), and Sonus expects that number to rise to 20% to 25% for the entire year. (The bulk of the remaining revenue comes from the company's legacy business selling direct to service providers.)

Sonus also plans to recruit a handful of channel partners in specific regions of the world, but for the most part its active recruitment process is over.

In all, the company sees good early progress in its channel initiative. "[The program has] progressed very aggressively in the past year, and we're just experiencing the success in building out a good partner program," McLaughlin said.

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