A Conversation With Karl Chen

Minimize risk. Maximize potential. That's the solution for any successfulventure, isn't it? But how do you accomplish it? If you're smart, enterprise networkmanagement technologies are part of the sweat and financial equity you've invested in tominimize risk and maximize the potential of your network. HP OpenView, as one of the"Big Three" (Computer Associates TNG and IBM/Tivoli NetView being the others) isone of the leaders in the enterprise network management market. And no wonder, OpenView(and related services) actually accounted for $1 billion of HP's over $40 billion inrevenues last year. That's about 2.5%, if you're doing the math.

However, HP doesn't get all the credit -- or even all the revenue. If you're familiarwith OpenView software then you've likely become acquainted with an OpenView reseller(more than 50% of HP's OpenView revenues goes through the reseller channel). Bycomparison, CA's and Tivoli's reseller sales are pegged at less than 30%.

In light of OpenView's success (HP's OpenView business grew about 40% in 1998),Editor-in-Chief, George A. Thompson spoke with Karl Chen, HP OpenView Channels MarketingManager. Chen believes that systems and network management technology is a stabilizingforce against the sea changes that many IT managers have already been experiencing; namelyglobalization, the Internet and Y2K. He also notes that OpenView Network Node Manager hasa 50% market share and that HP has taken the lead in NT management.

HP Professional: What's your value proposition?
Chen: Because we provide best-in-class software solutions, it lets resellers drag alongservices business. For every $1 of OpenView software, it generates (on average) $3 to $5of services revenue.

HP Professional: What's the most significant trend for HP resellers in the enterprisenetwork management market?
Chen: More and more Channel Partners are moving up to become system integrators [using]a service model as opposed to just pushing boxes. Margins are shrinking and the advent ofthe Internet and direct distribution from players like Dell reduces margins for bothhardware and software products.

HP Professional: If more and more resellers are moving up the chain, how is the systemintegrator's role changing?
Chen: They tend to make a lot more of their billable hours and revenue on the front-end-- business process reengineering and design work. They are less so on the implementationside. They see their value-add in two areas: one is to be the prime [vendor] in riskmanagement. That's where the Big Six and companies like EDS and Perot Systems really play,because they are large enough to underwrite the risk of a large IT infrastructure. And theway they do that is primarily by redesigning the business processes. So, they'll use ourtools, like IT Service Managert to set up service level agreements.

HP Professional: Can you elaborate on the OpenView model, strategy and yourinvestments?
Chen: Our whole distribution model is very channel-centric. More than half of ourbusiness last year was sold through the channel. And we have a channel-neutralcompensation model. Our direct OpenView sales force gets compensated on a sale whether itgets booked by a Channel Partner or by them. And [our direct sales people] are encouragedto bring in skilled Channel Partners [into a project].

From a year ago, we doubled our investment in our channels strategy. We have fourdedicated channel sales districts and two dedicated marketing organizations. We have fieldmarket people who work with our Channel Partners to do local demand generation. Also, atthe end of February, we rolled out an 11 city road show called the OpenView Tech Series.The initial sessions revolve around the topics of taking control of your network, defusingthe Y2K time bomb and Microsoft Exchange management.

We've also come out with Ready-to-Run channel kits which teach our Channel Partners howto successfully configure, deploy and implement management solutions; [for example], likedeploying in SAP environments.

HP Professional: But all Channel Partners are not necessarily exclusive to HP.
Chen: That's correct. But CA is out there acquiring services companies, so what we arehearing [from our resellers] is that they are not sure if CA is a supplier partner or acompetitor. And Tivoli is also pretty fickle. We've also heard [from our resellers] thatfor a large deal if they think they need to go direct, they will do that -- and rip thebusiness out from underneath [them]. So, [the OpenView] model and our investments in thechannel and our building block strategy is being viewed as a huge advantage in relation toour competitors.

HP Professional: Doesn't that get confusing for the customer?
Chen: People recognize that we all compete. But systems management has been aroundawhile. Customers do have legacy systems, and so where [that happens], we all cooperate.If people use OpenView for the enterprise console, but like Tivoli's software distributiontool, then there will be some level of integration.

For example, if customers are primarily in a mainframe environment, they haveimplemented Tivoli or CA. But if they like our NT management solution, we will provideintegration into those enterprise consoles. It's pretty standard, across the industrythrough SNMP and the ability to send and receive traps that you get that level ofintegration.

HP Professional: Can you explain the various categories of resellers?
Chen: We have a three-tier program that dovetails with the HP Partner Program. At thebase level, if people sign up to be a HP reseller, we have some open sourcing, opendistribution products that are very turnkey, that they can resell.

The first level is what we call our HP OpenView Authorized Partner. [At this level], weensure that within a given location that they have at least one OpenView salesperson. Andone certified technical consultant. In order to be certified you have to pass an exam foreach of the six solution areas within the OpenView portfolio.

