ANY news is always open to
interpretation, and one should always down market analyses with a quick chaser of skepticism. On one hand, we hear from some sources that the system builder channel is receding and being swallowed by the big OEMs. But if that's true, why do we continue to see companies—big companies—come courting the channel with their arms spread wide?

Sometimes these companies are wholly new to the system builder channel. Other times, they turned away from system builders and then, like a repentant partner, came back and asked for another chance. I found a good example for each of these types and was surprised to find that they had a bit more in common than one might suspect.

The first is Targus, the well-known maker of laptop bags and other mobility accessories. The company has a standard line for distribution and retail, then a higher-end line that goes through distribution to corporate customers. Deluxe carrying case models with air protection, for example, avoid retail almost entirely.

Despite its long history, though, Targus has never paid much attention to the system builder segment...until recently.

"We started working with Intel about 18 months ago, and they actually got us more involved in the system builder channel," says Keith Braesch, vice president of commercial sales. "In the past, system builders were are about white boxes, very server- and desktop-oriented. That didn't match too well with Targus's offerings. Our tag line is 'making your mobile life easier.' But Intel was doing a big push on whitebooks, and even with the growth that notebooks have seen over desktops, they knew that it wasn't just enough to have notebooks. They needed options around them to make them more profitable for the channel and also to provide better usability to the end-user. So because of our broad product offerings, we partnered with Intel and have been meeting with the whitebook people ever since."

While Targus has always been a staunch supporter of distribution, it still has yet to craft much of a partner program. Allegedly, this is because resellers have told the company that they want items such as exclusive content on a password-protected site and more training materials rather than a conventional program with rebates and such. Certainly, Targus could afford a more elaborate program. There's nothing cheap about most of its products, and the company boasts 45 worldwide offices selling into over 145 countries, both of which are facts that have earned the company a highly regarded reputation.

Targus didn't have many specifics about its upcoming program that it could share with me since the effort isn't due to roll out until next quarter. This is to be expected from a company just now getting familiar with a system builder clientele. Personally, I'm a bit skeptical that the majority of whitebook sellers are clamoring for more marketing collateral than marketing dollars from a high-margin manufacturer, but Targus does make the good point that many resellers complain about having too many vendor programs to track and maintain. Perhaps in this case, less really is more.

"In the past, system builders were are about white boxes, very server- and desktop-oriented. That didn’t match too well with Targus’s offerings."

The second company I spoke with was Microsoft's hardware division. Interestingly, you might expect that Microsoft would throw the usual muscle it has in the OS world at its mouse and keyboard group. In reality, though, the little group is dwarfed in size and allotted budget by Logitech, forcing the hardware people to do more with fewer resources. If anything, it's refreshing hear Microsoft say that it strives to be one of several upsell options resellers offer to system buyers, not the de facto choice.

Microsoft's first hardware product was a mouse originally designed as part of a bundle with a then-fledgling MS Word. From there, Microsoft created the first ergonomically shaped mouse (the hardware group has actual ergonomists on staff), the scroll wheel, the tilt wheel, the first popular split design keyboard, and other innovations. While it's not shown on the company's site, Microsoft is now also getting into value-add remote controls for Media Center Edition systems.

For a long time, Microsoft hardware had a great relationship with system builders...until the company's eye strayed to potentially greener pastures.

"I think it happens from time to time in all areas of our business," says Microsoft channel development manager Christine Briggs. "Like three or four years ago, we decided to take a different approach with working through distribution in more of a pull capacity. We felt like there was opportunity in the tier-two business, but we weren't really sure how to do it, and, honestly, it was getting really expensive. So we decided to go for more of a pull approach and work direct with partners instead of account managing the U.S. distributors. But I've been a part of analyzing a lot of this business, and we now see that you can't do one or the other. You need to have both. It's not like we made a decision that the system builders weren't important."

The turning point came about 12 months ago for Microsoft, and now the company is out making sure that everyone knows that Logitech is not the only mouse house that comes out to court channel partners. Microsoft is working on integrating the channel-appropriate hardware offerings into its partner program. You might even see an IntelliMouse Explorer in your Action Pack someday.

We could sit here and postulate all day about why these two companies have really decided to pay newfound attention to system builders. There are stated reasons, and then there are other reasons none of us will ever hear about. The more important question is why we should care about these companies.

Do they offer unique value-adds? Sometimes. The zoom slider on Microsoft's Wireless Optical Desktop Comfort Edition keyboard, for example, is pretty slick and still unique to Microsoft. The lever lets users zoom in and out of photos, maps, and other graphical items. While I can't stand the split ergonomic keyboard, the gentle curve in the Comfort design is actually pretty, well, comfortable, and I've grown to prefer it over the traditionally straight QWERTY layout.

A lot of companies say they listen to customer feedback. Microsoft's Briggs says that the hardware group conducts extensive studies to find out what people need; asking them what they want is secondary. I like that approach. Until I tried the Comfort Edition keyboard, I didn't know that I needed a curved key bed...but I did.

Alternatively, given the plethora of competitors in the carrying case market, most of which you've likely never heard of, Targus's strength is not necessarily in its innovative features so much as its construction quality and comprehensive product lines. These, combined with the company's size and resources, help make the Targus name easy to sell.

We felt like there was opportunity in the tier-two business, but we weren’t really sure how to do it, and, honestly, it was getting really expensive.

"We see that there are two types of system builders and solution providers," says Braesch. "There's one group that's price-oriented. They want to get the best deal. But another group tells us, 'You know, a year or so ago, we just wanted to get the cheapest product we could, so we were going directly to China to source and buy products similar to yours. However, we found that the failure rates, the returns, the warranty support—it all really bogged us down and made us less profitable. It's easier to sell the Targus brand and know that you guys stand behind it.' So we've seen a real resurgence in the last six months of people who recognize the value of the brand and not having to inventory large amounts of product they have to bring in from Asia. Also, they don't have to support it with customer service and pre-sales support that we can provide, and, of course, they don't have to worry about the warranty."

Whether you're selling notebook or desktop peripherals, there are three reasons to welcome these companies into the system builder channel. First, as Braesch indicates, the long-term cost benefits of selling more dependable products are attractive. Second, higher priced peripherals drive up overall ASPs and margins. But perhaps most importantly, as Briggs maintains, the quality implied by names such as Microsoft and Targus help system builders to guide buyers away from bargain basement configurations.

Once a client is sold on the utility and comfort of a Microsoft wireless desktop, it's harder to justify pairing such peripherals with a $400 box. We normally offer upsell peripherals as an afterthought following the main PC sale, but the opposite method might prove even more lucrative in some situations.

Braesch's point is also well taken that with so much low-end business being farmed out in one way or another to East Asia, there is increasing value to be found in reputable, high quality brands. There will always be demand for Lexus- and BMW-class equipment in the PC market, and the big OEMs simply aren't capable of offering as wide of an upscale product selection as white box and whitebook system builders. If anything, name brand peripherals can distinguish your builds from the OEMs the Asian clones.

We tend to fall into buying habits. No secret there. But as more companies realize the capability and potential of the system builder channel, it is incumbent upon resellers to give their messages and products a fair shot and not just persist with what is known and predictable. These newcomers (and returning wanderers) are some of the best opportunities around for diversifying your wares and deepening your profits. They're hungry for your business, but they have a lot to offer in return.