This is our third major study this year, focused on the value of vendor-sponsored Specialization programs for the channel. We conducted the study in conjunction with two of our partners – ChannelInsider and Marketstar. Over 200 of the solution provider interviews conducted here were done with live interviews on the phone. There is an Executive Brief for this study which summarizes the major findings, plus a detailed research report only available for PartnerG2 subscribers. The study was conducted during August and September with a global vendor community and a North America-focused solution provider community.

Demographics of the solution providers who answered the survey

Demographics for the vendors who answered the survey. They include, specifically: Cisco Systems, IBM, Polycom, Symantec, Ciena, Autodesk, Oracle, SAP, Lenovo, Ann Arbor Designs, Viads, EMC, NetApp, NetSuite, McAfee, VMware, Microsoft, Novell, IBM Software Group, Dell, Google, Red Hat, Invensys, Informatica, Palo Alto Networks, Terremark, QlikTech

Here are key issues we see vendors grappling with as they decide to invest in and build out their specialization program(s). The exclamation point you’ll see throughout these slides refers to an Amazon Consulting opinion or recommended action We’ll address these questions as we go through this discussion guide

When Are Specializations Important? When we think of any major partnering investment for vendors, we try to align it in our minds to our partner impact model (shown above). We think most vendors don’t serious invest in specializations until they get to a certain level of partnering maturity and results, typically at the Reliant level, where they are getting more than 50% of their revenues from/with partners and their portfolio and program is getting broad. We think the Accomplished level is really where specialization makes sense. These companies tend to be seriously committed to a value-based program structure and want to offer partners the opportunity to differentiate and drive more profits and market success for their vendor investment.

There are some key drivers that typically tell a company that diverisfying their channel program through specializations makes sense: Their portfolio gets too big to have basic product training and certification alone Their partners are not well differentiated enough or aren’t selling and leverage unique skills value, and channel conflict among partner segments becomes a problem. The vendor needs to expand into a new market, either because of acquisition or new R&D efforts and they need partners to lead that effort or scale their own direct sales and technical resources to do so The vendor needs to accelerate their selling activity in some way and needs the teamwork of the direct sales team and partners to do so. Through specialization, partners establish their focus and credibility in the minds of the direct salespeople which fosters more trust and better sales teaming. Similarly, if the vendor is expanding into new geographies or market segments and needs to have partner help them scale support or professional services delivery, specialization can be a good way to help partners build the skills they need in this area. This is especially helpful when the vendor is trying to reserve their own direct Prof. Services teams to the largest, most strategic enterprise accounts.

Oracle has put a massive investment in their specialization program. It’s a mixture of what we call “certifications” and “specializations” It encompasses their very broad portfolio and is a global program standard They have over 75 specializations currently in place They currently have 3,000 specialized partners in it, each with an average of 3 specializations There’s a total of 30,000 certified implementation specialists (individuals) specialized through it What’s unique is that it encompasses their whole portfolio, it’s a global standard and the partners get access to a massive set of training and enablement resources, both on-line and in the classroom setting. They call this grouping of content “Knowledge Zones”

Ultimately, a well designed partner program could/should benefit all tiers, with a focus on the end-user. If the end-user is getting better IT solutions, with higher quality surrounding services, they will drive the value back to the vendor to engage the right quality and quantity of partners into that track. More companies are measuring end-user satisfaction these days, as a measure of partner value. OF course, the partner has to experience incremental value or they won’t invest. Yes, a specialization should drive clearer market differentiation and higher profitability, but only if the partner has the right sales and marketing expertise to leverage the investment. In a channel that’s increasingly specialized, these programs should allow for partners with specialized skills to find each other and team up with complementary capabilities more easily. The vendor experiences benefits in two ways: 1). At the HQ level through higher performing partners and clearer prioritization of support to this upper tier but also 2). In the field. It doesn’t matter how enticing the corporate specialization programs promises to be, if the field teams do not embrace the partner more readily and with more focus and provide them local deal-level support where required. This field teaming should become less subjective and more in-line with partner investment.

Our research suggests that vendors do want to add end-user value, first and foremost. They then want to provide differentiation and investment opport. to the partner Lastly, they want value for themselves through better market penetration and more effective co-selling)

The HP Specialization program choices are well integrated into the Elite level of their PartnerONE program. In order to achieve Elite status you have to have multiple Specializations. Some of the benefits of Elite status through specializations are: Incremental back-end rebates Elite partner branding materials Elite-only events and special trainings Access to Growth Accelerators - incremental rebates beyond the base level for % of growth on certain HP product segments Partner locator preferential placement Leads Incremental MDF Special pricing

It’s been a conscious strategy for many vendors to keep specializations to <20% of partners (pie chart). This makes it more challenging, but also more special, so that partners get a strong ROI by not having to compete with 100’s or 1000’s of other specialized partners