And we have the OpenView Authorized Gold Partner, which is a minimum of fivesalespeople and five trained system engineers per location or region. Larger corporateresellers and system integrators will train 50, 100, 200 or more sales consultants,whereas some of the smaller CSP's will train one to five in each of their local offices.

HP Professional: And where do DARs fit in?
Chen: Some of the larger DARs like DIS and Forté will be Gold Partners and some of thesmaller DARS will be in the Authorized Partner Program. In virtually all cases, the peoplewho are trying to build a service, or software and service business, will be Authorized orGold status. For people who are still in the hardware or box pushing kind of business,they will continue to be HP resellers.

Because we ship special editions of OpenView with HP Vectras, HP NetServers, Dellservers and servers from Data General, if customers want to have one stop shopping and buyout of the box upgrades and start up packages they can do that through the traditional HPreseller base.

HP Professional: How does the HP OpenView reseller program work with HP's generalChannel Partners program?
Chen: There are some commonalties. [For example], we use the [standard] HP contract.That makes joining the program a lot easier. [But] we have some specific guidelines forbeing an OpenView reseller.

HP systems are generally categorized into two buckets ... enterprise solutions like theHP 9000, which is where the DARs came from, as well as some of our volume distributorslike Hallmark and Gates-Arrow. And then there's the PC, or PSG side of the house wherecorporate resellers and NT SPs have played. But then it's generally purchased throughdistributors like Ingram or Merisel.

Some of partners will choose to implement high-end more heterogeneous UNIX typesolutions because that's what they are used to selling. And then there are other partnerswho specialize in middle-market solutions -- maybe deploying NT manageablility or storagebackup for PC servers -- and they can source products through distributors on that side ofthe house.

And then we have partners like Spread PowerNet who are in the business of resellinghardware or software and they are solution implemented. So we've augmented some of the HPagreements to ensure that people who don't necessarily want to pass product canparticipate in our partner programs. So there's no limitation in having to be an OpenViewreseller. If you don't want to sell product, you can still participate in the program.

HP Professional: What do users or IT managers need to understand to use the channeleffectively?
Chen: The way we try to meet the customer segment is to have our direct sales forcefocus on the Global 2000. And they have specific name accounts. They will go and call onthose customers.

In the mid-market space, it's primarily a push through channels. We ask our partners tocultivate that turf. It's their business to find prospects, drive through the sales cycleand we will support them. We have four channel sales districts that help them in thatvein. If the request comes to us and is not one of the named accounts, we will funnel itout to one of our Channel Partners. We have a complete channel map that identifies whichpartners are certified and specialized at delivering certain solutions. And we have thatacross the world. So, we can map the specific customer requirement to the skill of channelpartners.

HP Professional: What about co-op programs?
Chen: We obviously provide discounts. We also provide back-end rebates. The criteriawill vary depending on whether you're an Authorized or Gold Partner. In some cases,partners have come to us with specific dollar commitments. And ... if you do a certainamount of business through us, you'll get some advantageous benefits.

HP Professional: What's the overall enterprise network management market look like?
Chen: It's fairly fragmented. Studies done by IDC and Dataquest show that you have thebig three: HP, IBM/Tivoli, and Computer Associates. And then you have a bunch of otherplayers that specialize around a particular area.

We are organized to make sure that we have solutions that are integrated as part of ourbuilding block approach around the major segments: network management; application andserver management; storage management; desktop management; NT manageability, which is agrowing segment; and we are driving the market from a service management [perspective];that is, to tie service level agreements from IT organizations to line of business and endusers.

The overall market is growing by 20%. Growing very rapidly are NT management, networkmanagement and application and storage management.

HP Professional: You mentioned that over 50% of the OpenView business went through the channel. Isn't that less than the overall average?
Chen: In 1998, 56% of our business went through the channel. This year, our goal is for60% of our overall OpenView business to go through the channel. It's a little lowerbecause it's much more of a services business model; were not just pumping out boxes.

At the end of the day, we want to have satisfied customers. And if you really want tolower their risk they have to have good services capabilities. This year we are expandingour channel to recruit high-end system integrators and enhance our relationship with Ernstand Young, Andersen Consulting, EDS and [others].

We're also fortifying our traditional HP Distributed Authorized Resellers (DARs). Wecontinue to build our capabilities with companies like DIS, Forté and Maryville Systems.

And we've gone and rolled out new partners -- corporate resellers -- that havehistorically not participated in the systems management space. Partners like Entex, GECapital, Inacom Vanstar; as well as gone and recruited Microsoft Solution Providers, whoalso typically have not participated in this area. These folks are NT-centric, focused onmanaging Exchange or NT file and print server environments or NT network environments.Examples are Forté Systems, Allstar System in Houston and Inacom Oakland.

So, we are trying to expand our reach of partners. But we are going after people whohave a services orientation who want to build a business around OpenView's suite ofproducts.