January 24, 2012
While many independent agents and subagents tend to view VARs as a threat, competitive service providers and master agents instead see them as opportunities. That’s because VARs bring different factors to the table than do agents: often, more loyal customers; larger and more multilocation clients; and the insistence on handling their own back-office and support functions. As a result, expect more providers and masters to pursue VARs in 2012 and beyond. The trend will be fueled as more businesses turn to cloud services, which call for the data and networking expertise held by VARs.
The CSPs and masters polled by Channel Partners report that VARs make up about 10-30 percent of their channel partners. And in just the 2010-11 time frame, several sources said their VAR enrollment saw significant increases; master agencies Telecom Brokerage Inc. (TBI) and MicroCorp Inc. increased their VAR ranks by 20 and 30 percent respectively. Some carriers, on the other hand, added fewer VARs year over year. MegaPath reported holding steady while TelePacific Communications and XO Communications saw slight increases. Other providers interviewed declined to cite growth rates.
Nonetheless, if sources’ predictions pan out, VAR numbers will just keep growing. Master agency World Telecom Group (WTG), for example, wants VARs to make up 50 percent of its partner ranks in 2012 while another master, Intelisys Corp., aims for VARs to comprise 5-10 percent of its channel in the coming year. Among carriers, TelePacific is eyeing 20-25 percent more VARs while Level 3 Communications anticipates adding 10-15 percent. ”Essentially, our approach is to vault our VAR partners into a global network footprint and remove the challenge of competing directly for their higher-level services,” said Mike Jerich, vice president of indirect channels for Level 3. CenturyLink, Windstream, EarthLink Business, MegaPath and XO all said they, too, intend to augment their channels with VARs but did not provide target figures.
Working with VARs is important to carriers and master agents because, in general, VARs understand data, networking and infrastructure better than telecom agents. “It’s not that they are better salespeople, but they understand selling solutions to their customers; they’re not as price-driven” as agents, said J.R. Cook, vice president of channel partners for EarthLink Business. They also have stickier customers, sources say. All of this heightens VARs’ appeal to service providers and master agents, especially those that are placing greater emphasis on complex cloud services such as desktop and server virtualization solutions that are not easy to design and demand levels of knowledge that many agents don’t yet have. Master agents including TBI, Converged Network Services Group (CNSG) and Telarus report more data-oriented sales Ethernet, MPLS, Internet access and hosting services, for example coming in from VARs as they fix on that partner demographic. Indeed, a key reason carriers and agencies want more VARs is that those partners boast more revenue per sale than traditional agents because they’re selling to larger customers, who often have more than one location. But all of that creates a new consideration for carriers and master agents: VARs need different kinds of support than agents.
First of all, VARs come to the telecom world with a bevy of long-time clients, of whom they are fiercely protective. These VARs are apt to have a “captive customer base that will trust them as the network adviser,” said Dana Topping, co-owner of Intelisys. The thing is, those captive customers make VARs “cautious and slow to adapt” to selling network services, said Ken Mercer, senior vice president of TBI. “They require a lot more training and they don’t forgive very easily. These trusted advisers are risking their relationships to offer our services. It has to be well planned out. Expectations have to be clear.”
Thus, some master agents and carriers are adjusting their internal operations to best serve and support their VARs. That’s because, although many VARs know how to deploy a data-centric cloud job, they remain iffy on network services cloud offerings such as hosted VoIP. “In many cases, the VAR does not have the expertise to sell these carrier solutions, and this is where we come in to help,” said Brad Miehl, president and CEO of master agency MicroCorp. For example, MicroCorp has a direct salesperson present the carrier piece of a VAR’s more comprehensive sales pitch. “This way, we share in the joint responsibility of presenting, selling and managing the total solution, with the key separation being the core disciplines of each party,” Miehl said.
CNSG, meanwhile, developed its back-office platform with support for project management of large, multilocation sales. Intelisys has customized training and support for VARs new to network services. WTG has different options, complete with “teaming arrangements,” depending on how involved VARs want to be, said Vince Bradley, CEO of WTG. In the same vein, Venture Group Enterprises Inc. (VGE) lets VARs choose whether to be full-fledged agents or referral agents who earn less commission, or even act as one or the other, depending on the deal. From there, VGE helps VARs complete paperwork, process orders and track status updates. Finally, for Telarus, matters are a little different. The master agent works with some VARs directly; those partners all have full-time employees who focus on carrier sales. But other VARs are paired with Telarus agents, who compile quotes and contracts, and track provisioning and project management. “In this three-way relationship of Telarus-agent-VAR, we do everything possible to improve the agent’s and VAR’s chances of success together,” said Patrick Oborn, vice president of marketing.
When it comes to carriers, VAR enablement also is a priority. TelePacific and XO Communications both have included systems and education that help VARs. MegaPath provides training. And CenturyLink is putting some of its marketing and advertising budget toward VARs “and will look for ways to continue to improve our program,” said Blake Wetzel, vice president of the CenturyLink Channel Alliance. Windstream makes sure its channel managers are available to VARs, who often rely on those folks more than agents do, said Dan Sterling, vice president of dealer sales. The same applies over at Level 3.
Besides support, providers and master agents further must consider VARs’ traditional compensation arrangements. VARs are accustomed to earning upfront commissions. And yet, they are feeling the pinch as more customers opt for capex, rather than opex, expenses. Consequently, VARs must fuel their businesses with recurring revenue. Still, sources say many VARs find recurring revenue off-putting, mostly due to the lack of internal processes to track and allocate it. That has some master agents, such as VGE, devising upfront payment options that keep their VAR partners at ease. Many VARs don’t have an employee to track residual compensation or determine how to pass on payment to a representative, said Doug Turpin, president and CEO of VGE. “They often sell equipment via lease or customer purchase, so they get the bulk of the compensation up front and know exactly what they are making,” he explained. “To deviate from that model is a challenge for many, so we offer an all-upfront plan they can choose regardless of how we are paid if they would prefer that to a residual model.” Other agencies, including WTG, have equivalent structures.
So, as 2012 gets underway and cloud and network services gain traction, look for master agents and providers to ratchet up the focus on VARs as partners. “We’re excited about the prospect of recruiting more VARs,” said Ted Shuman, founder and president of PlanetOne Communications. “They will be forced to find a home for the network-services business.” Matt Harty, president and CEO of CNSG, agreed. “Many network decisions are driven by infrastructure upgrades. The VARs are well-positioned to advise companies on their networking needs while supporting infrastructure needs.” EarthLink’s Cook and Windstream’s Sterling concurred. “The evolution we are seeing in our industry toward providing customers IP solutions versus just quotes for circuits plays very well in the VAR vertical. … We will certainly target them,” Cook said. And Sterling said VARs continue to comprise an “integral part” of Windstream’s recruitment strategy. “They bring a unique approach to customers and prospects,” he said.
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