Surprise!

Intel Corporation just acquired McAfee on 20th August 2010.

What should we make of that? Does it mean the next generation of antivirus will come on a chip from Intel, well why not…doing that comes with a few advantages to Intel:

• Because antiviruses need to be updated all the time, it means Intel will have a good reason to access and receive information from all the PCs using these new chips.

• Maybe, but what if Intel designs a chip that carries out all of the incredibly complex algorithms and other heuristic calculations that invariably slow down our PCs? Rather like Macs, iPhones and iPads have always handled all display calculations on a separate chipset, leaving all the main processor gigaflops to the applications. Wouldn’t it be great if we didn’t have to hang around while our antivirus sucks up precious memory and processor power to check the file we just downloaded…

As the Cloud builds up steam, Intel are preparing for the thin, thin client and the powerful, powerful server because they know that security will be the defining factor in the success of Cloud Computing.

When we access all our files, music, videos, applications from the Cloud…through what will basically be a terminal, an Antivirus/Firewall chipset will be the only solution, because if you have to download it from the Cloud, who knows what new virus will come with it every morning…

Clever move, Intel!

Just before the piano fell

Companies seem to have voted with their feet and EMC recently announced they are pulling their “Cloud backup  service” Atmos out of the Cloud because not enough customers are interested.

Why on earth would one need Cloud backup if one has Cloud applications!? In fact, come to think of it, EMC should be offering the exact opposite: old fashioned physical backup for Cloud applications…It just goes to show that Cloudwashing isn’t enough. Before you put something in the cloud and offer it to your clients, one would be advised to check whether there is any demand for it.

An IBM 370-168 mainframe, state of the art in the early 80's

Should we be calling IBM Big Green?

So here we are back to 40 years ago when IBM’s revenue mainly came from renting computer power to customers who connected their thousands of 5250 or 3270 terminals to mainframes using unbelievably slow modems that were each the size of a small desktop computer.

At the time, I was a Computer Science student and spent some time as an intern at IBM France. I participated in installing what was then the largest mainframe in France: an IBM 370/168 (it later became the zSeries) that had a whopping 512 Megabytes of RAM (yes kids…512Mb…stop laughing please…) and stacks of 3330 removable hard disks that could each store 200Mb of data on 8 platters (stop LOL).

Guess what: IBM has just announced they are reviving their System z strategy with the zEnterprise 196.And nobody is laughing this time.

What has changed?: it has 3 Terabytes of RAM,up to 96 processors, reams of blades and can manage loads of P and X servers. IBM says 30% of all servers are running Linux, and that the zEnterprise should soon support Windows clients. 40 years ago, the internal bus of an average computer probably ran slower than today’s high speed ADSL, SDSL etc…(why have you stopped laughing?)

Although total cost of acquisition (TCA) will be higher then for servers, TCO is lower within 3 years. Not to speak of the green side of things, these machines are much more energy efficient than a pile of servers.

If you still think Cloud Computing is a pie in the sky, think again because IBM certainly want to be at the forefront of the next paradigm shift.

Coraline is a combination of (very) old techniques -manual animation-, state of the art  technology -Polyjet matrix molding- and recentish technology -Real3D- (which is in fact close to 30 years old).

Nothing groundbreaking here…!?

Be not mistaken: apart from it being a thoroughly brilliant piece of entertainment, with a picture quality and viewing comfort that is somehow superior to standard 2D movies, 3D film is the movie industry’s answer to piracy.

Well of course…what is the point of stealing a film off the screen by filming it with a video-camera if all you will be able to see when you view it from your DVD player, is a blurred picture.

Here is an industry that is staying ahead of pirates by bringing a more exciting experience to its audience. And the best of it all is that not only have they reduced piracy but they have increased their profit margin by renting the 3D glasses (50% increase in price!).

On the other hand, the music industry is clinging to restrictions, regulations and threatening people with jail if they download music (they are trying to do this in France but the representatives aren’t having it for the moment), rather than enhancing the customer experience.

So what will be the 3D of music? I don’t have an answer today but someone should be thinking hard about what new experience music could bring people rather than trying to restrict the access.

