A word of caution on vendor exclusivity

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This article appeared in the August 2014 issue of CRN magazine.

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A word of caution on vendor exclusivity

A few years ago, a good solution provider friend of mine – who owns a US$50 million business and had been dedicated to a single vendor for more than a decade – came up to me and told me I was right about conversations we had on exclusivity years earlier.

He was referring to my long-held belief that partners have a lot at risk when they only represent a single vendor in the market in any category. My concern is that if the vendor falls into a particularly difficult situation, the partner is at risk as well. This is exactly what happened with Sun Microsystems, whose hardship directly translated to bankruptcies of dedicated Sun partners. But even vendors that are able to right the ship after taking on water can present risks, and every vendor at some point hits a rock or two.

This concept holds true for vendors too. They can become too reliant on the 80-20 rule and suddenly become concerned as to why the company growth rate isn’t where it needs to be. The difficulty for vendors is if they get too baked into the 20 percent group, and those partners don’t grow sufficiently, the supplier has a problem.

So why bring all this up now? Because every major vendor in the business would love nothing more than to have a set of exclusive partners, especially as we move deeper into cloud.

We’ve seen the wave before of vendors asking for exclusivity in the past, and no supplier has been able to make it work over the long term. Instead, what vendors should focus on is being the strategic lead for as many of its partners as possible. It’s an easier conversation, and one that immediately turns to, ‘How can we build a plan to do just that?’, because it is structured in such a way that both want to do so.

If a vendor comes to you and says they want to understand how to become your lead strategic supplier, it is a conversation worth having. The deal, if structured properly, can be a smart decision as long as the vendor’s product set is complete enough. Exclusivity, on the other hand, is not something I have ever believed in. I can name a lot of partners that went out of business being exclusive. I can’t name a single one that has become wildly successful with it over the long run.

North American partners that are building significant hybrid cloud practices and are north of US$40 million in sales will be on the hit list as strategic partners for vendors. Those that are north of US$100 million are going to be highly sought after. What happens is that major transitions result in a significant change in the collection of suppliers that partners have in their sales bag. What’s different about the cloud transition is that, in some cases, the product is the network, be it private, public or hybrid.

So a lead vendor for a partner is in many ways more meaningful than it has been in the past. Many customers will be far less concerned about whose technology is running in the background and more concerned about the trusted adviser and supplier relationship that the solution provider brings. So it stands to reason that vendors want a bigger share of wallet from partners, and there is nothing wrong with that. The issue is that the suppliers need to earn that fat wallet, not demand it. Solution providers, in turn, should think long and hard about who they lead with and not be afraid to get deep with a supplier that has solid technology and profitable programs, but remain diversified with other suppliers that can step up if others stumble and fall.

 Robert Faletra is chief executive of The Channel Company, publisher of CRN US

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