They Want You -- Lucent's Secret Weapons [ASND/LU acquisition discussion]
techweb.com
By Daniel Lyons, June 08, 1998, TechWeb News
Boston -- Lucent Technologies Inc. has little experience selling data
networking equipment, and even less experience dealing with resellers.
But the $26 billion telecom vendor is trying to change that.
Over the past six months, Lucent has spent $1.9 billion to buy three data
networking vendors-Yurie Systems Inc., Prominet Corp. and Livingston
Enterprises Inc.-in much-publicized deals.
Meanwhile, behind the scenes, Lucent has been quietly putting in place the
foundation for a channel program it hopes will outshine those of rival
networking vendors and help Lucent unseat Cisco Systems Inc. as the data
networking champ.
Lucent's secret weapons are a pair of executives who have years of
experience working with the channel.
Tim Lieto, vice president of enterprise sales at Lucent's new Data Networking
Systems division, came to Lucent through the acquisition of Prominet, where
he ran the reseller program. Before that, Lieto ran the channel program at
Chipcom Corp., a networking vendor whose relations with resellers were so
good that VARs still wax nostalgic about the company, which was acquired
by 3Com Corp. in 1995.
Lieto's partner at Lucent is Curt Fisher, an industry veteran who last month
joined the company as vice president of partnership marketing to help set
reseller strategy. Fisher's experience includes running channel programs at Sun
Microsystems Inc. and the computer division of AT&T Corp.
"You couldn't find anyone more channel-friendly than us," Lieto said. "We're
two guys who believe in this big time."
Lucent traditionally has sold direct, but the company has found channel
religion. "The people at Lucent are asking for our guidance," Fisher said.
"We're finding great receptivity. They're saying, 'We know we need to do
this.' They know that you can't be a world-class networking vendor and gain
market share unless you have the channel as the center of your strategy."
Lieto and Fisher have a two-part mission. They must bring together the
resellers that Lucent has gained through its various acquisitions and roll them
into a single program. And they must recruit new VARs.
Their performance will be key to whether Lucent succeeds or fails in its
looming battle against Cisco. Developing leading-edge products is one thing.
But developing loyalty among resellers may be even more important,
according to analysts.
"The channel is an extremely important part of the equation and will become
even more important in the future," said Craig Johnson, an independent
networking analyst. "Having the latest and greatest technology doesn't
necessarily mean much unless you have a channel."
Cisco has a big head start, having launched its own channel program two
years ago. Lucent executives said they know they have a lot of ground to
make up.
"Most data networking vendors see 50 percent or more of their revenues
coming through the reseller channel, while today, for us, it's about 30 percent,
and in the enterprise and service provider spaces it's closer to zero," said Bill
O'Shea, president of Lucent Data Networking Systems. "We're working very
hard to catch up."
Lucent will have to work overtime to win the hearts of some resellers, who
complain that Lucent not only sells direct, but also competes against VARs for
integration projects.
"Lucent bid against me on a $6 million project last year, and more recently on
a $300,000 job," said Peter Keenan, president of Intelligent Computer
Solutions Inc., a network integrator in Bohemia, N.Y. "I have a policy, I don't
buy product from companies that compete against me. I won't even buy cable
from Lucent."
Lucent, based in Murray Hill, N.J., also may find it tough to pry resellers away
from Cisco, which has done a good job of winning loyalty.
For example, Virtual Networks Inc., a network integrator in Irvine, Calif.,
sells nothing but Cisco equipment and is not likely to pick up Lucent as a
vendor, said Michael Dewey, the company's president and chief executive.
"Lucent would have to have technology that was vastly superior for us to
make a change like that," Dewey said.
Lieto said Lucent is not asking VARs to switch from San Jose, Calif.-based
Cisco. "Resellers are looking at Lucent in addition to Cisco," Lieto said.
"We're not looking for exclusive relationships. We'll earn their loyalty." Lieto
said Lucent has some advantages over Cisco-for example, its history with
voice networking.
"The convergence of voice and data is a brand-new opportunity for these
resellers," Lieto said, "and we invented the voice market. We have knowledge
and expertise on both sides. And that's extremely attractive for resellers who
are looking for the next growth curve. In two years if you don't know both
sides well, you won't be in business."
