Sun Moves to Indirect Sales for Most US Customers

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Sun Microsystems is moving to an indirect sales model in the U.S. for all but about 300 of its largest customers, a step designed to help boost its flagging revenue.

The change means customers who aren't among Sun's biggest U.S. accounts from a revenue perspective will be switched to one of its reseller partners in the coming months, said Tom Wagner, vice president of Sun's North America partner sales organization, in an interview on Tuesday.

"Effectively we're going to go 100 percent 'channel' below the top 300 or so accounts," he said. That means Sun will depend wholly on its partners to generate leads, architect systems, close deals and provide much of the support and services for those customers.

The move will likely be welcomed by Sun's 600 or so channel partners in the U.S. because they will no longer be competing with Sun for business. Sun believes it will give them more motivation to attack areas of the market where Sun's "share of the wallet" is low today, and allow Sun to scale its sales efforts to target those accounts, Wagner said.

It is less clear how the move will be received by customers. "At the end of the day it'll be a 'wait and see' in terms of the customer reaction," Wagner said.

"We have a portfolio of partners who play pretty high up in the value stack and who we believe can provide quality technical support and system engineering resources," he said. But he acknowledged that some customers may have "very specific demands about how we handle their accounts."

"We'll have to deal with that when it comes to it," he said.

The so-called Partner First initiative is limited to the U.S. today and Sun didn't announce any plans to extend it overseas. Companies will sometimes try a new strategy in one region and roll it out worldwide if it's successful.

Sun does about two-thirds of its business through channel partners today and the proportion outside the top 300 accounts is roughly the same, Wagner said. "We're turning over what we believe is a fairly significant amount of our existing business" to the channel, he said.

The plan was announced internally on July 11 and relayed to Sun's partners through a conference call last week, Wagner said. The goal is to complete the transition by the end of this quarter or early next, which means by September or October.

The change comes at a time when Sun is struggling to grow its business as fast as competitors. Last week it announced that revenue for the June quarter will probably be lower than what it reported a year ago, although the preliminary figures were roughly in line with analyst estimates. It will report its full results on Aug. 1.

Sun is also restructuring and announced in May that it would lay off 7 percent of its workforce, or about 2,500 staff. Wagner said he couldn't comment on whether the new sales plan is related to the layoffs, but one industry analyst said that's likely to be the case.

"This will help to streamline their operations. It will result in lower headcount," said Dan Olds, principal analyst at Gabriel Consulting Group, in Beaverton, Oregon.

Sun may also end up handing over a larger proportion of its professional services revenue to the channel, Olds said.

"The challenge will be ensuring that they get the shelf space with these partners, and that they invest enough to make sure they're well represented in the field," he said.

Sun will make "targeted investments" in partners or recruit new ones as necessary, Wagner said. The company is also changing the way it supports its partners. In the past, managers were allocated to a particular region and had little incentive to help partners grow their businesses in other parts of the country. It is changing so that Sun's managers now have an incentive to help the partners they manage nationwide.

Wagner wouldn't be pinned down on which areas Sun hopes to get more business from. The company is strongest today in the telecommunications, financial and federal government sectors, and is pursuing a bigger share of the healthcare and education markets, as well as that for mid-market customers.

"We believe we have a value proposition for just about anyone out there," Wagner said.

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