Google intends to use its leadership in AI as a primary means of differentiation in the enterprise communications space.
Changing the UC Channel
Cloud-based services are often mentioned as the future for the communications industry, but few people consider the implications these cloud-based services have on the partner channel.
As one channel partner told me, "the pace of change and destruction is off the charts... and if you haven't already been pivoting over the past three years, you are already destroyed."
The pivot to which this partner refers is the change from selling boxes to selling solutions, a shift major vendors have required of most channel partners. But, as the major vendors change their focus toward selling multitenant cloud solutions, partners must up their game even further by becoming business consultants. The next generation of communications solutions is going to integrate more tightly with workflows and applications. Several of the latest UC offerings center around platform (i.e., Cisco Spark and Avaya Zang), and these are joined by many non-traditional entrants such as Twilio, with its communications development platform, and the hundreds of WebRTC development platforms now available. We believe Microsoft will also make its Office 365 cloud easier to integrate with, using RESTful APIs, sometime in the near future.
Public cloud communications have the potential to squeeze channel partners because they eliminate either in full or in part traditional revenue streams. The following table shows a list of some typical services provided by channel partners. Many, but not all, are adversely impacted by public cloud communications services.
|Service||Discussion||Net Partner Revenue Impact|
|Hardware Sales||In a cloud-based world, the hardware left to sell is the endpoints, phones, and video units. Phones comprise a large portion of the channel sale, but partners tell me this is slowly shrinking. Sales of video units, however, are still increasing. Networking equipment, including session border controllers, is still required.||Slightly negative|
|Software Licensing||With cloud, licensing changes from perpetual to subscription. Software maintenance disappears, subsumed by the cloud subscription.||A big negative as compared to an on-prem or managed services sale|
|Design Services||Resellers report that there will still be need for design services even if a company moves its communications to the cloud. One reseller I spoke to indicates design is even higher now.||Neutral to slightly positive|
|Installation Services||Channel partners may still see opportunities for installation services, but these will be relegated to the endpoints as opposed to standing up the entire solution, including servers.||Big negative|
|On-boarding||On-boarding is still important; however, the vendors are trying to make a lot of the on-boarding process self-service. However, customers moving to a public cloud are already looking to outsource, and resellers can still make margin on on-boarding services.||Slightly positive|
|Operations||Some partners have made good money operating solutions for customers. In a cloud-based world this goes away. But, even as some companies move to public cloud, some resellers report overall managed services are growing.||Negative if the reseller has no managed services. Otherwise, positive, at least for now|
|MACDs, Break/Fix||The need for moves, adds, changes, and deletes will not disappear; however, with cloud-based self-service, end users will undertake MACDs more and more often by themselves. Break/fix will vary. If the fix involves a phone, a six-figure employee may get involved in the absence of a contracted partner. With video endpoints, a partner will likely be called upon.||Slightly negative|
|Transformation Services||Partners that can help a business improve its top or bottom line or some of its processes stand to see significant revenue. Some resellers are not seeing a lot of demand for transformation services as this is still at the infancy stage. However, one large reseller I spoke with sees huge upside here.||Positive to very positive|
Large channel partners have already been pivoting toward selling business transformation as opposed to phone or communication or collaboration solutions. But smaller partners whose main businesses have been selling boxes, licenses, install, and break/fix services will likely find themselves squeezed in this transition.
Continue to next page for TCO discussion, and more
Continued from Page 1
In partnership with independent UC consultant Marty Parker, a fellow No Jitter blogger, I've previously looked at the total cost of ownership (TCO) spend for Microsoft and Cisco on-premises offerings over a five-year window. In that 2014 study, we determined where the money went. As you can see in the table below, this includes the costs for acquiring licenses, hardware, installation services, maintenance for hardware and software, operations, and long-distance costs.
