What IBM’s New Incentive Philosophy Says About the Channel

If there’s one gripe partners have about vendor channel programs, it’s that the number of hoops they have to jump through in order to qualify for incentives or sales enablement content is way too high, and the programs themselves are way too complex for many to keep up with. Smaller shops, in particular, struggle to allocate the resources necessary to manage their participation in vendor programs. And many of them will tell you that the biggest OEM offenders are the huge legacy providers, not the least of which is IBM.

“I can tell you over the years and working with partners both old and new pretty consistently, they say that IBM program is the most profitable program for a partner. They haven’t always said it’s the easiest though,” says Mark Martin, vice president of global vendor management at technology distributor Tech Data. “A partner needs to be able to manage it … You can’t have a team of people just to manage a program.”

It’s a common theme among almost all the legacy tech giants. When you’ve been building your sales channels for a century, adding, subtracting, and tweaking incentive programs as new technologies and business trends emerge as dominant forces in the market, things tend to get a little complex. As vendors grow and evolve, they make adjustments to their incentive stacks, just little changes here and there that add up over time to a snarl of requirements, incentive structures, partner tiers, necessary certifications and a dozen other components that partners then have to learn to manage. It can be difficult to see the forest for the trees, so to speak, in order to identify a path to profit through all of the variables.

The partner community today has more leverage over vendors than ever before, as OEMs increasingly rely on indirect sales channels to identify new go-to-market opportunities and create inroads to specific markets or verticals. Over the last couple of years, vendors have begun to respond to partner demand for more simple programs. We’ve seen it recently with efforts from companies such as Dell, HPE and AT&T. And now, it’s Big Blue’s turn.

In Q1 of this year, IBM has unveiled a new philosophy around its incentive stack, including what it says is a faster path to profit that focuses on delivering higher value, targeting higher growth areas and delivering differentiated offerings aligned to artificial intelligence (AI), cloud technology and security solutions. The changes will be implemented this month.

“IBM’s objective is to create mutual value and provide a better end-to-end experience when working with IBM,” a company spokesperson told Channel Futures.

The value theme has been a big part of IBM’s shifting partner message, which for much of its history emphasized hardware and software resale opportunities. As the channel turns more and more to solutions and services, the tech behemoth wants its partners to focus on providing differentiated and innovative value propositions.

But it’s that bit about improved partner experience that’s really telling. IBM’s market has changed drastically in the last 18 to 24 months as the digital disruption has taken hold. Partners are transforming their businesses, and every day we see fewer and fewer of the pure play resellers and system integrators the company’s indirect sales channel was built on. The days of vendors holding all the power and partners being expected to simply do as they’re told are gone with the wind. Partners today have choices. And as persuasive as the IBM logo is, Big Blue needs to make it easy for service providers to work with them, or they’ll start getting restless.

“IBM obviously has brand recognition, an amazing presence in the market and is just thought of as a technology leader. IBM does great things for the biggest industries and the biggest companies in the world,” says Brad Peterson, analytic sales and business development director at independent software vendor (ISV) Technology Dynamics. “But in terms of attracting new logos, they realize that the expertise and a lot of the relationships are really up to third-party vendors and partners.”

The company says it spent the last six months of 2017 meeting with hundreds of its channel partners on all seven continents to try and nail down an effective strategy that’s good for both IBM and its partners. Peterson says he began receiving questions from Big Blue about what he wanted to change about its approach toward its indirect sales channel. Even more impressive, he says, is that it appears the company actually implemented the changes partners needed.

That’s not an easy thing to do when you’re trying to build a channel program that satisfies the needs not only of traditional resellers and managed service providers, but newer channel players like developers and ISVs as well. IBM’s program rewards revenue streams that present the most long-term value, such as developing new clients, generating new opportunities and delivering solutions as a service. It says partners have the ability to earn more throughout the lifecycle of a SaaS client engagement and has made it easier to adopt and embed IBM technology and develop solutions using IBM IP.

This is critical if the company wants to avoid the commoditization of its solutions. While the goal of many partners is to find a quick, repeatable implementation that paves the way to higher margins with less effort, that’s a death knell for OEMs trying to stay competitive in an era of cloud adoption. IBM wants its partners to package their own IP like APIs, applications and integrated solutions with its offerings, saying the new program will recognize and reward partners for making investments in such development efforts.

And why wouldn’t it? Every solution a partner develops, packages and deploys with IBM technology is a solution that Big Blue doesn’t have to spend resources developing itself. In a world where every line of business in every industry now runs on cloud applications, even IBM doesn’t have the human or financial capital to cater to everyone. It depends on its partner community to create those specialized solutions and offer them as a service rather than a commodity. Even hardware, it says, is subject to the same dynamics as cloud and has become a part of the infrastructure.

“Clients are expecting new levels of services that can be fueled by exploitation of the hardware services capabilities,” the company spokesperson told us. “At the end of the day, it’s about creating differentiated client value, and the [partners] who invest in exploiting the advantages of their vendor’s offering through the integration with their IP will be the winners.”

For some resellers and managed service providers still making money from slinging boxes, this isn’t hugely important. But it’s a vital shift in incentive strategy for partners hungry to build a business around cloud applications. Essentially, IBM is incentivizing solutions, not products. What’s more, it wants those solutions to be ongoing, service-based, iterative and representative of a value that’s specifically tailored to individual markets, such as lines of business or vertical markets.

That’s music to Peterson’s ears. Technology Dynamics has a big play in industries like hospitals and manufacturing, where generic solutions just don’t cut it. The offerings become too clunky, and the implementations take too long. The more it can “exploit the advantages” of IBM technology to create its own vertical-specific IP and value proposition, the higher its service levels get, and the faster its implementations become. That speedy implementation can sometimes mean the difference between winning or losing a sale because it helps lower the price for the whole solution.

“People don’t want to know how much the software costs,” says Peterson. “They want to know how much the solution costs.”

The individual components, in other words, aren’t important to the customer as the whole solution. To the partner, those components are worth only as much as they enable the solution to work effectively. In the past, IBM has placed widely varying degree of importance on different business lines, which makes it difficult for partners to piece together what they need in order to build the value Big Blue wants to offer end users. The new program seems an attempt to even the score between hardware and software in order to present a more cohesive value proposition.

That philosophy will play well with all types of partners: die-hard resellers trying to pivot toward services, born-in-the-cloud ISVs wanting to develop the latest and greatest applications, crossovers from the telco agent world looking to cash in on the managed services opportunity. It allows for some breathing room to stay innovative in an industry prone to commoditization, which is good for channel partners, business owners and IBM itself. And it’s another big piece of evidence that the tech power players are placing all their bets on services, furthering the gap between partners that will make the leap and those that will be left behind.