When it comes to desired value from specializations, there’s some alignment between vendor needs and solution provider needs. Vendors (orange) have a higher priority around partner skills and loyalty, followed third by high profitability Of course, partners want higher profits first, followed by better training and better sales teaming These were the only three common objectives between vendors and solution providers It was interesting for us to see that the benefits of marketing support were ranked much lower by solution providers, and they seem to care least about overall program benefits and tiers

Cisco has had a competency-based program for many years. In recent years they added technology-focused specializations around their major product families. Just this past Spring they added what they call solution architectures, which brings together various technology sets into specific horizontal solution areas. What’s unique about this is not necessarily the solutions approach, but how Cisco has integrated this architecture message into most of their corporate marketing strategy, especially to their enterprise customers. In order to achieve the highest levels of their base channel program (Silver and Gold) you must have one or more specializations. Cisco’s critics suggest they need to be more vertically focused rather than continue to just focus on technology (although they do have a small business specialization) They do have an Industry Solutions Network (see slide 33), but it focuses more on ISVs and connecting them to their traditional VARs for purposes of bringing vertical applications to market (P2P collaboration)

One of the bigger challenges vendors have had, especially in this economy, is in getting partners to invest in specializations. The promise of profitability and market differentiation are there, but the investment appetite and risk levels of today’s solution provider is not what it was 5 years ago. As a point of context, the majority of our solution provider respondents held 3-5 specializations with their top vendor lines (which are listed here). It’s easy to hold 3-5 specializations with any ONE of these vendors listed, based on the structure of their current specialization programs. For a <$5m VAR, this is not an insignificant investment of time, money and staff focus. We encourage vendors to always have in their mind an average total price tag for each of their specializations, and think about how relevant and practical this investment is for the “average” solution provider.

According to IDC, Microsoft partners with competencies see increased revenues of 28% and 68% larger deals. The Microsoft teams promoted that competencies will help solution providers differentiate themselves, showcase their leadership in the marketplace on the latest technology and connect more meaningfully with customers and partners Program that has over 640,000 members 6,104 companies have earned a gold competency 14,467 earned a silver competency

One of the most interesting stats from this research was the rate of abandonment of specialization investments by solution providers. More than half (57%) said they had at one point considered getting a specialization but decided NOT TO. For the smaller SP’s it was a greater rate (63%) – but for >$5m it was still 52% The biggest barriers were all inter-related issues. Too much expense and too much time were the biggest barriers for SP’s, and vendors agree that their SP’s perception is that it takes too much time. We hear from smaller partners that there is too large a commitment in terms of number of staff for training, sometimes even a big staffing commitment for each and every local sales office or branch. Oftentimes this cost issue relates to technical training which cannot be done on-line and may include lab work and/or live presentations. Partners seem to be gettign sufficient differentiation (as this was ranked low as a barrier).

This is the same barriers data, broken by size of partner. Big partners are in dark blue (>$5m) and small ones in light blue (<$5m) Again, we seem differentiation listed low as a barrier to investment, which is good But, we see a big delta in the # of employees issue for earning and maintaining specialization. Ironically, it’s a much bigger issue for larger companies than smaller in this cut of the data, which surprised us. So smaller partners object to the expense and time, but the larger partners have issues with the staffing requirement

Partner expectations for ROI are becoming more defined in our current economic environment. Most partners are measuring revenue first then profitability impact as their top two ROI measures, neck in neck Interesting to see here that in the grand scheme of things, better market differentiation is ranked last by the solution providers, of both sizes ** Only 2% of SP respondents said they do not evaluate the ROI of their investment in specialization – to what degree is unknown Nearly half of respondents said they want ROI within a year – which for most might just be line-of-site to a clear sales pipeline. For others, it might be profit on initial deals and a few new customers. Larger providers were willing to wait for 18 months

When building an investment model and recruitment pitch for specializations, we like to remind vendors it’s a mix of value that goes into the partners’ decision making process. It’s not just training and staffing opportunity cost. If they don’t see a balanced potential outcome of economics (revenue and margin) plus support and market differentiation OR if the investment requirement is too large initially or is surrounded by other “intangible” cost elements (complexity, equipment investment, new relationship building, etc.) then the partner simply won’t invest.

