The Changing Channel: Vertical Communications Acquires Largest Channel PartnerThe Changing Channel: Vertical Communications Acquires Largest Channel Partner

Vertical Communications' acquisition of Fulton highlights a shift taking place in the channel, bucking the trend of more companies moving from a direct to indirect business model.

In early June, Vertical Communications announced that it was acquiring Fulton Communications. Fulton has sold more Vertical product over the past two years than any other channel partner. Why did each company's management decide that this kind of vertical integration was the best future course? What can the move tell us about how the relationship between technology providers and the channel is changing? To explore these questions, I spoke to Vertical CEO Peter Bailey and VP of Marketing Steven De Korne.

Bailey explained that Vertical has been selling unified communications and IP telephony applications for about ten years. Prior to the acquisition, the direct/indirect mix was about 50/50. Bailey describes the Fulton acquisition as a way to get in front of more customers with Vertical's technology and dramatically extend the company's reach in order to substantially increase revenue. The revenue mix of the combined companies moves to 75-80 percent direct and solves the issue of "not getting enough distribution."

Being directly in front of customers should allow Vertical to more tightly control customer engagements. Today's channel partner typically has an array of possible solutions to offer a customer, and the choice of which to present to a given prospect can be based on a number of sometimes poorly defined variables. These might include legacy relationships or flashy promotions that don't necessarily promote evaluating the best solution for a given customer.

Bailey and De Korne were quick to add that indirect channel partners will continue to be part of Vertical's overall channel strategy, "a key part of the equation." However, "by owning the sales resources you can direct them. With a channel model, you have to let them choose what to install," says Bailey.

CEO Bailey believes that the value in the Vertical business is the customers they have, and customers are expecting more out of Vertical and its channel partners. By being in a position to more tightly manage the relationship with a greater number of customers, Bailey believes they can do more add-on product and services business. He compares the strategy to that of IBM, saying, "No one can dispute that IBM built the best sales channel."

I can't help but compare these arguments to those of other UC and IP Telephony players that are desperately working to shift their business from a direct to an indirect model. There can be no more visible example of this than Unify, which has in the past six months replaced most of its management team with channel-savvy, ex-Westcon executives.

In the next installment of this series on The Changing Channel, I'll discuss a recent interview with Unify CEO Dean Douglas.

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