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Risk and Reward of Channel Alignment

By Kelly Teal
January 15, 2014 - Article

Kelly TealAs more master agencies court VARs, they're rolling out enablement programs to ensure resellers' success selling network services (see table, Master Agent VAR Programs Vary). One of the popular approaches is channel alignment — the pairing of VARs with experienced telecom agents throughout the sales and support phases. On the surface it seems a straightforward solution to speeding revenue generation, but under the covers, it is quite complex. Considerations include revenue splitting, personality fits, client control, the possibility of one side stealing a customer and whether a smaller agent can offer the sufficient backing a larger VAR requires. What's more, master agents risk alienating either their traditional base and/or new entrants if channel alignment is not done well.

Channel alignment is not new, but the issue is growing more prevalent as thousands of IT partners, spurred by dwindling hardware margins and the advent of the cloud, sign with master agents to add network services to their portfolios. Of course, this trend expands master agents' partner base, but it also forces them to decide whether to work VARs directly or to pair them with experienced agents. Each approach carries its own uncertainties. For example, the direct model can stir up resentments among existing partners, who may feel they're getting less attention from their longtime partners. It also can be costly for the master agency if a VAR can't close deals and support sales on its own, and instead leans on a master's internal staff for extensive help.

Channel alignment holds risk, too. Here, master agents have to tread with care, vetting agent partners well in preparation for an alignment initiative. After all, if an agent doesn't have enough staff, resources or time, it won't be able to provide the support the VAR expects. As a result, master agents know they need to keep finessing their channel alignment initiatives. "I'd like to sit here and say it's roses but it's really hit and miss," said Patrick Oborn, vice president of marketing at master agency Telarus Inc. "Some relationships flourish and produce fantastic results for the VAR, agent and Telarus. Others fail because the agent doesn't know how to effectively work with VARs or the VAR is so focused on their core business, the agent's attempts to communicate and work together go ignored."

Brad Miehl, CEO of master agency MicroCorp, agreed. "There is natural synergy between the two distribution groups," he said. But channel alignment "is not as simple as a commission split between parties. There are a lot of details that need to be considered." And for Digital Planet Communications CEO Shawn Schmidt, that's where the rubber meets the road. "If both parties establish common ground and set realistic expectations, the relationship can be rewarding," he said. "However, if there is not complete trust and collaboration, then the outcome is bleak."

Given the delicacies, some master agencies avoid channel alignment altogether. "Agent partners do not provide the level of support needed to keep the VAR, not to mention the client, happy," said Ron Dunworth, chairman and CEO of  master agency ADVODA Communications. That's because many agents run small shops that don't have the people, back-office tools or time to invest in an opportunity that likely will yield 35 or 40 percent of the commissions, rather than the 70 or 80 percent they normally get, he said. "Asking them to split their commissions with a VAR and work just as hard isn't a model for success." Master agency Converged Network Services Group (CNSG), also takes a direct approach. The company pairs its VARs with internal, local managing partners who know the carrier services world inside and out. "We listen to their short-term and long-term goals, and create a road map," said Matt Harty, president and CEO of CNSG. "It is all about success and taking care of the end user."

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