As we explored the types of specializations partners find most attractive to invest in vs. those being offered by the vendors, we found some notable disconnects We also were reminded that in our industry, technical skills will remain the first priority of vendors. Especially as new emerging technologies come onto the market, IT vendors seem content to approach their channel with technical goals to meet first We think of specializations as the layer above core product training and technology certifications. Specializations, in our mind, are the additional skills that build upon product expertise (both sales and technical) and point the partners’ skills in the direction of specific technology solution area (bringing multiple point products together), functional expertise like professional services delivery or first-line support delivery and vertical market or industry expertise. We use the term certification to apply to the person and accreditation to apply to the company. There are some qualities we’ve seen of strong specialization programs: The specializations align to the vendor’s overall customer segmentation model and product portfolio; it’s not a separate structure unrelated The number of specializations and quantity of partners involved in them are proportionate to the vendors’ GTM approach – not too many and not too few The specialization promotes something more than technical skills. It looks at the sales, marketing and services capabilities of the partner, optimally pointed at a specific market The benefits to the partner are distinct and INCREMENTAL to what they’re getting today through normal product training or certification/accreditation The partners’ involvement in the certification links to the behaviors in the field for deal engagement and support (not just a HQ program) The vendor uses the specializations in its corporate marketing strategy to advance partners’ skills as an extension of its sales and marketing approach

We see an ongoing focus on technology focused specializations, by both the vendors and solution providers. The Orange bar represents the vendors’ current specialization programs, the green the specializations the SPs currently HAVE and the blue the specializations the SP’s plan to invest in. So, we’re looking for alignment between the orange and green bars. As you can see, technology SOLUTIONS is first – which implies product competency beyond just one point product. Right behind this is services capabilities, before vertical markets. We think services capabilities is KEY and should be integrated as much as possible into ALL specializations, not necessary stand on its own. Customer size (enterprise, mid-market, small business) was the 3rd of 4 by SP’s for future investment, and lowest by vendors. Even though we see a lot of SMB specialization programs in the market today. We don’t see SMB as a specialization – it’s too broad of a market. NOTE: Only 3% of solution providers are NOT planning on investing Discussion Questions: Are vendors recruiting for existing vertical/market specialists, then training? Are services-focused specializations as robust and valuable as technology specializations?

On the topic of vertical market focused specializations, vendors have a lot of varieties available. All the orange bars here depict an existing market-focused specialization program. The blue bars indicate SP attractiveness in investing in the next 18 months. It’s interesting to see the divergence in interest of investment. Healthcare is no doubt a hot market, but over 50% of vendors have a specialization and just over 30% of our SP respondents are interested in investing there. Also, public sector (including federal and S&L govt) tend to be partner-led verticals for vendors, yet there’s very little interest from our 400 respondents in a specialization here. This could be because they either already focus in this area, or don’t feel they need the vendor’s endorsement to succeed, OR the requirements of success in that market are too daunting (getting on contracts, administration, pricing constraints) Discussion Questions: If vertical markets is the #3 priority, why so many specializations offered? Is healthcare a direct/partner channel “harmony” market? Many vendors tackle the big institutions here directly. Why not more focus on public sector by SPs?

IBM has had a strong orientation around competencies and market-focused specializations for a long-time. They been REALLY focused on the mid-market (they call it “General Business”) for over a decade with partnering support and enablement. Their PartnerWorld program is their global standard, and today it encompasses 5 specialties, one of which is industry solutions focused (there are 9 major markets they focus their industry solutions around) – govt., banking, energy & utilities, travel & transportation, telecom, healthcare, chemical & petroleum, retail and electronics) What’s unique? How deep their industry solutions programs go How mid-market (general business) they’re focused for purpose of these specialties How strong of a global program framework this is Quality vs. quantity of partners approach - partners must apply even if the supporting product certifications are in place

Let’s look at program benefits for specialization. This first chart takes SPs of all sizes and groups them together to measure what benefits they’re getting TODAY from specialization programs vs. what they would like to receive in the future. Good to see that there’s not a lot of difference between today and the future – i.e., they seem to be relatively satisfied with benefits The only exceptions there seem to be that they aren’t as concerned in the future with promotion to a higher program tier – which implies they don’t get incremental benefit in the programmatic structure, and that leads coming from the vendor aren’t a high priority for them, today or in the future The leads issue surprises us a bit. Most vendors try hard to prioritize lead referral to highly qualified and specialized partners in their marketing support activities. So, if the partners aren’t that interested, they’re likely jaded by having received unqualified leads in the past or not having a good hand-off process with vendors to take leads that match to their competency and take them through to real deals.

This last bit of data looks at program benefits again from the future needs of the solution provider vs. the future plans of the vendor to ADD to their specialization program. This is ranked by the blue bars (SP future expectations) This is a pretty telling slide ….. The #1 request from SPs is higher financial incentives (as it often is) – typically in the form of performance rebates or higher levels of deal registration $$; However, there’s nearly at 30% gap with vendor plans in this area. Also, the 2nd and 3rd highest ranked need from solution providers (specialized training and preferred technical support) are ranked very low in terms of vendors plans. Now, this might just be that these benefits are already well incorporated into vendor’s existing programs – which we think IS the case. The #1 vendor future plan is access to leads – which consistently through this data has ranked low in terms of SP requirements.

