3Com: Onus Is On Us To Regain Partner Confidence

3Com readily admits that partner confidence is starting to wane and it's up to the Marlborough, Mass.-based networking vendor to restore that confidence through a revamped channel program and an attractive lineup of products.

But some 3Com partners say they've grown tired of the rhetoric and are looking to the vendor to make the necessary changes soon, before their 3Com business and their relationship with the vendor dissolve. "It's truly in limbo-land," said Frank Kobuszewski, vice president of the technology solutions group at Syracuse, N.Y.-based solution provider CXtec. "I'm kind of through hearing the 'what ifs' and they have to move forward with the 'what is.' We need that commitment." And Kobuszewski is not alone. Several VARs are taking a hard look at their partnerships with 3Com, which has suffered a few very public missteps over the past months.

First, the vendor ousted global channel chief Nick Tidd and his team to take a more regional, geography-based approach to the channel. Then, a pending merger transaction with Bain Capital Partners, a Boston-based investment firm that many VARs thought might steady 3Com's course, went bust. In September, Bain offered to buy 3Com for $2.2 billion. The deal would've made Chinese networking equipment vendor Huawei Technologies minority a shareholder with a 16 percent stake. Huawei's reported ties to the communist government had many U.S. companies concerned about security.

Bain terminated the deal in March, noting that it and 3Com could not reach an agreement and that the Committee on Foreign Investment in the U.S., a government agency that reviews and can block international transactions based on national security, would likely refuse the merger. 3Com shareholders, however, voted in favor of the transaction the following day, with nearly 70 percent of shareholders approving the merger. The approval opens the door for 3Com to pursue a $66 million break-up fee.

And while still in the wake of the Bain deal collapsing, 3Com tossed president and CEO Edgar Masri at the end of April and replaced him with board member Robert Mao, who is based in China, with 3Com saying the decision will support its increasing focus on its China-based H3C operations and that Mao's bi-cultural background, fluency in both English and Mandarin and his Asian business experience can bridge 3Com's Chinese and Western business operations.

That one-two-three punch in just a short time has 3Com resellers walking on egg shells and evaluating alternative vendors in case the other shoe drops.

"I don't know what to make of it. There's been little to zero leadership in North America for five years, and the decisions that have been made were either inconsequential or just silly, and now we're looking at leadership coming from mainland China," said Glenn Conley, president and CEO of St. Louis-based solution provider Metropark Communications. "It sounds like they're putting a bullet in the way they've done business in the U.S. and maybe starting from scratch."

Next: 3Com Counts On New Partner Program

Conley said 3Com's series of past missteps forced him to decide he could no longer continue as a 3Com-exclusive VAR and, as a result, he's added partnerships with other networking and communications companies and technologies like Alcatel-Lucent, AltiGen Communications and open-source VoIP player Asterisk.

"We're still representing 3Com but I just can't have all of my eggs in that basket based on the decisions they're making," Conley said. "I'm sad. I'm just sad that it's come to this point."

And Conley is not alone.

"I can safely say that all partners out there that are with 3Com are considering a backup plan," said Don Gulling, president of Ocala, Fla.-based Verteks Consulting, a 3Com partner for roughly a decade. "It's pretty scary right now."

Even Bob Dechant, 3Com's senior vice president of worldwide sales, said of the vendor's channel program, "Clearly, it's not where we want it to be." But being a vendor [that] sees the vast majority of its sales come through the channel, Dechant said he's bent on making improvements in programs to make 3Com a more attractive partner option.

"It could always be better," he said. "I think the onus is on us. The onus is on us to get this message out we're looking for commitment [from partners] to take that journey with us, and some are going to do it and some are not. At various points in time, everyone evaluates who their strategic partners are."

Dechant said 3Com's new partner program will focus on four key areas: offering a compelling product portfolio today; delivering on that portfolio tomorrow; building the financial model to drive the business; and creating the right relationships.

Gulling noted that his 3Com business continues to thrive. He said Verteks did around $1 million in 3Com business in 2007, with one deal topping the $500,000 mark and a few other deals that hit roughly $70,000 and $80,000 for switching. That $1 million was a 35 percent to 50 percent growth over the preceding couple of years, Gulling said. Gulling attributes most of that success to 3Com's field staff.

"For us, it was a good year with 3Com as far as sales, revenue and profits go," he said. "But if it wasn't for the field, there's no way I'd be selling it."

Where the relationship starts to fizzle, both Gulling and Kobuszewski said, is when it comes to access to top executives. Kobuszewski said he's trying to plod on, but 3Com's recent regionalization of its channel operations and the fallout from the Bain deal falling flat have left him with several unanswered questions -- questions he said he can't even get in front of 3Com executives to ask, despite having a conference room in CXtec's Syracuse headquarters named after 3Com founder Robert Metcalf.

Kobuszewski said since Tidd's ousting, he hasn't heard "a speck" from 3Com in terms of its plans for CXtec's continued success. "The lack of that speaks volumes," he said.

Next: 3Com Works To Right Wrongs

Kobuszewski said before the recent changes, he'd been in discussions with 3Com about becoming a national partner, but noted that it requires more dedicated technical resources to achieve that. Overall, Kobuszewski said he feels CXtec and 3Com are both at a rebuilding point. He said over the years his 3Com relationship became strong, but now he feels 3Com's direction may inhibit his ability to scale CXtec's business as much as possible.