Lucent's lack of experience with the channel may work in its favor. "Lucent is
a new ecosystem for resellers. We have the opportunity to build a channel
organization without the encumbrance of inheriting an existing channel with all
of its conflicts and overdistribution in place," Lieto said.
Lieto said Lucent will prom-ise to keep margins up by not overdistributing
products. "Cisco's strategy is more of a fulfillment model-we're using a
partnership model," he said.
Eyes may roll: VARs have heard this before. But resellers who worked with
Lieto at Chipcom and Prominet said they believe him.
"With Tim Lieto at the helm of the channel program we're very optimistic,"
said Lew Little, chief operating officer at Synergy Networks Inc., an integrator
in Vienna, Va. "He's a very pro-channel person. Chipcom had far and away
the best channel program we've ever seen," he said.
"The thing that makes Lucent attractive to us is the legacy of where the
Prominet people came from, which is Chipcom," said Clyde Collins, president
of Datanet Services Inc., an integrator based in Greensboro, N.C. "From the
standpoint of channel programs, right now Cisco is the leader. But the folks at
Chipcom were right up there if not above Cisco in terms of the quality of their
service and support for VARs."
Collins and Little already have met with Lieto and others at Lucent to give
input into the kind of program they would like to see. They have been
encouraged by those talks.
"We've had a number of conversations," Collins said. "The Lucent people
have done a good job of getting involved."
Lucent's reputation also will have a positive impact on customers and make
them feel better about buying Prominet products, Little said. Before the
acquisition of Prominet by Lucent, Little was bidding on a deal with a
customer, hoping to sell a Prominet product-the Cajun P550 Gigabit Ethernet
switch.
"The customer was looking at Prominet, Cisco and 3Com. Then as soon as
Lucent made the acquisition, it added some credibility to Prominet, and the
customer said, 'Boom, done, here's the purchase order.' They realized they
didn't have to worry about dealing with a start-up," Little said.
Recently, Lieto and Fisher have been touring Europe meeting with resellers.
Over the summer they will meet with resellers in the United States. In addition
to recruiting data networking VARs, Lieto expects to recruit some of Lucent's
voice network resellers to sell data products as well.
By the fall the company should lay out a formal program. "If you thought the
channel program at Chipcom was good, just fasten your seat belt," Lieto said.
That might not be the only big news from Lucent this fall. Some observers
expect the company to make a major acquisition, perhaps of Bay Networks
Inc., whose $2- billion in annual sales makes it the strongest rival to Cisco.
Lucent has to wait until the fall in order to use a low-tax merger method called
pooling of interests. Because of tax benefits associated with Lucent's spin-off
from AT&T, the company is prohibited from using a pooling of interests until
Sept. 30. And it would be financially unfeasible for Lucent to make a large
acquisition like Bay Networks unless it could use such a method, analysts
said.
While Lucent waits, Santa Clara, Calif.-based Bay Networks recently has
been rumored to be in merger talks with Northern Telecom. In addition to
Bay Networks, another company mentioned by analysts as a possible Lucent
acquisition is Ascend Communications Inc., Alameda, Calif., a $1.2 billion
developer of remote-access products.
Acquiring Bay Networks or Ascend gives Lucent some much-needed bulk.
But some remain skeptical that Lucent, with its roots in the telecom industry,
has what it takes to play in data networking.
"It's a cultural thing," said John Armstrong, networking analyst at Dataquest
Inc., a market-research firm in San Jose, Calif. "My dealings with Lucent
indicate that they have great desire but they lack the aggressive strategy
required to really get a piece of the action in these markets."
Certainly, they are coming from the back of the pack. For example, in the hot
new market for Layer 3 switches, Lucent has a 7 percent market share,
compared with 38 percent for Bay Networks and 27 percent for 3Com,
according to Tam Dell'-Oro, president of the Dell'Oro Group, a
market-research firm in Portola Valley, Calif.
But you cannot dismiss Lucent, Dell'Oro said. "They're being very aggressive
about making acquisitions," she said. "They're spending a lot of money to get
into this business. The issue now is execution. And that's the hard part. That's
where you go from talking the talk to walking the walk."
One area where Lucent's performance has shone is the stock market. Lucent
stock has more than doubled in the past 12 months, recently trading as high as
$79, up from $32 a year ago.
Clearly, Lucent has won the hearts of investors. Whether it can work the same
magic on resellers remains to be seen.
Copyright r 1998 CMP Media Inc.
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