This is the “call to action” – things the vendors should examine in their quest for specializations

How Special are Specializations? Does the Value Warrant the Investment? Research Executive Summary October 2011

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Solution Provider Profile [N=391] Annual Revenue Range Regional 50% National 28% Multi-national 12% Global 10%

Vendor Profile Products/ Services Offerings Company’s Annual Revenues

When Are Specializations Important?

Breadth of Portfolio and Partners are Key Drivers

Currently 3,000 Specialized partners each with avg. 3 specializations. Total of 30,000 certified implementation specialists (individuals) Broad portfolio from M&A activity Foster field sales teaming - access to Partner Business Center (100 global reps) Content and competency assessments organized around “Knowledge Zones”

Creating End-User Value & Partner Differentiation What were the biggest drivers for your company in creating a specialization program?

PartnerONE Elite Portfolio Focused on creating partner differentiation and encouraging solution-selling across the broad portfolio Integrated set of specializations based on solution, technology or market orientation Clear linkage of specializations to main program tiering

Specializations are Special Less than 20% of partners hold specializations Q: How broadly have you currently implemented your specializations program across your partner community and program structure?

Increase Competency and Profitability V: What value do you want to create between your company and partner around their specialization investment? SP: In what ways could investing in specializations positively impact your relationship with your IT leading vendors?   Other Solution Provider Objectives More marketing support & visibility – 30% More channel program benefits - 23%

Global Commerce Integrated Architectures Specialization (IAS) Focused on increasing partner competency around company’s evolution to solutions & architectures Aimed at increasing partner profitability Market, technology and architecture/ solution specialization options Specialization requirements tied to Silver & Gold program levels

Most Have 3 – 5 Specializations 1 – 2 3 – 5 6+ Q: In terms of revenue, who are your top four strategic IT vendors? BV: No axis here is just too funky for me still Q: How many specializations do you currently hold with these strategic vendors?

Creating better differentiation and ways to establish customer value for the partner ecosystem and scaling services delivery for Microsoft Competency and advanced competency across people/methodology, technology, revenue, sales and marketing, and customer evidence

57% of Solution Providers Decided Not to Specialize QSP: Have you ever considered obtaining certain IT vendor specializations but decided not to? Why did you decide not to obtain those specializations? QV: What are the barriers that have prevented your partners from investing in your specialization program? We’re too small to have dedicated person for every single product

Time and Expense are Barriers Q: Have you ever considered obtaining certain IT vendor specializations but decided not to? Q: Why did you decide not to obtain those specializations?

Partners Specialize to Increase Profitability Expect to see that return within a year How long do you expect it to take to realize return on investment on an investment in specialization? How do you measure return on investment from your investment in specializations?  Only 2% do not evaluate the ROI of their investment in specialization ROI Metrics Time to ROI

What Partners Value Opportunity Investment Brand Strength & Demand Brand recognition Strong reputation Install base demand Financial health Innovative technology Technology vision Revenue & Margin Reasonable product margins Professional & support services margins Multiple engagement models (agent, reseller, OEM) Relationship Training & Enablement Technical training cost Sales training cost Staffing opportunity cost Formal certification Use of services methodology & templates Limited channel conflict Clear rules of engagement Accessible partner manager Strong local relationships & clear teaming processes Executive level support Chemistry and abiding trust Technical support Sales support Marketing support and MDF or co-op funding Field mentoring Program Support Ease of transaction mgmt. Automation of key program elements General ease of doing business Demo, lab equipment & NFR’s Business Process Performance Incentives SPIFs Rebates Promotions Deal registration

Program Structures Attributes of a Strong Specialization Program Aligned with customer targets & portfolio solutions Enrollment is proportionate to breadth of partners Advances holistic skills of partner (not just technical) Distinct and quantifiable benefits to partner, esp. economic Gives clear direction to vendor direct sales team about engagement & support Is leveraged through vendor marketing strategy

Technology Solutions Skills Most Important Waning focus on customer segments or verticals Q: In which areas of IT vendor specializations is your company planning on investing? Q: Which areas do you have IT vendor specializations?

Many Vertical Specializations Limited solution provider interest QSP: In which vertical markets would a vendor specialization be most attractive to you in the next 18 months?  QV: Which vertical market specializations do you offer today?

Longstanding focus on industry solutions, especially in the mid-market (penetration of “general business” category) Committed to measuring customer satisfaction and client references through specialized partners Quality vs. quantity approach – partners must apply to become specialized Five specialties: Cloud Computing Industry Solutions Infrastructure Solutions Systems Storage System X PartnerWorld Specialties

Partners Want Financial Incentives Deeper Training & Technical Support Q: What are the most important channel program benefits you currently receive from your existing IT vendor specializations?

Misaligned Program Expectations QV: What additional benefits are your partners asking you to provide for specializations (that you currently don’t offer)?   QSP: What are the most important benefits you expect to receive from your IT vendor specializations?