Navigating the IT Channel

by October 30, 2019
The business world is all about relationships. In the channel, tech companies reach agreements for mutual success. (Photo from Pixabay user rawpixel)

Generally speaking, there are two avenues for selling products: Business to consumer (B2C) and business to business (B2B). Most large information technology (IT) companies get significant portions of the revenue from B2B sales. Recognizable brand names, like IBM, Microsoft and Cisco, all do a sizeable amount of their business by selling B2B. Within the industry, this is known as “the channel.”

What is the channel?

At its most basic level, the channel is just the route a product takes from the manufacturer to the end user. PCMag defines the channel as, “The distribution of IT products through independent sales organizations.” Generally, these independent sales organizations purchase and resell products and services.

Though this definition is simple, navigating the channel is complicated. The channel gets extremely complex for two reasons. First is that the technology being sold is complicated. Understanding cloud servers or application design does not happen overnight. Secondly, each company creates its own system for rebates, discounts and benefits between themselves and the other organization. These systems tend to be large and onerous to understand.

There are a few essential terms to know when discussing the channel. The first is Original Equipment Manufacturer, or OEM. These are the big companies with names you recognize. Dell, HPE and Oracle are examples of the many OEMs in this space. OEM is a catch all term, even for companies that do not necessarily manufacture physical items. Most big name tech companies you can think of probably have a partner program, Apple being a notable exception. 

The next term is partners, or channel partners. When OEMs set up their channel programs, they look to recruit other companies to do business with them. These business partners take many different forms, but ultimately they purchase goods or services from the OEMs. They can range in size from companies with as few as 10 employees, to companies with over 500 employees. Different partner types include Value-Added Resellers (VAR), System Integrators (SI), and Cloud Service Providers (CSP) among others. Each of these different types of partners has a different speciality and operate within channel programs differently. 

The last major term is channel program, or partner program. This is the large overarching framework in which an OEM executes their channel activities with their channel partners. Interested parties have to sign up before they can become a partner that participates in the channel program. 

This is generally the most complicated part of the channel because each program is different. OEM’s have their own goals and ways to achieve them. Consequently each OEM’s channel program has its own quirks and designs. In general, the programs are set up to give some discount to partners for purchasing in volume. The more product or service that gets used, the greater discount awarded to the partner. Channel programs also have benefits like training, in person events or marketing support. Generally, partner programs have multiple tiers, or levels to designate higher levels of business and benefits for more engaged partners. 

Comparing Two Partner Programs

To illustrate the complex nature of channel programs, we can look at IBM and HPE. A word of caution: often times the information published on these websites are not always completely up to date or detailed enough to reflect the current situation of the program on the ground.

IBM – PartnerWorld

IBM’s partner program is based around achieving competencies. A company that wants to partner with IBM and move up their tiers (from Registered up to Platinum) must demonstrate their ability with IBM products and software. A few of the competencies partners can earn fall under the following categories: IBM Global Financing, Analytics Solutions or Watson Internet of Things. There are over 30 different competencies for partners to work towards. 

Source: IBM PartnerWorld Journey

As a partner earns competencies, and sells more IBM products, they are able to progress up the IBM tiers. Higher tier levels unlock greater discounts, and more resources for partners to further integrate their business with IBM.

HPE – Partner Ready Program

Like IBM, the HPE partner program has four different tiers and requires greater investment from the partner to move up the ranks. 

Source: HPE 2018 Partner Program Guide 

HPE is more transparent with the information about their partner program. The picture below details the requirements a partner must reach before they can move up a tier. HPE does not have competencies as a part of their system. HPE lists the revenue requirements for a partner to be at a given level, but they do not require a partner to demonstrate their prowess with HPE hardware before they are allowed to sell it.

Source: HPE 2018 Partner Program Guide 

Relevance in Reporting

Companies like Samsung, Lenovo, and Intel are well-known to consumers, but most people do not understand how partner programs fit into their business plans. For example, Amazon Web Services is the most consistently profitable segment for Amazon, and AWS is built around a channel program. Anyone reporting on major tech companies should know if their subject has a partner program, and how central it is to their business. Even if it does not make it into the final piece, understanding the size and scale of Google Partner program may help inform a reporter looking at tech monopolies. 

It’s a phrase that’s tired, but true: follow the money. These big companies are more invested in their relationships in their channels than they are with individual consumers. An announcement or move by a business might make more sense when you consider some of these OEMs do over 80% over their business through the channel. Comparatively, individual consumers that buy one laptop every seven years garnish less attention.

Below is a good set of resources for channel focused news that can inform your reporting. These sites often have information about specific partner programs that illuminate a company’s plan and current situation. 

Channel Topics – A good starting point for definitions of the players in the channel

CRN from The Channel Company – News website devoted to all kinds of channel news.

SearchITChannel from Tech Target – Channel focused explanations and news articles.

Forrester Analyst Jay McBain writes blog posts about trends in the industry.