If you think about the new cloud services, Microsoft will capture much of the revenue in its column via an Office 365/Skype for Business offering in which it acts as the telephony carrier. What's going to be left to the Microsoft partner? Microsoft does have a healthy partner ecosystem often based around endpoints. Perhaps some on-boarding and migration will remain available as one-time services, along with subscription reselling and maybe some break/fix services. But, Microsoft is going to capture a significant portion of the stack.
In the Cisco column, the partner portion is already small, and Cisco will capture a large portion of that line, plus it will capture a significant portion of revenue currently found in the "To Others" line. Again, what will be left to partners is on-boarding, migration, some integration of Spark/Exchange/telephony trunks. Also, the carrier costs for long distance will still go "To Others" in the Cisco Spark scenario as opposed to in the Microsoft scenario. But Cisco will now capture most of the revenue in its column. Nevertheless, one large Cisco partner I spoke with sees huge legs under Cisco Spark as Spark enables conversations about business transformation. This is in part because Spark is built upon a collaboration platform (the Cisco Cloud Collaboration Platform).
These numbers show why the major vendors are pushing their cloud services so strongly: The net revenue increase the vendors stand to see is tremendous! Plus, given that cloud services usually cost more than on-premises solutions if TCO is examined over a multiyear window, vendors have huge incentive to promote cloud solutions over on-premises offerings.
Channel partners acting as agents for or reselling UC systems from smaller competitors such as 8x8, RingCentral, and Fuze may encounter financial challenges as the reality of having a large player (Microsoft) offer voice services becomes more widespread. Dial tone is becoming a commodity, and with pricing defined by Microsoft at $12/month for unlimited domestic U.S. calling (with an E5 license, or $20/month with an E3 license), smaller competitors will feel significant pricing pressure, and they may not find enough revenue left to support a thriving channel. It also leaves the carriers out of the picture with respect to Microsoft-enabled cloud voice services, making them secondary partners and bit players just providing pipes -- unless they also seek to provide ancillary services (break/fix, on-boarding, etc.) and business transformation services.
A fundamental shift is occurring in how communications and collaboration channel partners will go to market as public cloud-based services become more pervasive. The partner role evolves from selling communications solutions to selling value-add and business process engineering services, both much harder sales, in my opinion. It also puts the channel partners into more direct competition with companies such as Accenture, McKinsey & Company, IBM Global Services, Ernst & Young, Boston Consulting Group, PwC, and others focused on business process change.
Some of the larger partners in our industry will be able to cope with this transition, and will find significant value. Per the statement above, "if you haven't been pivoting the past three years, you are already destroyed." I fear that many of the medium-sized and small partners will simply either go away, or they will be forced to pivot to an adjacent industry or look at specific verticals where customization by the manufacturer along with some vertical-specific in-house skills may save the day.
The net-net of this transition to pubic cloud for partners is that the traditional communications channel partner is going to be squeezed financially and must pivot to survive! We should expect further fallout from the vendors' channel partner pool and decreases in the total number of successful channel partners.
For large enterprises, existing channel partners have already begun transitioning more toward the transformation sale, but communications will become a bigger part of conversations they have with the business process companies mentioned above. So, while they may likely continue a strong relationship with their current communications partners, these partners will be expanding the depth and breadth of the products and services they provide, including more custom development and business process change services.
Small- to midsized companies will see change among the channel partners they work with, too. But, it may be that some smaller partners pivot out of the industry, and end-user organizations may need to look for new channel partners focused on the different needs they will have given deployment of multitenant cloud-based communications solutions. Others may contract with a partner to do a migration to Skype for Business/Office 365, but that will be a one-time service. Transitioning to Spark will likely involve a hybrid solution at first, which will still involve the partner. Using one of the other cloud communications solutions from companies like 8x8, RingCentral, Fuze, ShoreTel, and others may or may not require a channel partner, depending on the on-boarding effort required and the size of the deployment.
One thing is clear, multitenant cloud-based communications solutions will force large and small channel partners to transition and reposition their offers.