NetApp Channel Chief Explains How Partners Can Earn 20% Selling Its Hardware

Despite the growing demand for storage, hardware providers blamed a squeeze on pricing and macroeconomic headwinds for falling short on the revenue front in November.

As the month was closing out, Pure Storage warned that it expects sales in its fiscal fourth quarter to fall from original forecasts of $511 million to a range between $484 million and $496 million. Pure’s larger rival, NetApp, also missed revenue expectations, albeit slightly, reporting $1.37 billion, down from a projected $1.38 billion. NetApp also lowered its forecast for the current quarter and expects an 8% decline in annual year-over-year revenue.

NetApp’s Chris Lamborn earlier this fall at the company’s Insight event.

The headwinds for NetApp come as the company is rolling out its new Keystone program, a new way for customers to procure NetApp hardware and for partners to sell it. Revealed at the recent NetApp Insights 2019 conference in Las Vegas, Keystone now lets customers procure NetApp’s on-premises storage solutions as a service and pay monthly or annual subscription fees. Customers can subscribe to NetApp’s various solutions without taking title or leasing the equipment, while partners can offer their own managed services or use resell those provided by NetApp.

NetApp’s global channel chief, Chris Lamborn, sat down with Channel Futures to explain how the Keystone program will help partners sell its hardware as a service without taking title to the gear — and earn 20% margin doing so.

Channel Futures: Is Keystone an option or change to the way NetApp is offering subscription-based storage?

Chris Lamborn: Keystone is a way of looking at the overall engagement that a customer needs with a Cadillac experience. It provides a way to easily choose a performance tier, choose a storage variety and choose what a customer wants, and the partner can either manage the environment themselves, or resell NetApp managed services within that. So we’re really providing that same cloud-like experience whether it’s public or private, or a combination of the two.

CF: How does Keystone different from an ‘as-a-service’ model from NetApp on Demand?

CL: We’ve taken the best out of NetApp OnDemand and the best out of our other financial solutions and poured them into Keystone consumption. If you think about what customers are looking for, they need it to be a true service that doesn’t conflict with any new financial legislation. They need to have a minimum term of 12 months, but they don’t want to have any ownership of the capital and with Keystone and they don’t, NetApp owns it all. And customers want service choices and that’s why we believe putting these tiered performance levels in was critical. So that means that a customer can identify the right tier and a partner can sell it to them from Keystone. And we still build in 20% margin.

CF: When you say it’s built-in, is that in all scenarios?

CL: The way I look at it is like the cell phone data plans. You buy your 10-gig plan, you pay your 40 bucks, or whatever it costs, a month, every month, and if you use 12 gig one month, they’ll charge you for the extra two. And that’s the principle that we’re trying to give which is that flexibility. Customers and partners don’t find this an easy transition. We know it’s a change of mindset. Salespeople find it hard to change, customers are finding it hard to understand it. So, the decision we made is that at launch and at least for the next six months, is we’re running this as …

… a white glove service. It’s really easy to pull together quotes with this.

CF: What do you mean by a white glove service?

CL: Essentially, quoting is the easy piece. We have rate cards that run at a customer price, and the partner price. The good news is for our partners, they’re going to make at least 20% out of that, because they determine what the customer price is, obviously, but the partner price is 20% below a standard customer rate card. But I think the key thing with having the white-glove services is that we can help with a quote. That’s the easy piece, but it’s how you talk and walk your customers through that engagement model of creating a consumptive solution, how you help them understand what a very simplified agreement means to their business.

CF: What is the rollout plan for Keystone?

CL: Keystone is live today. Our partners, distributors and service providers are all able to get quotes from NetApp for Keystone services based on the tiering. We talk them through what the tiering means and what the customer usage is likely to be. And then they’re able to place orders on that now. And that’s where a partner of any type then wants to take out the contract. They become the contract bearer — we bill them, but we still retain all the risk as we own the product. Instead of a 12-month lease, it’s a billing cycle, and then they build it into a managed service. You can get that today. What will come out later is more of a reseller model for customers who want to contract directly with the vendor as far as the product on their site is concerned, but a partner is still involved in a more reseller model.

CF: In what other ways is Keystone a different model?

