Watch out, channel biz: Mega-services models will cut you if they can

Salad days of classic channel are over... almost

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Does the channel as we know it have any relevance to customers in today’s very complicated technical world?

Forgetting the emotional kneejerk responses, which I can anticipate coming immediately, and the indignant shrieks of outrage from some legacy organisations and their dinosaur management who believe they have the right to manage change at their pace, I pose the question because of several interactions I have had recently with both large end users and some senior vendor and channel executives.

Those of us lucky enough to have worked in ICT channels either as vendors, distributors or resellers have enjoyed a few decades of almost uninterrupted growth driven by breakneck development of products, software and solutions which were not only very clever but our customers were persuaded that they were essential to run their businesses.

We all rushed around being very important as we dealt in the latest, fastest, biggest, whizziest things which were invented in Taiwan, San Jose, Seattle and Japan. We launched them and sold them on to customers with the underlying assumption that we could keep upgrading the kit, and sell the customer extra licences or devices – even if they had the audacity to not buy the latest thing as it became available.

The feeding frenzy was so huge that vendors continued to drive products and solutions to customers through any route to market, including “channels”, with little thought as to whether they were the right channels or the right partners for the target customers.

Today we have many channel companies who claim to be authorised, accredited etc for all sorts of vendors – but even cursory investigation would show that their accreditations are out of date and that the technical resource that carried the accreditation left months ago in an efficiency drive to get rid of non quota-bearing employees. The vendor reaction is usually to either ignore the problem (especially if their revenues are under pressure) or occasionally (more intelligently) to encourage collaboration with other channel companies who can support or advise the end user customers, who actually buy the product, services or software in the first place.

Disties and resellers need support too

Indeed there are now a number of very competent services and support companies that exist largely because many distributors and resellers do not have the resources to support their customers or understand the complex products and solutions which are now the next iteration of IT solutions.

These service and support companies are increasingly valuable to vendors because they are often critical to support the vendor’s distributors and resellers; in some instances there are vendors who EVEN reward these services organisations directly.

It is also clear that many of the larger systems integrators now rely on these services and solutions architects to do the complicated stuff like virtualisation, and rely on them to architect complex solutions such as voice or secure hosting. Many have actually developed models to drive revenues by collaborating with these partners.

This works for the vendors too, as the complex engagement with users is in the hands of real technology experts; which in turn drives better end user experience; which in turn makes the SI and large reseller look better. Also, the complexity of supply chain is ultimately simplified by accurate kit listing and sourcing, which enables better commercial terms to be negotiated without the need for “expert” advice and “pre-sales scoping” by distributors or even the vendors.

I don't care how you do it: just get it to me in one piece, in working order, and with proper support services

This is a great example of channel evolution and has worked well, but it should be remembered that end users have historically not really cared as long as the systems and solutions worked well and were supported in an acceptable way.

This new model also enabled a generation of salespeople and customer relationship managers to convince their bosses that they were doing a fantastic job – and that if only they got better expense accounts and business class travel to all the conferences, they could “sell” even more.

Well, it looks like the times are a-changing...again. The immediacy of social media interactions and the massive availability of information and comment online means that many users are now ahead of their resellers (and many distributors) in understanding technologies – and this is especially so where cloud, hosting and managed services are concerned.

That is not to ignore the many partners who have invested well and run intelligence-led organisations with huge skills and relevance to their customers. The problem is there simply are not enough of them.

Vendors: Our partners are 'not fit for purpose'

I have recently spoken with vendors who privately wonder what they will need to do next in order to address mid-market and SMB sectors because many of their current partners are “not fit for purpose” and increasingly they are reliant on a small number of expert partners which carries its own risks.

The role of the distributors is also being questioned as their major role is logistics, order handling and credit excellence. While currently very important attributes, these broadline skills in the hosted world where resellers will be driven to agency models are open to serious doubt and with a couple of exceptions the support and education needed by resellers is lacking.

This is exacerbated by the dumbing down that many larger distributors have undergone, driven by Wall Street earnings expectations and ignorance of how technical this industry really is. The huge growth of channels that actually touch users and will source from the best (cheapest) source is enabling the larger resellers and systems integrators to grow exponentially while leaving little meat on the bone for distribution.

In fairness, I have also worked with many end users who have relationships with excellent partners and feel well supported in complex areas. Interestingly they have a tendency to mix and match the available skills and expertise from different providers and therefore play off partners on both price and project length, BUT as they move closer to more outsourced IT or cloud hosting they will want to have fewer and better partners.

Cloudy business

A serious question I have encountered recently is: “How many people can own the customer in a cloud environment?”

This lies at the heart of my question about shape and skills of current channels.

Unless there is wider adoption of serious skill-based engagements from channel partners, the future will be largely polarised between (a) supply chain expertise with low margins, big warehouses and little innovation in solutions and (b) complex engagement organisations who manage their customers IT and business delivery infrastructures enabling the more intelligent and innovative partners to reap the rewards of long term investment and deeper engagements with suppliers and customers.

The question of channel relevance is well-illustrated by a large public sector organisation which asked one of my clients recently if they could recommend some competitors who could be asked to tender for the contract as they had only found two potential qualified companies and had to offer the tender to a wider group! They were also worried that the same services company had been included in the tender by both qualified tendering organisations!

I got to know some of their people quite well and they believe their future will be very different in terms of supplier relationships and as they move towards a more outsourced engagement they simply will not need most of their current suppliers.

Given the multi-billion dollar market for ICT which exists today and the huge investments from vendors in marketing, training etc, one must seriously question if it is already too late for many channel partners to skill up to become relevant to a different world or accelerate understanding of a collaborative model, which recognises that complex engagements are beyond the reach of most channel companies.

In the cloud world, the majority of users will be managed by super providers (or hosts), which will aggregate services and solutions from multiple sources and deliver them to users, thus relegating many resellers to oblivion and many distributors to live with low-margin product fulfilment.

Google, Amazon and others must be pinching themselves at how easily they have entered the market and also how cheaply they have been able to reward resellers. As the large mobile operators and telcos move onwards from voice, they will also accelerate this model. ®


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