Monday, January 28, 2008

Scenes from a marriage

About a year ago we learned that the IBM relationship with NetApp was working beautifully and that their efforts focussed on areas where NetApp's sales force was not engaged. It seemed that IBM was focusing on bringing NetApp sales into the big data centers. From the press articles it seemed like a perfect match.

Mendoza, president of NetApp, said that improving sales through IBM (NYSE:IBM) is not affecting NetApp's solution providers. "IBM is very focused on what I call white space, which is where we are not covered," Mendoza said. "For example, state and local government, and retail. So it's largely incremental for us. They've done an excellent job of minimizing conflicts by focusing on where we are not."

It was interesting to learn last week that IBM is now going to be selling the NetApp line through distribution . After only a year, it seems that the IBM / NetApp relationship may be starting to cause some conflicts.

IBM, Armonk, N.Y., has signed agreements with Ingram Micro, Santa Ana, Calif.; Tech Data, Clearwater, Fla.; and Synnex, Fremont, Calif. under which the three will distribute the N Series products and work with IBM to recruit new solution providers to the line.

IBM's N Series includes nearly the entire hardware appliance line of NAS and SAN appliances from Network Appliance (NSDQ:NTAP), Sunnyvale, Calif.

Brian McCarthy, president and owner of Sencilo Solutions, a Lake Mary, Fla.-based NetApp solution provider, is not as excited about the new distribution agreement. NetApp has a history of helping IBM and its solution providers win deals that could have gone to NetApp partners instead, McCarthy said. "NetApp allows their reps to partner with IBM," he said. "When I go to register a deal, NetApp may decline it. And if I ask why, they might say they're working the deal with IBM."

IBM's new distribution deal will only hurt NetApp partners, McCarthy said. "IBM has been very predatory with pricing," he said.

Is IBM concentrating on 'white space' or their bottom line? Either way, it seems that IBM must have one great discount from NetApp to be able to purchase equipment from NetApp, and still have margin enough to pay distributors, while leaving enough profit for the integrators to make some money as they compete directly with NetApp's own resellers who have to purchase from Arrow and Avnet. It seems like a very convoluted go to market strategy to me. But it may not make a difference in a few years to the resellers, as this comment made by NetApp's CEO in Feb,2007 seems to be coming true.

Solution providers who do not take advantage of NetApp run the risk of being left behind as that company continues to grow rapidly, Warmenhoven said. "If that doesn't happen, you will be a less significant partner of ours," he said last week. "Let's scale together.

Is IBM's move going to provide an incentive to NetApp's resellers to start scaling up or down in 2008? In a tightening economy will small business people who run many integrators invest in staff training in the NetApp product line? What is the long term reseller strategy of NetApp?

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