Groucho Marx and the Potential Decline of the ChannelBy Michael Vizard | Print
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As vendors move to reduce the number of solution providers they want to work with and solution providers do the same in reverse, consolidation is only inevitable and perhaps an end to a competitive channel.
The redoubtable Groucho Marx once said that he wouldn't join any club that would have him as a member. That sarcastic one line kind of sums up the state of recruiting these days in the channel as vendors and solution providers alike continue to be a lot more selective about who they will and won't do business with.
Case in point is Riverbed Technologies, a manufacturer of application acceleration devices that came out of nowhere to drive over $90 million in sales in 2006 largely through the channel. It accomplished much of that by taking a highly disciplined approach to recruiting solution providers with specific knowledge of the customer requirement driving the adoption of application acceleration. And rather than leaving the recruitment of those solution providers solely in the hands of a central management organization, responsibility for finding solution providers and making sure they are successful is in the hands of territory sales managers who have their compensation closely tied to the success of the solution provider partners.
On the other end of the spectrum, solution providers are growing more selective about which vendors they want to work with as well. For them, choosing to establish a relationship with a vendor that doesn't drive profitable services opportunities is proving to be more trouble than it's worth. The end result is that there has been a concerted effort in the channel to reduce the number of vendors represented on the solution provider's line card.
But this presents potential trouble for the viability of the channel as a whole.
As vendors move to reduce the number of solution providers that they want to work with and solution providers do the same in reverse, consolidation is only inevitable.
We're already seeing consolidation taking place, but should the current approaches to recruitment continue, we're only seeing the tip of the consolidation iceberg today.
The sad truth of the moment is that nobody on either side of the channel divide these days seems to want to take on any risk. Vendors only want to recruit established solution providers. That usually means wooing them away from competitors. Solution providers only want to work with vendors that have established track records. That usually means that startup companies have a very hard time establishing credibility in the channel unless they have a very unique product and a highly disciplined approach similar to that employed by Riverbed.
The real problem that arises from this risk aversion is that overall size and eventual clout of the channel will eventually diminish as more revenue becomes concentrated in the hands of fewer players.
That may not sound like a bad thing to surviving victors, but with that consolidation comes eventual stagnation of the channel and the industry as a whole because fewer players will be available to drive disruptive innovation.
Maybe all of this is inevitable because many other industries have gone through similar waves of channel consolidation only to see the spirit of innovation in those industries eventually decline to the point where the only real difference between one product or another is the location of a handle or a button. But before that happens, maybe now is a good time to take a step back and ask ourselves what kind of channel we want this industry to have as goes the channel, so eventually goes the industry.