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The Yin and Yang of Open Source Commerce - page 13

Introduction

  • November 1, 2005
  • By John Terpstra

As channel VARs and service providers lost business to the software houses and major hardware vendors, original equipment manufacturers (OEMs) also started to play the channel conflict game. Rumors started that VARs are like snakes in the grass and can not be trusted. This brought about a high level of competition with VARs that drove down prices and continues to do so to this day.

Consumers generally approve of lower prices, and I am not advocating a proposition that prices should remain high through protectionist means. Prices (costs) should in general come down as a necessary consequence of the learning-curve effect. My objection is to the undermining of the channel by predatory behavior in the market place.

The distribution channels created in the 1980s through large distributors, second-level distribution houses, and resellers was thrown into disarray. VARs were made aware in the late 1990s that resale margins on hardware and software would not be able to sustain traditional resale-only businesses. They learned quickly that survival meant provision of installation and maintenance services.

Channel conflict had stripped the reseller of most larger customers (the medium businesses and upwards). This meant that the resellers who survived learned to provide a higher level of service to a large pool of smaller customers. This situation persists to this day. It takes a great deal of entrepreneurship to build and maintain a profitable support operation. Most that are profitable have more than five employees.

The VAR (reseller and service provider channel) has to pay companies, like Microsoft, for most support calls made to obtain resolution to technical problems. Their capacity to pay is diminished, therefore many struggle by, making only essential calls for assistance. At times customers feel let down by Microsoft products, complain at having to pay Microsoft license fees, and at having to pay for support services. The result is that many VARs, who are not sharp about collecting monies owed have a business that is continually challenged and subject to cash crunch.

In 1999-2000 TurboLinux commenced an initiative to leverage Linux through the US VAR channel. It was soon discovered that the VARs that serviced the 5-150 user customers were hungry to embrace an alternative to Microsoft Windows, SCO OpenServer, and NetWare. Unfortunately, even though a significant number of resellers signed up for a VAR program, TurboLinux made a belated decision to pursue business through the OEMs that targeted the enterprise market.

The 2004 Novell BrainShare conference, in Salt Lake City, Utah, brought home to Novell the message that the VAR channel is hungry for products and services that they can offer customers as alternatives to Microsoft Small Business Server and related products. Novell responded, but they have a challenge ahead to regain the confidence and commitment of long-standing VAR partners. They must also deliver a customer- and VAR channel-friendly product together with appropriate services. From recent feedback, it would appear that Novell are well on track to regain this vital part of the market. Novell are well aware that a significant staff reduction can undo the progress that has been made.

A key challenge Novell has is to turn the company from selling technology, rather to selling of business solutions. Customers are seeking an end-to-end business solutions platform, in packaged form, and without unnecessary hype and mumbo-jumbo. The solutions have to be simple to understand, quick and easy to deploy, and cost effective to maintain.

By opening up the development process of the desktop Linux product and establishing the OpenSUSE initiative, Novell haa shown great understanding of the marketplace. They recognize that in the absence of a sound and effective desktop Linux offering is fundamental to being able to provide the end-to-end business solution framework that is needed in the SMB/SME segment. Novell must now rediscover the heart of the consumer and create new ways of delivering the business enhancing solutions that SMB/SME's want and need, and that consumers in general require. One wonders if they gave the fortitude to do that without tripping over their own boot-laces. Novell's shareholders are understandably uncomfortable and are pressuring them to show greater market leadership and entrepreneurship.

Nervous shareholders can unsettle a business into actions that are antagonistic to its long-term goals and objectives. It is to be hoped that Novell do not make such a lamentable move. The desktop is as important to the SMB/SME market as is the server. Remember, the customer wants a complete solution that works reliably. Microsoft know that is what the customer wants, they too had best ensure that the next product shipped into this market does not repeat errors of the past. The SMB/SME market is apprehensive of all who offer a business solution and therefore Microsoft, Novell, Red Hat, and any other potential solution provider must act with confidence and with precision. In every respect the market is wide open for catalytic change. We live in exciting times.

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