Gateway seduces resellers with commission program
- 02 September, 1998 13:52
Sick of the expense and hassle of reselling PCs for minimal or even non-existent margins? Former direct-only vendor Gateway last week claimed to have tossed resellers a lifeline, with a unique hybrid direct/channel model that allows them to focus on the services side of their business.
"The reseller community has been complaining for years about the shrinking margins and increasing costs that are inherent in our customer's traditional legacy distribution models," said Peter Lees, managing director for Gateway Australia-New Zealand.
"Many channel organisations have traditionally cross-subsidised their added value from hardware margins, but now realise that is a recipe for disaster."
The Gateway Partners program claims to have fused together the best aspects of its direct model, with key advantages of the channel model. Resellers will be responsible for lead generation and first-tier support. They pass the sale through to Gateway who delivers the PC and pays the reseller a commission. This starts at 3 per cent for desktops and ranges up to 12 per cent for servers.
"We believe this commission is equal to, or greater than, their net profit from traditional distribution models," Lees said.
Resellers then have the opportunity to on-sell services to that customer and also get paid commission on all future sales to that customer while they are a Gateway partner.
"Resellers can re-engineer their business to shift toward variable costs, rather than fixed. You don't have to fund inventory, credit, risk, warehousing, support and so on," said Gateway's Tony Hughes. Formerly Digital's Partner business manager, Hughes will manage the Gateway Partner program.
Gateway hopes to have a third of its business going through this channel by the end of next year.
"The customer today has a hidden belief that just because you've bought $90,000 worth of PCs, you're making a bomb out of it. So they expect to get services for free," Hughes said.
"Of course that's not the case. I call these resellers FaVARs - Free Value Added Resellers."
Under Gateway's model, the customer will get two bills, one from Gateway and one from the reseller for their services.
One of the key strengths of Gateway's program is that resellers can suck it and see.
While resellers will have to demonstrate that they understand the business model they do not have to commit any of their business to Gateway.