You cannot force people to buy something if they can get it for free. You can convince people to pay for something new and exciting.

During the last ten years, photocopier vendors have been adjusting their sales strategy to cope with the upheaval caused by improved technology and yet another convergence. In this case, it is the photocopier technology shifting from optical scan to digital scan, turning every office printer engine into a potential copier -provided one could connect it to a high speed scanner- and every digital copier into a fax -provided one included a modem and connected it to a phone line- thus introducing the multi-funtion-printer or MFP.

This change caused chaos in the optical industry in Rochester, NY, home of Baush & Lomb (you know…Ray Ban glasses and photo lenses), Kodak and…Xerox.

Well guess what. Just as the copier manufacturers are getting to the end of a ten year product redesign process and a full restructuring of their distribution channels, we are looping the loop and the Copier sales model is back with a vengeance.

Why do I say this?  Simply because if you speak to a business to find out who buys what, they will explain that the equipment itself is specified by the ICT Department, but that all the Toner or Ink is acquired by the Purchasing Department. With the current economic downturn, their mission to reduce costs by sourcing the adequate product at the lowest price has become one of the most important components of the profitability of a commercial business or the efficiency of an administration. Check out this Mission Statement of the Purchasing Dept of a US University. It say it all:

So what do you think they will buy:

• “branded” refills while the equipment is under warranty…
• cheap, “compatible” refills after that…
• maybe even “recycled” toner.

And where will they purchase it: certainly not from the channel partner who sold the machine in the first place. It’s so much easier to order pencils, paper, chairs, desks, filing cabinets, folders, notebooks…and toner and ink from the office supplies retailer with whom they have an ongoing credit line and who deliver the stuff the next morning.

So how does the printer/copier channel make a living on printers? They don’t: printer vendors are in a deadly fight for market share, continuing to apply the Gillette razor and blades business model (‘give away the handles, sell the blades‘), dropping the price of the ‘tin’ -as they call it- well below their cost price and recovering the profit on the consumables. But completely forgetting that although they, as the vendor, might have a chance of generating some profit from six months of consumables sales, the channel partners who sold the equipment will never sell a single cartridge. this is where the Gillette model doesn’t work: we buy our razor blades from the same place we bought the handle!

In the days of the copier, the dealers used to sign juicy ‘pay per click’ contracts with their customers. Not all printer manufacturers have developed these models for monochrome printers; and when it gets to color printing, only a handful have dared build such a business model because contrary to monochrome, color ink coverage will range from 5% to 300% depending on whether you are printing a text file, a brochure, a presentation or photographs.

Increasingly, Channel Partners are getting tired of doing all the work for nothing and now consider they have nothing to gain from selling printers. They see it as a service to their customers, no more. So if printer vendors want to keep or develop their channel, they are going to have to work hard at finding ways to help their partners keep their share of the profit margin.

Selling though a channel fundamentally changes your access to market intelligence. If you are not prepared for it, you will lose visibility of where your products are going, who is buying your products, what are they purchasing, how many and when etc…Channel partners are usually happy to share most of this information with you, provided they are certain it will not be used to play against them. If they don’t trust you, they will share the information after the sale has occurred; if they trust you, they often involve you in the sales process and always inform you of what they are working on. It all comes down to whether your sales commissions are “route-to-market-neutral”, which means that the sales people get a commissions regardless of who invoiced the customer.

1. Does your distribution contract require POS (Point of Sales) reporting? This is something you can insist on.
2. Most distributors expect to see their reporting costs paid for (0.5%)
3. Do you know what reports you need and how often you would like them?
4. Have you developed or acquired the tools to collect and analyse the information
5. Have you identified the people who will be responsible for producing the market intelligence?

Working through a channel doesn’t mean you can just relax and wait for it all to happen. On the contrary, your initial efforts will need to be significant if you want your channel sales to take off.

Build the right team to work with your channel 

1. Consider recruiting an experienced channel manager rather than promoting one of your direct sales people
2. If you can afford it, create a channel marketing position
3. You can adjust your order management team
4. Channel partners are good at using on-line tools. Are yours ready?

