IBM Software To Large Resellers: No More Volume Discounts

In a move that has inflamed large-account software resellers, IBM Software will stop giving them discounts and incentives on new Enterprise License Agreements (ELAs).

Several large resellers confirmed that a letter was sent out in late June telling them that, as of Aug. 1, the company will stop paying them rebates and incentives on new enterprise licenses. The change will affect a small number of very large partners, seven in the United States and three in Canada, according to IBM. At stake are hundreds of millions of dollars in service revenue, both sides of the dispute agree.

These partners say IBM is, in effect, cutting them out of a lucrative services business built around software asset and license management, in which companies like the old Corporate Software (now part of Software Spectrum), as well as ASAP Software, CompuCom Systems, Softchoice, Softmart, Software House International and others have made their money.

Some resellers say IBM is segmenting the market by customer size, cozying up to resellers targeting small to midsize businesses but taking larger accounts direct.

"IBM is firing the channel in the enterprise space," said one reseller who requested anonymity. "In SMB, they're throwing a lot of money around with partners."IBM Software executives soft-pedaled the move. "I think they're being a little dramatic about this," said Jay Leary, sales executive for IBM Software, about the resellers. "We haven't taken them out of ELAs per se, but beginning in August, we will no longer pay incentives for their participation in new ELAs. They have a year of continued incentives on ELAs where they're currently active."

LARs, of course, are free to go in after the fact and sell their management services into these accounts.

This is hardly a new struggle. Corporate resellers have long complained of in-bred conflicts fostered by IBM (See article.). There were no rules of engagement around the sale of these services, and when a reseller was involved in the license management or deal, the IBM sales rep made less money, resellers said.

IBM is still trying to work out options to "facilitate them providing services," Leary said. It is even conceivable that the vendor itself could resell its partners' license management services, embedding them in the ELA, he said.

There is also discussion around exceptions. "Where there are unique customer requirements in the near term, we'd look at some exceptions so LARs could keep their accounts," Leary said.These large resellers maintain that IBM is essentially poaching accounts they have cultivated and warn that this move could give software competitors more momentum with LARs and the enterprise space they know so well. One reseller said Microsoft, by comparison, has done a much better job handling its Enterprise Agreements without dispossessing the channel.