NEWS ANALYSIS: IBM vexes its hardware channel

NEWS ANALYSIS: IBM vexes its hardware channel

IBM has again pushed the boundaries of trading terms with its resellers, while at the same time making further moves in direct sales.

Just months after the vendor's direct retail sales advertising campaigns hit major Australian daily newspapers, IBM has now turned its attention to selling direct to government.

The vendor recently launched a new Web site as a link from, dubbed "govonline", a site which clearly attempts to steer lucrative government deals away from Big Blue's channel partners and into its direct sales force.

"Welcome to govonline -- IBM's e-site dedicated to providing government agencies, public education and healthcare organisations with ease of purchase and discounted pricing across a wide range of personal computer products," the site reads. "From laptops to accessories, the site provides the information needed to help make purchasing decisions easier and offers 5 per cent discounting off our standard Web price on all listed products."

Resellers contacted by ARN slammed the latest move, suggesting that IBM is ignoring government requirements for large multinational vendors to engage with small-to-medium businesses when fulfilling government contracts.

One prominent IBM reseller said that over half of his company's work was for government departments, but the company has made a concerted effort to not use IBM. "The margins for IBM on government deals are nonexistent anyway," he said. "We simply choose other vendors to work with."

Andrew Baker, IBM's director of global business partners for Australia and New Zealand, would not say whether orders taken on the government online site will be fulfilled by IBM directly or through channel partners. Instead he made blanket statements about IBM's strategy.

"IBM's whole go-to-market strategy is geared around our business partners," he said. "The vast amount of business going through all of our channels, including the Web, are fulfilled through business partners. Government online is one facet of our strategy."

IBM also outraged resellers last week when it sent several of its partners a message, received by ARN, which states that from now on it will pay its partners for goods and services in 45 days, rather than the standard 30 days. What this effectively means is when IBM or IBM GSA (Global Services) purchases goods or services from a channel partner to fulfil a contract, the partner has to wait longer for payment or the vendor will no longer deal with them.

"No one was asked whether this was acceptable," said a director of one reseller who asked to remain anonymous, frustrated at IBM's repeated attempts to dictate terms of trade to its partners. "You have no choice but to accept or you don't get any work at all."

Baker could not provide comment on the trading terms issue. "Our trading terms are commercial in confidence between IBM and our partners and suppliers," he said.

Resellers are also angry that since IBM's move to direct sales in late 2000, referrals from the vendor have dried up altogether. For many contracts, resellers would order product from IBM, and configure the equipment to fulfil GSA's contracts. Since the initial forays into direct sales, however, one reseller accused GSA of buying direct from IBM and only using the channel as a method of checking whether IBM is giving them the best price. "GSA is basically using us for quotes, to make sure IBM isn't ripping it off," said the managing director of the reseller, who asked not to be named.

"We get a limited amount of referrals from IBM," said Geoff Crowshaw, chief executive of IBM reseller Senteq Information Systems. "They have a preference to take business direct. We find ourselves competing as much as we are partnering with them."

Crowshaw described IBM as being "under duress" due to the threat of Dell's aggressive pricing. "They are becoming phobic of this environment - they believe the only way they can compete with Dell is by going direct and that is creating issues for all of us," he said.

"I'm sure IBM would refute this, but I feel that they don't have a clear strategy themselves," Crowshaw said. "They are reflecting a strategy that was predominantly brought about in the US. The US market is large enough to sustain both direct sales and channel sales, but not in Australia. It is one or the other."

Crowshaw said that unlike several of his peers contacted by ARN, Senteq has not yet decided to begin tipping deals away from IBM, as its focus is always on what the customer wants rather than what it prefers to sell. But he would not rule out resorting to such a strategy in the future to protect the business.

"I don't think [IBM] knows what it wants to do," said David Harper, managing director of reseller Blue Connections. "My opinion of them depends on the day you call me."

Harper said Blue Connections is one of the few businesses that enjoys a healthy amount of referral work from its main vendor partner, and hopes the vendor will change its mind on several of their latest policies.

"IBM aren't all that bad to deal with," he said. "They can be a bit stupid, but they learn from their mistakes. They took rebates away from us at the start of this year, but then they noticed no one was buying up to meet their targets at the end of the month. So this month the rebates are back."

Baker said he would meet with IBM's larger business partners this week to discuss such issues.

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