February 2001

BY MARY BRADSHAW

[ Read Part I In Our October 2000 Issue ]

For participants in the business technology marketplace, the last decade has been consumed with expectations of "killer applications" that would finally merge the benefits of computers and communications. But the advantages of tying the business phone system to customer records remained mostly confined to large call centers in certain vertical markets such as insurance and financial services. The cost of entry into voice and data convergence had been too great for the small to medium-sized business. However, with the advent of server-based networking, unified messaging, and other IP applications, along with recognition by businesses that the quality of the interaction with customers is just as important as the quality of any product or service sold to them, the industry is on the threshold of a major convergence breakthrough. And the distribution channel for delivering integrated systems must adapt to a customer base that demands access to local technology partners that offer the advanced skill sets to design, install, and service these systems.

TWO STRATEGIES FOR CHANNEL PARTNERS
The MultiMedia Telecommunications Association (MMTA) has represented the channel community for 30 years, always promoting the successful delivery of new technology-based solutions to the business community. The first article in this series (in the October issue of Communications Solutions) explored one approach for building a team with convergence solutions skills: the merger and acquisition strategy, portrayed as pursued by Expanets, Inc., a networked solutions provider for mid-market businesses in the United States. This second article explores the formation of alliances with companies that do not change the ownership of the distribution company but still provide the professional services and product bundles customers demand. MMTA sees enormous opportunities for companies pursuing the acquisition or alliance approach, and enormous risks for companies that pursue neither.

DELIVERY OF CONVERGED SOLUTIONS
The business technology channel has traditionally been served by two parallel entities: telecommunications equipment and service distributors (interconnects) and data value-added resellers (VARs). But the convergence of telecom and data technologies inevitably requires the convergence of their distribution sources. Customers are eager to use integrated voice and data systems, but they are frustrated by the prospect of interacting with too many vendors behind each application, and by the lack of resources to manage the ever-expanding array of technologies. Customers want one-stop shopping for networked communications. As a result, interconnects and VARs are each positioning themselves to deliver integrated applications, but most have insufficient resources to bring this talent and expertise in-house. For these resellers, there are a variety of partnership options.

TAPPING WHOLESALE SUPPLIER RESOURCES
One source of professional service assistance for distributors is the wholesale supplier. For example, Ingram Micro helps resellers meet their customers' demands for integrated applications and secure converged solutions sales. Dedicated associates help resellers select computer telephony products and identify business development opportunities. Dedicated technical support and sales specialists collaborate to answer pre- and post-sale queries and provide configuration information based on product specifications. Marketing professionals develop training and educational vehicles, such as seminars and workshops, to help resellers learn about this market.

"We are able to serve as a single point of contact for the reseller to acquire application knowledge, experience, and technical resources," said Kelly Harvey, business unit director of Converging Technologies Group, Ingram Micro. "Unlike individual manufactures or resellers, the wholesale distributor has a broader perspective of the market and its many different types of products." Resellers can turn to Ingram Micro as a source of information on products and services, as well as pre- and post-sale technical support. "We enable resellers to focus on the value-add in the sale of products," Harvey said. A reseller can call in with a profile of XYZ customer and what the customer requires, then find out from Ingram Micro what products can get the job done and how they should be configured.

According to Ingram Micro, it's important for resellers and market analysts to recognize that not all small to medium-sized businesses are hungry for converged applications just yet. In today's economy, small to medium businesses are growing so rapidly that many Ingram Micro resellers are spending a portion of their time "reacting to fires," Harvey said. Resellers are scrambling to keep up with demands of end users still focused on getting PCs, Internet access, e-mail, and voice mail to each desktop while getting a Web site up and running. For resellers meeting these demands, Ingram Micro offers assistance through technical support and account management teams.

With customers who are traditional data resellers as well as voice resellers, Ingram Micro views each type of reseller as coming to the integration market with different corporate cultures. As described by Harvey, due to the mission-critical nature of voice products, interconnects have a longer history of understanding how to service customers.

Data VARs have a longer history of offering unbundled price lists that distinguish between service and equipment. Harvey explained, "On the voice side, end user customers don't know what an individual Siemens phone costs, for example. Service and equipment are bundled together. Data resellers, on the other hand, are accustomed to doing business in an arena where there's lots of public information about market pricing of printers, PCs, and servers." To succeed in the convergence market, the traditional data resellers will do well to acquire enhanced customer relationship management skills, and the marketplace may pressure the voice resellers to develop new pricing strategies.

Resellers are offered different pricing by Ingram Micro, depending on how much Ingram Micro has to "touch" the reseller. For the reseller that logs on to the Ingram Micro Web site to order equipment for next-day shipping, there's no need for an account rep or technical support, so the pricing is very low. If a reseller wants integration assistance, it becomes a "high-touch" customer with higher associated support costs. Harvey reports it's been difficult for some resellers to accept that this support comes with a price to be passed along to users. And some users have been reluctant to accept these service costs as well.

As resellers position themselves to move into converged solutions, they should focus on what the small to mid-sized businesses may be ready to buy. "I've been working to promote convergence for six years," Harvey said. "Only now, with breakthroughs in unified messaging and video conferencing, is the cost to entry low enough for mass market appeal." This one-stop shopping of unified messaging appeals to workers managing the influx of many messages from many sources. And it's a first step in the merging of voice and data that's relatively easy to implement. Harvey also expects the major video conferencing manufacturers to soon release products for conference rooms that will deliver real-time video over IP and "knock people's socks off."

