Winds Of Change At IBM: Will Partners Be Blown Away?

Change is never easy, whether you are a 36-year-old solution provider or 104-year-old IBM.

"A few years back I realized our traditional VAR business was profitable, but in order to get the attention of salespeople I needed to stand out from the sea of sameness. And in order to do that I needed to transform," said Chris Pyle, president of Champion Solutions Group, founded in 1979. "I realized I needed a whole different mind-set and a new value-add than the traditional system integrator."

To gain that edge, Pyle created Champion's Cloud Division in 2012 and bought MessageOps, a Microsoft cloud services and utilities company, which would be his beachhead for a new cloud arm of his business.

[Related: IBM Streamlines Executives Into 'One Channel Team']

Pyle is also an IBM partner, another company that is undergoing its own cloud transformation. And for IBM, Pyle might as well be the poster child for solution provider transformation -- going from a traditional box-pushing VAR to a company with a diverse portfolio that includes Software-as-a-Service and a deep bench of cloud-based products that rely to some extent on IBM's IT infrastructure.

"We are a perfect example of a VAR systems integrator who is evolving as the market is changing," Pyle said. Today, Champion's cloud business, with its latest Office365 email discovery product called Discovery Scout, represents 10 percent of the company's revenue and is growing double digits year over year, he said.

Like Champion, IBM has arrived at a pivotal moment. It also needs to transform or risk drowning in that "sea of sameness."

FACING THE MUSIC AT PARTNERWORLD

IBM's shift to the cloud has been slow to pay off.

IBM Chairman, President and CEO Ginni Rometty, who just received a $3.6 million raise last week, has faced a firestorm of criticism. On Rometty's watch, IBM has had 10 straight quarters of revenue losses that have reduced overall revenue 6 percent from $100 billion in 2013 to $93 billion today.

But there are bright spots. IBM, which paid $2 billion for SoftLayer in 2012, said the cloud business has grown 60 percent since 2013 and is generating $7 billion in annual revenue.

What does Rometty have to say about IBM's downward spiral and areas of success? Not much, other than more change is on the way.

On Wednesday Rometty faces the music. That's when she will address thousands of Big Blue partners at its annual PartnerWorld Leadership Conference in Las Vegas. And just like IBM, many of these partners are feeling the winds of change -- and not on their backs.

"IBM's channel community is evolving," said Mike Gerentine, vice president, IBM Global Business Partners and Midmarket Marketing.

Three years ago a typical partner resold individual software and hardware. Now it sells cloud and SaaS on top of SoftLayer and is moving to a recurring revenue model, Gerentine said.

Next: Shifting The Focus To Higher-Margin Business

IBM, Armonk, N.Y., has been trying extremely hard to transform right alongside its partners. Over the past year the company has shed unprofitable low-margin businesses while growing higher-margin new business with a focus on cloud, analytics, mobile and social.

To get there, over the past year IBM has sold off two huge chunks of its hardware business, spent billions on building out the SoftLayer data center network, created a Watson supercomputer group, and inked a deal with Apple in hopes of jump-starting its enterprise mobility business.

More recently, earlier this month, IBM confirmed a massive internal shakeup that included an unspecified number of layoffs and an internal reorganization of business units, as well a folding of its hardware and software partners under one roof into a Global Business Partner Group.

Behind IBM's changes and reorganization is an attempt to more accurately reflect the way its partner base is using IBM technology today, Gerentine said.

"We are trying to make it simple for business partners to work with IBM," Gerentine said. "By combining hardware and software under one roof, partners now have a single point of contact inside IBM. And depending on their core skills -- and what their core growth areas are -- we are providing them with the right enablement, education, support, incentives and relationships leads to help them grow."

According to partners familiar with the reorganization, the changes include a new internal structure within the company that is focused on a holistic approach to solving business problems -- a move away from IBM's existing business unit approach that favored stand-alone hardware, software and services silos.

