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By | Paul Kunert 29th July 2011 12:10

Oracle warns hybrid sales model could force down revenue

Redirecting to direct upsets indirect sector directors

Oracle is prepared to risk a reseller revolt over a planned hike in direct sales and expects relationships with some to "deteriorate" as a result, despite acknowledging the go-to-market strategy may not be a hit with some customers.

The frank admission – made in an annual report 10k form recently filed with the SEC – is in stark contrast to the channel love staged in the US by the tech monster with resellers and distributors a month ago, when it talked up the role they will be expected to play in improving server sales.

In the filing, Larry's lads conceded that "transitioning" to a hybrid sales model for hardware could result in lower sales and cause "disruptions" to its software biz.

"Although we will continue to sell our hardware systems products through indirect channels ... we have enhanced our direct sales coverage for our hardware products and intend that our direct sales force will sell a larger portion of our hardware products than they do now.

"These direct sales efforts, however, may not be successful. Our relationships with some of our channel partners may deteriorate because we are reducing our reliance on some of these partners," it added.

Since the acquisition of Sun, Oracle did away with local inventory holdings to operate a BTO model, and charged disties with managing resellers – all of whom must now buy directly from a wholesaler – instead of logistics.

The change in procedure could result in weaker demand from resellers, Oracle said – in fact server sales have fallen almost quarter-on-quarter since it acquired Sun – and from customers served by these channel partners.

But it warned that efforts to beef up its own direct sales force may not keep pace with any drop off in partner numbers.

"Some hardware revenues from the channel may not be replaced by revenues generated from our own sales personnel or may not be replaced as quickly as we expect."

"In addition, we may not be able to hire qualified hardware salespeople, sales consultants and other personnel for our direct sales model at a rate or in the numbers we need to generate the hardware revenues and profit margin we have projected."

Damaging relationships in the hardware channel could have knock-on impact on software revenues, as Oracle admitted sales could suffer if it fell out with resellers.

Consolidation in Oracle's partner numbers is not new, with some industry watchers estimating that around 70 per cent of former Sun resellers across EMEA have defected to rivals or become less active in the last 18 months.

The 10k form is unlikely to help smooth channel relations, with one reseller claiming, "all partners – distributors and reseller – should be concerned by this".

Another argued: "This is counter-intuitive to everything Oracle said at the end of last month. It is worrying." ®

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