CL: It’s a digital experience. We’ve simplified how partners can quote. They can now walk a customer through using the digital experience that ultimately comes down to the suggested product and the suggested solution that they need. They can then download that into the quote tool and have that generate the quote. Quoting on the new products that we’ve announced can go onto a single page. Now there’s an advance capability for geeks out there that still want the full 36-pages, line by line. But to get to this simplification, we’ve changed our quoting methodology.

CF: That makes sense with products, but what about services?

CL: There are two services choices: standard and expert. The expert comes with some additions around some aligned resources to give higher-level services, both resellable by partners, or still supported by those partners that have their own services businesses where they have additional opportunity. And we’re keeping consistency on that price. So no longer will you see any change of that market value between when you take out the initial support. and when you get that support renewal, whether it be two years or three years later. So really giving predictability to the partners.

CF: Will partners need any training to use Keystone?

CL: The reality is partners understand where the customers are trying to drive. The training that we’re giving to partners is …

… more around the business needs. So we have a program called Fueled by NetApp, and that includes a team of people who have come from the service provider space or the managed services space. They’ve built businesses doing this. And what we’re doing with them is showing them how to look at their finances. How do they need to look at their comp plans? How do they need to wrap their heads around a consumptive type solution in what has been a very traditional capex, sell a box, make a revenue stream on a regular basis? This is around changing the dynamic and so as far as managing NetApp, our standard training will still support that. But as far as enabling your business to operate this way, that’s where we’re putting a lot of our efforts with our partners, helping them through that transition.

CF: To what extent do your partners need to still fully make that transition?

CL: We’re fortunate that we have several partners that are already there. They understand that Keystone consumption is what they’ve been looking for, which is to be able to transition to the next phase with a consumptive solution on NetApp products. But it’s those partners trying to move through that piece that we’re really focusing on. This is the opportunity for them to be able to take that part of the consumptive offering. The rate cards reflect that whether it’s a NetApp service, which has charges for NetApp managed services on it, or a partner in which case those charges don’t come up. And we’re looking at our partners that have the as-a-service business capability, that we launched almost a year ago, which represents those partners that have the skills and have built the business practices to drive those kinds of managed services. So we’re really starting to wrap all this together.

CF: What impact do you see this having on partner margins as well as NetApp’s margins? How do you see meeting that 20% margin threshold for partners with Keystone?

CL: As an organization and as an industry, when you look at the traditional hardware sale decline, NetApp has managed to help our partners retain their margins by helping them drive into the cloud and being very much a partner services-first organization. And so that’s really where they’ve been driving this. Even when we launched our public cloud solutions, we were very clear to wrap in a more traditional type of margin in those applications. Even though we may not actually be the ones transacting with the customer and the partner, we still made sure that the partners were whole. We’ve done the same with Keystone, where we’ve put the 20% margin opportunity as a minimum in there on this consumption. I doubt there are many partners out there who today would expect to make a 20% on a resale of a box. What we’re saying is, resell our service — and that’s what you’re going to be able to make.

CF: And if the partner wants to offer its own managed services?

CL: With the opportunity to wrap your managed services, where you’ve got those competencies even further, you can then look at how NetApp can enable you to create a data fabric and start to manage that data across the public cloud on the private cloud. And that’s where …

… a whole lot more consultancy and a whole lot more managed service opportunity comes in for the partners. Helping customers optimize where their data sits is going to be the difference between successful partners and not successful partners. The analytics tools that we’ve announced, enhancements of Active IQ, and Cloud Insights, enabling customers and partners to really understand how to optimize where their data sit is going to be critical for managed services partners to make that profitability. If you look at how a partner makes money out of their managed services, it’s by not touching the environment too much. The more times they have to go out and change something, it costs them. So, putting in analytical environments within an environment that will help reduce that time they need to spend managing it, which in default, increases that logic.

CF: Does Active IQ work in the background?

CL: Active IQ operates with our Cloud Insights across really becoming that cohesive intelligence platform to enable the partner and the customer not only to optimize where the workload sits but understand the impact of it. We have new tools where you can see just by moving a workload or just by the cloud tiering, exactly the savings you’re making. That works for customers, and it works partners just as well, because the more they can save on a managed services environment or a hybrid cloud environment, the more profitability they’ll be able to make on that service agreement they have with their customers.