THE NeXT WORLD

Managed Competition

Dan Ruby

As NeXT seeks to increase its income in areas outside its core system-software business, it is beginning to find itself in competition with its own partners. Here's a typical story.

A corporation in the Northeast, having recently purchased a substantial number of NEXTSTEP seats, needs to establish a program for training its developers to use the software. One of NeXT's Object Channel partners submits a bid for a comprehensive training program. It turns out, however, that NeXT's own Professional Services group wants the training contract for itself.

The partner is in a quandary. It could choose to compete by offering its services at a discounted price. But doing so would antagonize the local NeXT sales force, which needs that business to meet its quota for services revenue. At the same time, the partner needs to maintain a close working relationship with the sales force so it will be brought in on consulting and integration contracts for other customers.

Result: The partner quietly withdraws its bid, thereby losing out on a substantial revenue opportunity.

What we have here is a classic case of channel conflict. NeXT needs partners to help support its sales. It also needs revenues in the very same business segments that provide a living for the partners. This is already an issue in the services sector, and we can expect to see more conflict in the future in other areas, such as application software.

For the hard-pressed partners, the solution is simple: NeXT should stick to its core business of developing and selling NEXTSTEP and leave the aftermarket opportunities for third-party suppliers. In this case, however, simple is also simplistic. Why shouldn't NeXT have the opportunity to enhance its revenue base? More to the point, why shouldn't customers have as many options as possible, comparing offerings on the basis of quality and price?

The view from here is that competition is good, as long as the playing field is level. In the training example, the field is skewed in NeXT's favor. The partner is at a disadvantage because of the need to maintain a close relationship with the NeXT sales force. The customer is at a disadvantage because it has fewer choices of suppliers.

To level the field, NeXT should decouple the sale of NEXTSTEP from the sale of aftermarket services. This process may entail establishing separate sales forces for separate products and services. Or it could set different commission structures for the different lines of business.

Despite the grumbling from its partners, it is not necessary for NeXT to provide a protected market for its third parties. But it does need to provide a fair market.

In the end, it is not just a question of fair play. It is also a matter of strategic importance for NeXT. Yes, NeXT needs multiple revenue streams. But it also requires a strong cast of financially secure partners.

Channel conflict is nothing unique to the NeXT market. Vendors on other computer platforms have struggled with the issue of competing with their own partners in application software and other aftermarket segments. The key to the solution is recognizing the problem and carefully managing the channel so that everyone is able to compete on an equal basis.

As long as NeXT is seen as one among a group of suppliers, without an inside track, then everyone can win most of all the customer.

Dan Ruby is NeXTWORLD's editor in chief.