PROFESSIONAL SERVICES PARTNERS
In addition to wholesale suppliers, resellers can turn to new companies designed specifically to offer professional services to the distribution channel. CYGCOM, for example, is a privately owned Canadian company providing distribution services for PC-based telecommunication products (hardware and software) to all levels of integration companies. CYGCOM does not sell direct to the end user community. As a value- added distributor for PC-based telecommunications hardware and software products, CYGCOM brings telephony integration expertise forward during the pre-sale cycle for resellers that are traditionally strong in systems communications and PC operations. Its knowledge of telephony systems and telephony integration at the end user's site or central office helps integration companies to better understand the entire investment requirements of their customers' requested range of benefits.

"The driver behind convergence is the convergence of IP and voice for performing business tasks," said Greg Larnder, vice president of sales, CYGCOM. "It's the next big wave. The challenge inside the distribution channel is measuring the risk against the reward of delivering these solutions. On one side of the equation, there are proprietary PBXs and ACDs -- boxes that hook up to the central office. In the IP or data side of the world, there are open architecture standards as opposed to proprietary boxes hooked up to the CO. Each side of the distribution channel wants to capture the business of the other side. The user wants an organization to come to the table with a full business solution, with no pointing of fingers when something goes wrong. Customers want convergence faster than the channel can deliver it."

CYGCOM's role is to present four to five more possible solutions to the channel. "It makes no sense to expect the sales person at a reseller to be familiar with every manufacturer, every product detail. At the end of the day, a sales person's head is like a bucket of water. Put too much in and water spills out. The sales person establishes the relationship with the customer. Then, the reseller brings us in to work out the details. We look to the channel to leverage relationships with customers. We bring in the technology knowledge base."

Larnder emphasizes that CYGCOM cannot offer a local presence or be the contact to call when a line goes down. The value of the local reseller is its ability to be that constant, local contact with the customer.

With a bias for open architecture and open standards, as opposed to proprietary solutions, CYGCOM tends to work more often with data resellers. "But getting them to think about the business process of the customer is our biggest challenge," Larnder said. "The data resellers are used to selling bits and bytes. But the decision for the customer is pure business. We have to talk about the technology as it pertains to a business result. For example, a company wants help analyzing how much it costs today for customers to call on the phone to make a purchase and what it will cost if they move to purchasing items over the Web." Conversely, telephony VARs can gain access to new perspective and new products through a data-oriented supplier such as CYGCOM.

One CYGCOM partner in the delivery of integrated solutions through resellers is Artisoft. Artisoft produces the TeleVantage software-based phone system specifically for small to medium-sized businesses and corporate branch offices. Users have the functionality of a stand-alone PBX, plus graphical voice mail, multi-line call control, "follow-me" call forwarding, e-mail integration, intelligent least cost routing, call/message screening, personalized call handling, automatic call distribution, built-in IP telephony gateway, and Web browser interface.

Jonathan Ross, vice president of sales for Artisoft, said, "More and more businesses are turning to this new convergence of telecommunications and computer technology to reduce their costs and increase productivity. More importantly, they know that their success depends on seamless connections with their customers. No matter what a company does, it's a communications company. How a business stays in touch with customers, staff, and vendors has a huge impact on what that company can accomplish. Telephone connections can enhance a company's image and dramatically improve productivity -- or they can have the exact opposite effect."

All convergence applications require careful design, installation, upgrades, service, and support. "Customers will be loyal to the provider that demonstrates an ability to be on board for the life of the system, not just the initial sale," Ross emphasized.

ONE BILL, ONE SOURCE, ONE COMPANY
When the founders of network service provider Teligent viewed the business communications landscape in the late 1980s, they saw the concentration of vendor interest in the largest customers as an opportunity to address the small to mid-tier market. And they found this market overwhelmed by technology changes and choices. Teligent's strategy was to develop a fixed wireless service using digital microwave communications that enable customers to purchase advanced local, long-distance, and Internet access services from a single source and pay for them on a single bill. By tapping local companies like InfiNet, a networked communications distributor in the Ohio Valley, Teligent is expanding its product bundle of wireless network services to include integrated equipment and voice, data, and video applications. As described by John Cavanaugh, vice president of acquisition integration for Teligent, customers "want one contact, a single source to call" when their system or service fails. "But more importantly, we want to help businesses of all sizes improve the 'last foot' in the communications process. That's the portion of the transaction that takes place between the phone jack or CPE jack and the fingertips of the employee using our services. We are a customer-focused company, and we see companies like InfiNet as the perfect partners in the effort to help businesses use technology to solve problems and improve customer service."

MMTA estimates that there are approximately 700 players such as InfiNet that have been tapped by service providers, just to have the customer relationship of this independent sales force make it into a full service shop. As big as they are, service providers still need the local VARs that customers will be loyal to, the local players that have been their local suppliers through thick and thin.

Typically, enterprise users ask their solutions suppliers to specify their network provider. Entering such a partnership enables the VAR to earn significantly for activities undertaken customarily as a customer service.

Whether customers want "one throat to choke" or if unified messaging or another "killer application" will drive convergence to the mid-tier market, there's no turning back from the movement in all market segments to use technology to improve interactions with customers. That means the marketplace has room for solutions suppliers of all sizes, and ownership structures from both the voice and data traditions. But their success will depend on their ability to form partnerships within the distribution channel to meet the demand for bundled offerings and professional services.

Part 1 of this article was featured in our October issue. Mary Bradshaw is president of the MultiMedia Telecommunications Association (MMTA), a subsidiary of the Telecommunications Industry Association (TIA). 

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