The Channel’s Problem Child

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This is the third in a series on the VoIP equipment channel designed to educate, bring transparency and inspire change for the good of all channel members. You can read part one here and part two here.

Wild Wild West.

Or is it the world wide web? Eight years ago they were one in the same.

At least for the VoIP equipment channel.

While our service brethren were busy disrupting Telecommunications industry using the Internet as a new transportation mechanism for voice, the equipment channel itself was going through the same exact disruption lead by a number of young guns who thought of distribution in an entirely new way.

At its core equipment distribution is similar to any other form of distribution; whether it be knowledge or media. And just like the Internet disrupted and transformed the way in which we both find and consume knowledge and media, the Internet proved to be a capable medium driving awareness and access to equipment for this new market.

Lead by companies like VoIP Supply (where I am currently the CMO), new supplier models were created to eliminate the two distinct distribution issues that persisted:

1. Awareness – In the early stages of any market, there is a need for outlets that can drive awareness for equipment and solutions. The Internet is an efficient, effective, scalable medium for driving awareness for products and services. To be successful online, you need to be as much direct marketer as educator. Thus new suppliers leveraged the Internet to not just sell product; but educate the world on the benefits of VoIP (and how to use it).
2. Access – If one cannot get their hands on products, services and solutions a market will never grow in size. At the early stages of any new market there is rarely enough business for large, legacy players (like a tier one distributor) to pay attention and with technology, people aren’t exactly opening the yellow pages to find a local provider. So new suppliers leveraged the Internet to provide access to products that early adopters were searching for.

Built from the customer up to the manufacturer, these new supplier models were radically different than the established manufacturer down two tier distribution of the traditional telecommunications world. They were, to quote one channel executive at the time, “very scary.”

Indeed these new suppliers were very scary. They were very scary because they were not well understood (and they were growing, and growing). They were also very scary because they were able to serve a wide variety of customers, with efficiencies that allowed them to operate at margins others in the channel could not.

Obviously a problem for the old guard and those manufacturers with closed minds.

As time grew, so did the number of new suppliers adopting the Internet to drive awareness and provide access for VoIP equipment. With it came a number of issues; and many a problem child:

1. Margin Erosion – Built from the customer back to be ultra efficient and require less overhead than legacy distribution models, the new suppliers were able to sell equipment as price points that made most cringe. Like the providers of cheap minutes, it seemed to be a race to the bottom for all involved (or was it?).
2. Selling to Everyone – End users, businesses, resellers, service providers and even the government were coming to these new suppliers to gain access to products. With a lack of control over the flow of product, manufacturers and traditional distributors were up in arms over the fact that someone could sell to both an end user and a reseller; while adequately supporting them both.
3. Lack of Support- The result of serving everyone, manufacturers and traditional distributors agonized over the possibility of directly supporting customers because these new suppliers couldn’t possibly handle these immensely technical products. While some failed in this regards, others excelled, leaving mixed emotions about the value of new suppliers.

Fortunately for the telecommunications channel and the VoIP equipment channel not all new suppliers were problem child’s. In fact some, such as myself, realized that while there were substantial benefits to working with new supplier models that replace traditional distribution there were bound to be problem child’s that would hurt manufacturers.

So like any great channel partner, after all these new suppliers are still a channel, many, including companies like VoIP Supply championed a number of channel centric measures to ensure that problems were prevented:

1. Minimum Advertised Pricing (MAP) – One of the largest components of the new supplier model was the retail store front which allowed suppliers to offer direct purchase of equipment online. A great way to provide access to product, no doubt, but also a way for some to drive down street price, resulting in low margins for ALL channel partners. The solution, naturally was to create and enforce a MAP policy which dictated the minimum price a product could be advertised for sale, something which today most manufacturers in the VoIP industry maintain.
2. Certifications – Believe it or not, you once could gain access to VoIP equipment without any formal training or certifications. Don’t blame the new suppliers on that one, but without barriers to supplier entry many unqualified organizations sprang-up and caused many a support nightmare. The solution, demanded by many new suppliers, was that manufacturers create formal training and certification programs so that suppliers could distinguish themselves from those of lesser quality.

These two measures, driven and supported by the new supplier model businesses, disciplined or drove away the overwhelming majority of problem children.

Yet one pervasive issue still remained; selling to everyone. The topic for the fourth installment on the changing and disruption of the channel.

Disclosure: The views represented in this post are solely mine and do not reflect that of my employer, partners, suppliers, friends or family. They all love VoIP and everyone in it. At least that’s what they tell me.