InDirections: Portrait of the Partner as an Evolving EntrepreneurBy Michael O'Neil | Print
Re-Imagining Linux Platforms to Meet the Needs of Cloud Service Providers
Will there being a happy ending to the channel film noire, asks Michael O'Neil
The data in the
OK, maybe the implications of the data aren't quite so film noir. Some of the elements of a late-night thriller are buried in the slides.
We begin the story by looking at the business models of the survey respondents. Despite the title of the slide deck, they aren't VARs: Less than 50 percent of the group's members resell products and only about one-third of the average group member's revenue is attributable to resale. This is a group of "solution providers"the mythical community that enterprise software vendors have been searching for as they attempt to move down market to serve midsize accounts.
The respondents may not be VARs, but they share the most perilous characteristics of the VAR channel's approach to market. Like VARs, they are focused on a tightly defined group of clients: Roughly 60 percent have fewer than 150 customer accounts. Even this figure overstates the degree to which their client portfolios are diversified: Nearly two-thirds of respondents report that half or more of all revenue comes from their top three clients.
How are the solution providers planning to address this issue? One slide shows that 90 percent of respondents want to increase the share of revenue they get from new customers. How? Or just as important, why? Three-quarters of the respondents have more than 15 clients and half have 90 or more. Shouldn't companies that are so heavily dependent on a few major accounts at least consider the alternative of diversifying by establishing deeper relationships with the rest of their clients?
Some of the data in the deck indicates a desire by the respondents to see the world as they think it should be, rather than as it is. For example, 64 percent claim to initiate their sales processes by selling to business decision makers (BDMs). In isolation, this would be very encouraging: With each passing year, the industry becomes more cognizant of the need to reach beyond IT specialists within client organizations.
Unfortunately, the data doesn't sit in isolation. Another slide in the deck looks at the attributes that respondents believe define their competitive advantage. Topping the list is "technical acumen." In isolation, this could be a positive finding as well; after all, what client isn't focused on ensuring that their technology suppliers understand the products that they resell/implement/support? Unfortunately, the answer to this question is: "BDMs are a customer group that isn't focused on technical acumen; they care more about how IT enables superior business processes/outcomes than the underlying technologies themselves." If the respondents were really selling to BDMs, "technical acumen" would rank relatively low as a compelling core competence.
When asked to describe their companies' near term objectives, more than half of respondents state that they are attempting to improve partnering for "timely delivery of complete solutions." One-quarter report that they are focusing on a more limited portfolio of applications, but increasing their expertise in the products they work with, while 22 percent state that they are looking to build deeper skills by limiting the number of industries they serve.
Taken together, these findings indicate a recognition that focus on adding more value offers greater potential for reward than simply expanding the scope of activity. Focus on filling specific roles in solution delivery, within well-defined technology and industry segments, makes sense both in the context of the broad trend towards user demand for business solutions and when one considers that channel members generally have limited scope for investing in new markets or capabilities.
Certainly, the data contains evidence of opportunity for increased focus. The slide entitled "Depth of SPs' Relationships with Vendors" shows that respondents work with an average of 120 vendors on a monthly basis and that an average of 3.8 account (directly or indirectly) for at least 10 percent of their revenue. This is the most surprising twist in the research findings. A total average 2006 roster of 170 suppliers, with 120 active relationships each month and an average of roughly four suppliers each driving 10 percent or more of revenue, would be sustainable for a large logistics company, but these are solution providers and those are large numbers for organizations whose value propositions revolve around depth of expertise. It is very likely that the drive towards increased focus described in the previous two paragraphs would lead to both better value delivery to clients and increased operational efficiency to reward the channel's shareholders. Both parties would likely endorse the respondents' desire for fewer applications, fewer industries and more effective partnering around solution requirements.
In the end, the datalike most film noirdoesn't deliver a happy ending, so much as a feeling that there is some underlying logic to how the world is unfolding and a belief that life at least might evolve as it ought to. Without any evidence from the data in the deck, I suspect most channel members would settle for this as a closing scene. And as technology continues to permeate accounts of all sizes in new ways, we see increasing opportunities for channel members to build new business-relevant solutions and to work with customers, vendors and each other. This solutions ecosystem may not exactly evoke echoes of Casablanca's "basis for a beautiful friendship," but it does provide the foundation for sustained revenue and profit growth and that is an alternate ending that most channel members would applaud.
Michael O'Neil is an independent channel analyst, cofounder and CEO/CTO of social media Web site IT in Canada, and research fellow at Info-Tech Research Group.