Changing the Channel
Much has been written about the channel that the vast majority of enterprises use to fulfill their IT needs. These enterprise IT needs are dynamic, with organizations looking for help in achieving basic goals such as information security, virtualization, and optimization of hybrid architectures. While the channel has responded with new services, many providers have been challenged to radically change their business models to meet the acceleration of cloud migration as well as rapid development in technologies such as communications platform as a service, artificial intelligence, Internet of Things, and blockchain -- as well as overall digital transformation. Yet, some of the old practices remain.
As a communications technology consultant, I spend a lot of time interacting with channel partners on behalf of my client organizations. So, what's newish? Over the last few years, I've seen channel partners address change by:
- Adopting new communications technology product lines -- For example, many partners that traditionally relied primarily on Avaya sales, support, and service have added products from Microsoft, Cisco, and pure cloud companies like RingCentral and 8x8 to their offerings. Or, they've extended into new products lines, such as software-defined WAN, to assist in connecting branch offices and other small facilities to the cloud.
- Merging to broaden reach -- While some channel partners have accomplished the aforementioned broadening of portfolios organically, merger and acquisition seems to be the preferred method. With M&A, some channel partners also have been able to expand their geographic coverage. For example, ConvergeOne's recent move to acquire Advantel Networks reinforces its coverage in California.
- Building up their cloud capabilities -- Most traditional communication technology vendors have committed the lion's share of R&D spend to the cloud. When combined with born-in-the-cloud vendors, it's easy to understand the growth in cloud-based communications technology market share. This in turn has forced traditional premises-oriented voice channel partners to sell and support cloud solutions. These partners have needed to invest in training or hiring staff already proficient in cloud technologies, as well as to consider staff reductions related to the on-premises market.
Perhaps the most daunting aspect of cloud for channel partners is the financial model. Cloud implementations typically have a small non-recurring upfront payment (professional services, circuit installation, etc.) as well as monthly payments (software licenses, phones, circuits) over the contract's term. The recurring payments comprise the majority of the revenue realized by the channel partner. The cloud model flips the premises model, which typically has a large upfront payment (equipment and licenses) with small recurring payments (service and support), on its head. This impacts the channel partner's compensation models, cash flows as well as personnel mix (i.e., rack-and-stack technicians proficient in punching down cables on 110 blocks aren't in high demand).
- Addressing changing competition -- Aside from competitors in the premises market space, fierce competition from master agents (i.e, Telarus and PlanetOne) and their distribution channels are well established in the cloud sector. This has been a natural evolution for agents in traditional telco services. The premises-based channel partners still have some catching up to do with the master agent channel. From my personal experience, all referrals in my procurement projects have been made from cloud vendors to master agent partners rather than the traditional premises partners/VARs (which are certified or have some level of agency relationship).
- Building up integration capabilities -- The days of monolithic implementations from a single vendor are long gone. Examples include:
- Hybrid architectures -- adding Web conferencing capabilities via a cloud vendor (i.e., Cisco Webex and LogMeIn GoToMeeting) to supplement a premises-based PBX
- Contact center -- cloud-based contact centers are being utilized to replace premises-based contact centers. In many cases, the premises-based voice system is retained. As AI-based bots continue to improve in this space, this trend will accelerate.
- Networking (wired and wireless) and hyper-converged infrastructure -- underlying infrastructure is required to support many enterprise IT initiatives in addition to communication technology. As a recent example, one of my clients required support for wireless access control for door locks.
- Strategic sourcing decisions at many large enterprises are forcing IT to reduce the number of partners with which they will deal. Partners have done a good job in adding integration capabilities.
- Management consulting capabilities -- focused on understanding current business processes, determining how those processes may be modified to support the enterprises strategic initiatives (i.e., agility in decision making, lowering costs) and modeling how specific technology utilization supports the business process changes. It's been my experience that this area of expertise isn't fully developed in the channel, although some larger partners have had some limited success.
So, what old practices remain that I find troubling?
- The sales performance incentive fund (SPIF) -- The SPIF has probably been around longer than I've been consulting. In simple terms, a vendor will provide a bonus payment to a channel salesperson for selling its solution rather than one from its competitors. From an ethics standpoint, does the salesperson act as a fiduciary and put the client's best interest before his own or sell the solution that maximizes his personal compensation? Theoretically, if there was no product, support, cost, or any other differentiation, it may not have mattered. However, I believe some level of differentiation almost always exists, so the ethics question remains. As SPIFs have been ingrained in the channel for so long, I don't see a practical way where this practice will cease. I suggest that enterprises (especially SMBs) perform due diligence for this using tools such as an RFP for competitive bidding.
- Deal registration -- This mechanism was introduced to protect channel partners that invested in the sales process from other partners that would swoop in and provide the same solution to an enterprise at a lower cost (i.e., their cost of sales was much lower). When used in this way, I continue to see the value. However, I've seen partners register deals in which they have done little to no work, resulting in uncompetitive bids (or no bids) from other qualified partners. On behalf of my clients, I have sometimes interceded with the manufacturer to straighten this out. The remedy is probably for the manufacturers to provide more channel support/involvement to determine what's proper.
Overall, I think it's a great time to be a channel partner -- or to be working with channel partners. Huge opportunities exist in many areas of IT that channel partners are poised to fulfill -- provided the partner can change its offerings and business model.
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