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The Evolving Channel Is Good News for Enterprises

Over the years the business communications channel has leveraged opportunities created as regulations, technologies and markets have evolved -- and the trend continues with the rise of the cloud.

Some History
In the late 1960s when the FCC, in its Carterfone decision, allowed products to interconnect with the public switched telephone network, intercom and paging system resellers started selling telephone systems -- and the interconnect industry was born. As products targeting small and medium-sized businesses became available at local supply houses like Graybar, enterprising system installers and technicians working for interconnect companies saw an opportunity to go out on their own. They sold systems, went to their local supply houses to pick up the gear they needed, loaded the boxes in their car trunks (or more often vans) -- and started a distribution group known as "trunkers."

The channel continued to evolve as voice resellers and data (computer and networking) resellers converged to address the computer-telephony integration (CTI) market. This evolution was a necessary step to sell, service, and support IP-PBX solutions.

When unified communications came into being around 2006 and then started gaining traction, it became clear to some that major changes to business and financial models were needed if the channel was to survive. I first talked about this at the inaugural UCStrategies UC Summit in 2008, where most of the resellers in attendance politely challenged my comments. In recent years, however, they have thanked me for sounding the alarm.

The Change -- the Cloud
The change is easy to see today, but back then the issue was clouded as the IP-PBX vendors convinced the channel and prospects that the move to UC starts with a PBX upgrade. The financial model that served the channel well for the previous 40 years was alive and well. They sold capex solutions with six- to 10-year depreciation cycles, providing good top and bottom lines.

As hardware solutions became software solutions and as those software solutions move to the cloud, vendors and their channels are being forced to adopt a recurring revenue model, moving from capex sales to opex sales. For enterprise customers this has been a great change. Product costs are coming down, and they can acquire the latest technology without major capital expenditures.

The Channel Makes A Big Shift
In the past, channel partners were loyal to one call control (i.e. PBX) vendor and only carried that vendors' products. The resellers in attendance at UC Summit 2008 sold an average of 1.4 call control solutions. At last year's Summit, that number was 4.2. When hardware call control gave way to software call control, vendors had to change their business models. Their top lines were getting hit by stiffer competition and lower prices, and while this may have been good for customers, it was not good for the channel. In recent years it has been hard for the channel to make money selling hardware or software. Many vendors still try to help their channel partners make money selling their products, but the profit comes in new ways, which is becoming more of an issue as products move to the cloud.

Good News for the Enterprise
The leading resellers are moving from being simply resellers to system (solutions) integrators (SI). They make a little money selling some hardware and software. Now most of their revenues and profits come from managed and professional services. The days of vendor loyalty are giving way to providing customers with what they need -- the best solution on a customer-by-customer basis.

However, this means the SI must have value add to offer. This may be vertical market specialization, including the communications-enabled business processes for that industry; high levels of expertise in solution design; or specific types of integration, such as between Microsoft Lync/Skype for Business and Cisco Collaboration 10.x or between existing video room systems such as Tandberg (now Cisco) with the newer solutions from Cisco, Tandberg, SMART Technologies, Vidyo, and many others.

We are planning for UC Summit 2015, Nov. 15 to 18, and this topic of channel evolution will certainly be front and center. Perhaps we'll see you there.

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