Is your finance organization ready for a different business model?

1. You will be collecting larger amounts with different payment terms and different payment “habits”. Resellers are often strapped for cash…
2. You will be paying out money or making credits in the form of Co-op advertising support or Market Development Funds. This doesn’t happen in a direct model
3. You might need to pay finder fees to people you aren’t actually trading with such as Influencers (this concept is one of the most difficult for financial departments to cope with)

Can your marketing policy and organisation handle the requirements of your channel strategy?

1. You probably need to re-balance your marketing budget
2. Your partners will expect support through co-operative and market development funds (Co-op and MDF in channel lingo)
3. At some point, you will need to build your brand and product awareness in the channel, should you plan a Marcom budget for this?
4. How will you help your channel promote your products on their web sites?

If you actually ship stuff:

1. Check your packaging (cartons, cases, pallets, containers, etc…)
2. Check your part–numbers (UPC codes are sufficient)
3. Does your price list provide for volume orders?
4. Are your logistics ready for a change of pace?
5. Do need the logistics you had up to now?

If you sell software:

 Can your systems report by whom the revenue was generated

If you provide services

Can your channel partners resell them (do they have a part number)?

Part 2: What is your plan?

 

In the last 10 years, waning ICT growth in the enterprise segment has forced most actors to re-examine their routes to market in order to make sure their products and services are available where their prospective customers expect to find them and where the real growth is. Without necessarily taking a “bottom-up” approach, the whole ICT industry has come to the conclusion that it would only be able to access certain segments via an indirect channel. This is because average size companies are buying a lot of ICT products and services but they rely on their channel partners to act as an outsourced ICT department. Certain major IT manufacturers have recently made their “coming out”, confirming a strategy they weren’t necessarily admitting to in the recent past.

This short series is built from experience and attempts to list a number of areas you need to have thought about before you jump into the channel.

Part 1: Do you have a strategy?

For a start-up business, this is a founding decision and you will be building your whole business model on your route to market strategy. But if you are already selling direct, you need to make sure this fundamental move is not going to unbalance your whole business, resulting in a potential collapse of your overall sales and often causing frustration within your own organisation and amongst your newfound partners and existing customers.

• Why are you making this move?
  • Can you give your prospective partners a good reason for the change?
  • Does everyone in the company understand the reasons?
• What is your vision?
  • Your new partners will be reassured to see that you actually have one
  • Working with partners requires long term investments on both sides
  • If your potential partners don’t trust you they won’t play

Coming soon: What is your plan? 

The fascinating thing as that people missed the signs two years ago. Check this out the article referred to is only 18 months old and the journalist was saying that the attempt was doomed, that Dell would never formalize a channel strategy  because it “owns the customer“.

I believe Dell are right and they will succeed, simply because they recognise that they can’t own all the customers. This is great news for the ICT Channel since it confirms in no uncertain terms that Vendors cannot access certain categories of customers without partnering with the Reseller community. How many predictions have we seen in the last ten years, announcing the end of the Channel, the end of the Distributor, and so on…in fact, what we are seeing is a real coming of age of our industry.

As technologies converge, the Channel is diverging. Today, channel partners have a much more precise understanding of their own business and are more selective when it comes to deciding what products and services they will provide to their customers. The Vendor is now just a supplier amongst others and if his products don’t meet the channel’s customers’ expectations, they will look for something else.

The added value provided by the channel is becoming increasingly important to certain categories of End Users who see their channel partner as an outsourced IT department and this is where Dell needs the channel. And guess what: that market segment is where all the growth is for the years to come.

I happen to know that Dell have done their homework, making sure there will be no conflict between a nascent channel and their existing sales organization. Agreed, they will be circumventing the Distributor, offering a full financing scheme directly to their channel partners, enabling the partners to absorb the complex payment terms imposed by customers in certain countries such as France, Italy, etc…

Dell have a solid range of products and a solid reputation they have built despite the initial criticism. They also have a solid determination: those of you that have been around long enough will remember…everybody laughed when Dell appeared and said they would sell direct!

As the French say: “Rira bien qui rira le dernier!” (The last one to laugh will really laugh)