Kobuszewski's biggest worry is that 3Com is hanging its largest partners, like CXtec, which is a Gold Partner, out to dry. "Prior to this, we were finally making strides," he said. "We were going in a really great direction. Now we're back to, 'You guys are just a VAR Period.'"

Regardless, Kobuszewski said CXtec's 3Com business remains strong. He said his overall 3Com sales have been increasing marginally, with VoIP solutions like the VCX and NBX going up and switching business remaining consistent.

Despite growth, Kobuszewski said he's looking into alternative vendors as a possible backup plan, but it's tricky because of the significant investment his company has in supporting older 3Com gear, like CoreBuilder. And customers are relying on that support.

3Com's Dechant, however, said 3Com is working to right its wrongs. He said John Bazzone, 3Com's vice president of North American Channel sales, is traveling and meeting with partners, trying to put a face on the partner program and hear concerns in person, directly from them. Bazzone has taken over Tidd's channel chief role in North America.

"At a very high level, what we are trying to do is get back to the basics," Dechant said. That plan involves putting more investment into the channel and putting stronger solutions into the market. The goal, he said, is to make both 3Com and its partners more effective. He said channel partners, for their part, must become less transactional and more solution-oriented.

Jeffrey Schmidt, president of SOTA Technologies, a Coshocton, Ohio-based solution provider, agreed that saleswise, 3Com has been a strong partner. He added that so far, SOTA hasn't seen much impact from 3Com's missteps, but noted it still "could go either way." Schmidt said SOTA's 3Com business has been growing steadily over the past few years. He said 3Com's IP telephony solutions, like the VCX systems, have been selling briskly. For now, he said, he's going to keep things "business as usual."

"As long as our customers are happy, we're happy," he said, later adding "We're always aware of the risk points, and we're always aware that we need to plan ahead in case something happens."

But Kobuszewski said he wonders how to plan ahead, when even 3Com doesn't appear to know which direction things are going. "I'm a betting man and I wouldn't even try to predict that one," he said. Schmidt added: "3Com itself I don't think knows what's going to happen."

Gulling agreed. He said he's had the nagging feeling that 3Com is going in the wrong direction, a pang he's felt for years and has started to come to a head more recently. He's hopeful that Tidd's departure will remove some of the "flawed strategy" of 3Com's partner programs. "I think his approach to the channel was the wrong approach," he said.

Next: Partner Communications Becomes Key

3Com's major flaw, Gulling said, is that it tends to think it's a larger vendor than it actually is, trying to compete head-to-head with market leader Cisco Systems Inc. when there's little chance for victory. "They act like they're the Goldman Sachs on the LAN and voice side," he said. As 3Com's market share continues to erode in some key areas, Gulling said it's time for 3Com to undergo a "philosophical change."

Like Kobuszewski, Gulling said 3Com lacks a solid chain of communication to partners.

"I really hope 3Com changes their mindset on how they engage their partners and make them an extension of the selling force," Gulling said. "I would like to see top-tier executives talking to us directly more."

If that mindset doesn't shift, Gulling said he has backup plans in place. Verteks is a registered Cisco partner, so Cisco solutions could be offered in a pinch. Plus, he said, competing vendors are "beating the door down" to partner up, including Juniper Networks and others.

Gulling said he's already partnered up with ShoreTel on the VoIP side, due to slipping 3Com voice sales, a move he said he's extremely pleased with. While his switching and wireless sales of 3Com continue to grow, he said a decline in VoIP concerns him most, especially since 2004 and 2005 saw a boom in sales for 3Com's NBX platform. But when 3Com rolled out the VCX platform, thought by many to be a replacement of the popular NBX, things started to go sour, especially as it appeared the NBX platform had become neglected and started to suffer.

"All of the NBX partners were very, very upset," he said. The VCX was scaled back, but reintroduced again a few years later to the same results. The VCX is more expensive than the NBX, but is lacking some of the features of the older platform. Either way, Gulling said his staff is getting trained now on the VCX, despite his misgivings.

"I'm not 100 percent confident the VCX is there yet and it's harder to sell than the NBX at this point because it lacks some of the core features," he said.

Despite the uncertainty, 3Com VARs say they're going to forge on in hopes that the vendor turns things around.

"We're in this together," Gulling said. "I can't win deals without them and they can't win deals without us."

Dechant agreed, adding that he's uncertain when 3Com's and its partners' journey into new territory will reach its desired destination. Dechant said 3Com, which earned $1.3 billion in revenue in fiscal year 2007, is poised for continued growth despite Bain backing out of the merger transaction.

"We're not a crippled company whose only hope for success was being taken private by a company like Bain," he said.

Much like Schmidt said SOTA Technologies will continue with "business as usual," Gulling said he'll do the same, but keep a watchful eye on 3Com and continue his attempts to get at least one high-level executive on the phone to talk turkey.

"I can't think of a reason I would fire them right now unless the ship goes down," Gulling said. "I'm with them until the end. At the same time, if something happens that's damaging to us that will hurt us, that might be when we say 'forget it.'"

Jennifer Hagendorf Follett contributed to this article