Canalys Channels Forum 2014 Good old fashioned kit and licence reselling remains the primary way local tech suppliers pay the bills, with IT services still accounting for less than a quarter of revenue generation.
This is according to a Canalys survey, which probed 352 channel businesses across the globe to ascertain the impact that classic product sales, alongside off-premises hosting and managed/public cloud services, are having on their top and bottom lines.
“Product resell is still the most important business model for over 60 per cent of channel partners,” said research director Rachel Brindley.
She told The Channel that PC refreshes had fuelled growth - the end of support for XP played a part here - and customers were upgrading data centres to sate demand for private clouds.
Margin erosion, the need to reduce reliance on post-sale vendor handouts (rebates) and customers wanting to change the way they buy and consume technology, are heaping more pressure on tech suppliers to change the way they operate.
Brindley said this was reflected in the responses, with 58 per cent claiming managed services oil the bottom line more effectively than straight reselling: “Managed services comprise new-world IT as well as old-world IT”.
Printers are a classic example of this, with more organisations wanting to pay for a managed services under a contract rather than via the traditional methods of chunky upfront capital investments in hardware, supplies and maintenance.
Some 96 per cent of the companies surveyed said they have sold some form of tech as a service. For the “majority” of those questioned, the delivery model comprises less than 25 per cent of overall annual turnover – but two thirds predicted that by 2017 services will go the other way.
Brindley said the tech channel tends to follow customer demand so were not out of step with the market, but conceded building bigger services practices is a "challenge".
Public cloud is proving to be less popular among channel types than perhaps Microsoft, Google or AWS would like, the survey showed. The “perception” among the channel folk quizzed by Canalys is that reselling public clouds will net even lower profits than on-premise hardware and software.
“Channel partners see the top two cloud opportunities as productivity applications, such as email, and infrastructure-as-a-service, both of which are under growing margin pressure. Higher-value applications are not yet seen as the primary opportunities”.
Microsoft launched a free migration service this month for certain customers who sign up to Office 365. Part of the rationale is to snap up customers more quickly so they move beyond email services into higher margin areas.
Many if not all of the major public cloud players have tapped up customers directly, and the threat of vendors “bypassing” the channel is seen as the “biggest challenge” for channel partners in this market, with 62 per cent of respondents saying as much.
“Vendors developing-go-to-market strategies for cloud must ensure they are not increasing competition with their established partners, but recognise that this is typically delivered as part of a hybrid IT offering,” said Alex Smith, senior analyst.
Cloud security and unearthing skilled consulting staff are the areas causing sleepless nights for 40 per cent of suppliers. ®