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Sun apologizes for direct-sales fiasco; can't make up for lost business, margins

Sun blames overeager marketers for ill-received discount site; offers channel part of the deals; partners still ticked about deep discounts and price pressure from customers.

Apologies, apologies, and more apologies and, yes, a plan to right a wrong. That's what executives at Sun Microsystems Inc. offered to partners this afternoon, in a hurriedly arranged 70-minute conference call filled with expressions of regret, reassurance and at times downright vitriol from angry partners.

Stormy skies:
Sun reverses itself on fire sale, gives channel its due

How could Sun do this to its partners?

The crisis developed after Sun launched a 25th anniversary sale Monday on its online direct-sales site. The promotion roused Sun partners, who were steamed that the site offered "massive discounts" direct to customers, cutting the channel out of the deals and lighting up VAR switchboards with customers wanting the same discounts on products they'd already bought.

"This really undermines my ability to support Sun," said Michael Wallace, director of business management at Germantown, Md.-based Valhalla Data Systems Inc., during the call. "I'm really saddened by this; that I can't make a living as a value added reseller and it makes me hurt," Wallace said.

"I'll get a customer call and they'll see [the discounts] on the Web. I'm blindsided by this. How do I make a living with you people, I'm very disappointed that you are not channel friendly," Wallace added.

Among other enticements to customers were discounts on a Sun StorageTek 5320 NAS from $44,814 to approximately $15,630 and a Sun Fire X4500 from $47,995 to approximately $24,000.

Expanding on the changes Sun alluded to in its statement to yesterday, Tom Wagner, Sun's vice president, Americas partner sales, said partners will now have three ways to receive compensation during the two week sale which ends May 7.

  • When a customer places an order at the online store for any anniversary sale product, the customer must identify the partner they have been working with at the time of purchase.

    The partners will receive a 10% rebate of the net price for all orders placed by the end-user customers through the store, provided the customer enters the partner name in the Sun authorized reseller acknowledgment field during the store checkout process.

    Partners are not entitled to any rebates or fees under the promotion for sales that are made to government customers including but without limitation to any federal, state or local agencies, public education institutions or any quasi government entities.

  • A sales allowance program has also been established.

    "We think that many of you are going to want to take the order directly primarily to preserve and maintain a customer relationship," Wagner said during the conference.

    Partners can file and expedite all configurations on the 25th anniversary Website. Partners are able to match the price that's offered by Sun and complete the transaction through their affiliated distributor partner. For these orders partners will receive approximately a 10% percent gross margin allowance, based on the net end user purchase price, which is the anniversary sale price. The final amount of the gross margin, however, will be decided between the partner and their distributor.

    Making up for lost business

  • Recognizing that partners have had orders cancelled because customers want to catch the promotional sale price, Sun is requesting that partners submit documentation from an end user to prove purchase order cancellation with a date on or after April 23. For those customers that placed an order with Sun for comparable configurations, partners can apply for a registration fee in the amount of 10% of the net end user purchase under the promotion.

    "You'll need to provide a copy of the customer's notification of cancellation and other qualifying sales information as documentation to support this along with the form submission," Wagner said. This does not apply to government customers including federal, state, local agencies, public education institutions or any quasi government entities, Wagner added.

    Wagner also told partners that offers can't be combined with any other promotional offers, and that there are limits. Customers can only sell quantities of 10 units of any product or service per customer, and a customer is defined as the parent company and all of its affiliated companies. All sales must be delivered to US destinations only, Wagner said.

    As a way to shield partners from customer inquiries on pricing, Sun is offering a letter as collateral and explanation, according to Cheryl Cook, vice president, US sales. The letter will indicate that:

    "When we launched the promotion we did communicate in advance to the partner community the promotion was coming; we did not disclose what price points or products would be available in the promotion," Cook said.

    Cook was also apologetic to partners. "We understand and regret that this disruption could have potentially compromised you with either trust or integrity or positioning with your clients, which is a very trusted relationship that we certainly never intended to breach," Cook added.

    For partners like Mike Willard, principal partner at Dallas, Texas-based Soccour Solutions, LP, the changes still don't rectify the losses his company will have to sustain due to the drop in prices.

    "The 10% off the net price means something that was $45,000 is now $18,000. We currently have a contract where we were going to make a $7,000 profit margin on a deal and by my calculations it's now cut down to $2,000 to $3,000," Willard said.

    "Sun is not able to extend the olive branch to the channel, because the channel was not included in this promotional sale in the first place. It's like forcing a square peg into a round hole, but we have to do what we can to minimize the damage," Willard said.

    Nevertheless, IDC analyst Christina Richmond sees Sun's quick response as a demonstration that the company has changed for the better.

    "I say 'hats off' to Sun for getting the message immediately, listening to the partners and spending the better part of the week changing the program to benefit the partners," Richmond said. "The other thing is if you don't have a loyal channel they are not going to get angry, they won't give you feed back, they'll just walk away. This reaction says Sun really does have a caring and committed channel," Richmond observed.

    Undoubtedly, Sun's executives wanted their channel partners to know that they consider their role to be critical to Sun's success.

    "65% of our business is through the channel and it looks to me going forward it's going to even increase as we continue to try to drive the top line of this business and do it in a profitable fashion," Wagner said. "From my perspective we are absolutely channel friendly, channel centric and we depend upon our partners to grow this business with us," Wagner added.

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