Other tweaks to IBM's channel include a greater emphasis on IBM's regional sales reps. Partners told CRN that change will impact national solution providers that do business in multiple geographic areas. In the past, when a Chicago-based solution provider needed IBM channel support in Boston, for example, it would work locally with its Chicago IBM reps. Now partners will be encouraged to work more closely with geographic-specific channel reps instead.

IBM will be focusing more on where products and services are geographically landing and not from where they are launching, partners said.

By unifying groups, IBM aims to help partners piece together solutions that span its vast product portfolio. "This means centralized management of business units and a more unified strategic direction for IBM instead of having separate IBM horses running their own races," said a partner that requested anonymity to protect his business relationship with IBM.

"It's a welcome change," said another IBM partner who asked not to be identified. He said IBM was too often competing with itself on sales.

"We'd bring security deals to IBM and one [IBM] group would want to sell it as a service and another would want to sell it as a traditional software sale," said another IBM partner that specializes in IBM security solutions.

"Each IBM group was in a silo. They didn't care if they walked into another deal. They didn't care about confusing a customer. They wanted to make money," said the partner. "We lost deals. Customers would have to wait for quotes and they would be confused. Ultimately, that pushed customers to the competition."

Next: On The Lookout For New Partners

ON THE LOOKOUT FOR NEW PARTNERS

Meanwhile, IBM continues its goal to recruit new partner blood, reaching out to solution providers, MSPs, ISVs and startups that align with its "strategic initiatives" of mobile, analytics software and security.

"We are creating a new ecosystem for partners," Gerentine said. "We are trying to attract ISVs, developers, startups and academia," he said.

Efforts include programs reaching out to startups less than five years old and offering them incentives such as $100,000 to $150,000 in seed funding in exchange for developing services that will run on IBM environments such as SoftLayer.

IBM also has a similar type of incentive program for universities and tech incubators. "We have started holding grass-roots entrepreneur and startup meet-ups in select cities to recruit them and offer them support and funding," Gerentine said. "We are getting these companies going on SoftLayer and BlueMix and helping them go to market faster."

BlueMix is IBM's cloud Platform-as-a-Service based on SoftLayer that allows developers to build, run, deploy and manage applications on the cloud.

IBM said that despite a portion of its partner base now aligned more closely with System x brand owner Lenovo, it has seen partner numbers grow by 10,000 over the past year to 150,000 today.

"Partners come and go. But we have increased the number of partners in PartnerWorld," Gerentine said.

When IBM sold its commodity x86 server business to Lenovo, it lost about $4 billion in annual revenue from the 2,000 partners that sold System x through the channel. Last year Rometty told PartnerWorld attendees that 20 percent of IBM's revenue goes through the channel. IBM won't say what percentage of its revenue is driven through the channel today.

Ironically, many IBM partners are doing better than IBM when it comes to transforming their business to focus more on cloud and recurring revenue.

Greg McKenna, CEO of Oritor, an IBM partner and ISV that sells a Web-based collaboration service, said when his business was founded in 2009 he figured Oritor would bundle its software with an IBM System x blade server and set it up in a customer environment. Softlayer, however, has changed the game.

"SoftLayer enables us to deliver our services globally on a high availability and highly accessible platform," McKenna said. "It makes it simple for a small ISV to be global and connect with the reseller community."

McKenna said he has seen IBM's transformation firsthand, and not just from an organizational standpoint but culturally as well. He said IBM's size has been both a curse and blessing for partners who sometimes feel stymied by Big Blue's largesse at the same time they benefit from its deep IT roots and prowess.

"We have seen a cultural change for the better at IBM, especially within its SoftLayer group," McKenna said. "Doing business with IBM has always been synonymous with lots of meetings with different groups. That hasn't been the case with SoftLayer. It's nimble, reacts to the market and my rep has been extremely responsive to my needs."

SoftLayer, McKenna said, has allowed Oritor to move fast as a company, but more importantly faster than his competition when it comes to delivering collaborative voice, video and data services. "We are seeing tremendous scaling opportunities with IBM's cloud and project 300 percent over the next 12 months," he said.

This article originally appeared as an exclusive on the CRN Tech News App for iOS and Windows 8.

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