IBM margin shift mooted

IBM margin shift mooted

Changes to IBM's Web-based business model are likely to occur within months if the sentiments of the vendor's distribution channel are any gauge.

IBM has found itself at the receiving end of heated channel feedback in the wake of the new model, which includes a fixed, 7 per cent reseller margin for small box sales.

A number of distributors and resellers in contact with ARN have indicated that, despite IBM's best attempts to educate the channel about its new margin structure, the matter is far from resolved.

Tech Pacific managing director David Cullen said that consultation has continued between IBM and the channel over the issue, but most resellers are still digesting the impact of the move. "I'd be reasonably optimistic there will be some changes to IBM's strategy," he said. "It is listening to the channel."

Cullen said he had a "gut feel" IBM would move to address the margin issue, but suggested any changes would not be drastic. "I'd like another five points," he quipped. "And I'm sure a lot of resellers would too." Cullen added that a margin shift could take place within months.

However, IBM is yet to come to the party. Company spokesperson Frier Bentley would not confirm or deny if and when any changes to the model would take place.

Philip Bullock, IBM's personal systems group general manager, was overseas at press time and unavailable for comment.

However, Bentley indicated discussions are continuing with IBM's channel partners. "IBM is not inflexible," she said. "IBM is adopting a competitive pricing strategy. The company continually reviews channel plans. It's not set in stone and may change."

She said IBM will continue listening to the channel. "It's about two-way communication," she said.

Steve Rust, Ingram Micro's general manager, said gradual margin structure changes were needed to avoid further conflict. "A lot of [resellers] can't change, and many of them don't know what to change to," he said.

Like Tech Pacific, Ingram Micro has informed IBM of the feedback it's receiving from the channel, which Rust described as "emotional".

"We have had resellers approaching us with dissatisfaction at the approach IBM has taken," he said.

Once the emotion has faded, Rust believes successful resellers will see hardware remain tight and will recognise the need for a new value proposition.

However, IBM is not out of the woods yet, according to a number of resellers who e-mailed ARN recently in response to the initial reports. ARN's initial story reported IBM had scrapped its estimated street price (ESP) and general reseller price (GRP) models in favour of a flat Web price advertised on

Resellers selling units of one or two would receive a flat 7 per cent margin, while large deals accounting for up to 80 per cent of its business would still remain subject to special bid pricing.

In addition, IBM claimed that 70 per cent of inbound sales calls to its call centre were referred to resellers.

One reseller claims some small outfits are actually receiving 3.5 per cent margins on orders of one or two units, with the distributor receiving the other 3.5 per cent margin.

The allegation challenges IBM's claim that distribution margins are negotiated in addition to the 7 per cent made available for resellers only.

"When you have to discount off 3.5 per cent you are selling almost at cost," the reseller said. IBM would not comment on the allegations, however Tech Pacific's Cullen said: "There is a touch of reality to it."

Other resellers are concerned the number of calls referred to them from IBM's call centre is falling. "We've geared our business around 40 per cent IBM sales, but they've cut referrals and not told us anything," another reseller told ARN. "[I wish] they would just come to the party, let us know and tell the truth."

A numbers game

A reseller looking for 64MB of RAM (# 33L3071) received the following reseller buy prices and forwarded them to ARN. IBM lists the price as $99.00 Inc GST on the Web.

Tech Pacific: $129.80 Inc GST

IT Wholesale: $135.30 Inc GST

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