Keep Pace with the Times

Judging by numbers alone, it looks as though the solution provider community became less relevant to IT vendors in 2007. If true, that would be shocking and scary.

In 2007 allsigns pointed to strong indirect channel relationships. Vendors spent lots of money engaging and enabling solution provider partners, and the partners under went vast training. Now that the U.S. economy is softening, does that mean vendors are shifting from indirect channels to invest more in their direct sales and service relationships?

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The numbers I’m talking about are from Amazon Consulting’s 2008 State of Partner Programs poll. We polled 250 technology vendors between Dec. 15, 2007 and Jan. 15, 2008. Responses regarding “approximate percentageof 2007 company sales through partners” wereshocking. Only 35 percent of respondents indicated that more than 50 percent of their revenues were through partners in 2007. A whopping one-fourth saw less than 20 percent of overall revenues generated by partners. Considering all the vendors that claim to be “partnercentric,” we expected the contribution to revenue to be much higher.

We asked vendors to what they attributed the low percentage contributed to their revenue by partners. Vendors indicated that partner-generated revenue was growing as an absolute number, but the partners weren’t growing as fast as the vendors. More opportunities were being addressed directly by the vendors as a result of the partners’ capacity limitations. The partners were referring more opportunities to the vendors and collecting an influence fee. The vendors also said professional services comprised a larger portion of their revenues and that these services were sold, and often delivered, direct to customers.

The solution provider community reports recruiting, developing and retaining talent as the No. 1 inhibitor to its growth. Thus, it's not surprising that the high-growth IT vendors are outpacing the solution provider community. The technical talent is typically absorbed first by the vendors that produce much higher gross margins and can attract and retain top talent. The solution providers we talk to are engaging more in peer-to-peer relationships to leverage each other’s technical capabilities, capacity and geographic coverage.

Considering that vendors reported that producing revenues is still the primary way they recognize and reward partners, this decrease in overall revenue contribution partners made is troublesome. However, we’re seeing more vendors valuing other solution provider contributions. Nearly one-half of the vendors responding indicated they also recognize and reward the partners’ technical competencies and their ability to generate demand. Thus, as their revenue contribution declines, solution providers would be wise to increase their capabilities in these valued areas.

This reduced contribution to the vendors’ overall revenues is likely to continue in 2008, particularly in North America, due to the scramble for every dollar sure to take place in a soft economy and the continued shortfall of talented resources entering IT fields. But that doesn’t mean solution providers are destined for irrelevancy. We expect to see partners specialize in technical competencies more and increase partner-to-partner relationships as they struggle to find qualified talent and keep pace with the vendors’ rapid growth.

Diane Krakora is president and CEO of Amazon Consulting. She can be reached at dkrakora@amazonconsulting.com.