Now Playing: What`s Hot in the Channel

By Michael O'Neil  |  Posted 2008-04-02 Email Print this article Print
 
 
 
 
 
 
 

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Finding the top channel trends is a challenging task.  Every VAR has different priorities, but the looming recession and the services play should be in the forefront of everyone's mind.

What are the top three most important trends in the channel today?  It’s a tough question to be asked.  After all, different VARs may have different priorities and therefore different challenges.  However, I was able to come up with three "top of mind" trends that I think are important across the entire channel, plus five more that apply in specific segments, some of which are distinct, some of which overlap other issues on the list.

1. How to deal with the recession.  I believe that the solution provider community will feel the sting of the recession sooner than the vendors—after all, channel businesses rarely have deep cash reserves—and VARs will be looking for ways to navigate through the "times of constraint." Vendors will need to do this too, of course.  Those that are effective in helping their channel to weather the storm are likely to show both better near-term results and lay the groundwork for better long-term relationships than those who attempt to pass the pain down the distribution chain. Unfortunately the latter group is likely to be in the majority. Channel Insider is working with ChannelInput on a survey that looks at this issue. Click here to see the survey. We’ll share information from it sometime next quarter.

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2.  Managed services, new approaches to software and SMBs.  These are three distinct issues, but the first two tend to get blurred together around small and midsize businesses.  My guess is that every member of the channel will need a managed services story before too long. The leaders have already built out these capabilities.  Laggards will get to catch up pretty quickly by reselling other firms' services and may in fact be able to build some kind of advantage by learning how to deal with sell-through of different managed services offerings.  This may expand the types of services that they can offer—for example, SAAS (software as a service), cloud-based storage/backup/disaster recovery, network monitoring/management, processor provisioning, and so on.

SAAS is, I think, starting to blend into the whole notion of new approaches to software, which also includes open source.  This is becoming a huge issue, especially in new—Web 2.0—application areas.  One partner at an Association of Strategic Alliance Professionals session in Toronto last week said that in his view, the enterprise software market has collapsed down to four ecosystems: SAP, Oracle, Microsoft and IBM.  This isn't enough scope for the kind of innovation that software encourages.  I think it's likely that new entrants will focus on open-source frameworks, which are today leaders in Web 2.0, and not in traditional enterprise apps.

These issues are often blended into conversations about SMB, because SMB is the easiest sector to serve cost-effectively if a supplier has managed services capabilities: The needs of many accounts can be handled by relatively few resources. Also some depth in open source means that customers are able to dedicate their limited resources to the partner's services, rather than to the software license. This isn't to say that managed services and open source won't have an impact in the enterprise market—they clearly will—but just to point out that they're especially important in the SMB space.

3. Tighter focus on OPEX.  The managed services and open-source movements both have the effect of reducing capex as a barrier to new product acquisition, which means that the next area of focus has to be opex.  To a large extent, virtualization is benefiting from this trend already; green IT, too, with regards to power conservation.  Managed services can also be positioned as an opex management tool, since it reduces the fixed cost of IT resources, but of course it's also an operation expense, so this is a tricky line to tread for suppliers in this space.

This list met my initial objective of identifying three trends that apply broadly across the channel. But there is so much more happening. Here are a handful of other trends, spurred in several cases by recent conversations that may not reflect industrywide concerns but are highlighting points of pain in specific segments.

4.  Services through the channel.  Vendors have been trying to "crack the code" on sales of their services through the channel for many years now, without a lot of success.  HP is doing pretty well from a maintenance perspective and Cisco is having some success in selling more advanced services through the channel, spurred by new demands associated with UC.  Overall, I think it's clear that vendors are feeling a need to find better ways to package, position and deliver advanced services through the channel. This will create a lot of activity in this space over the next 24 months.

5.  Dell and blended models.  I’ve spent some time talking about Dell's nascent channel strategy recently and have become persuaded that in the channel, Dell’s competition isn't so much HP as Tech Data and Ingram. While Dell can offer manufacturer-type capabilities, such as product road maps, (limited) engineering capabilities and maintenance services, it has limited scope for innovation in these areas.  If Dell is going to compete successfully in the channel—and it's clear that it will at least try—it will need to rely on things such as custom configuration, drop shipping, credit extension, and so on: the basics of the distribution value proposition.  If Dell fails, then not much will come of this, but if it starts to make inroads in the market, HP and others may find that they need to find ways to reduce the disconnects that can occur when relying on distributors for some aspects of delivery and manufacturers for other aspects.

Playing this out, it's likely that if Dell started to succeed in the channel, HP and other manufacturers would look to diminish the degree to which distributors are positioned as intermediaries in the vendor/reseller relationship.  This would in turn have a negative impact on the distributors, which might as a result become even more focused on the software and networking products that currently account for a relatively small volume of sales, but which offer more margin to distributors and their resellers.

6.  Social media.  I think it's clear that social media will have a long-term and permanent impact on how suppliers of all types of products interact with their customers and prospects, and on how these customers and prospects interact with each other and product suppliers.  There's going to be a lot of confusion in the global, all-product marketplace as suppliers struggle to understand the best way to blend traditional and new media, and brands are going to change position more rapidly than is possible today. Since this trend represents an intersection of business strategy and technology, it's probable that at least some portion of the current channel—in addition to new entrants—will emerge as strong customer influences by becoming advisory/delivery partners in this area.

7.  Increased opportunity for nontechnical sales, marketing/positioning and delivery.  This cuts across several of the previous topics, especially the last one—and it's not new—but it's ongoing and therefore important.  The scope for technically-focused sales and marketing is diminishing over time, as tech-savvy executives in LOB/general management exert more influence and control over their IT strategies. The upshots of this include longer sales cycles; more influences in the decision process; and—really importantly—a need to be able to talk business, rather than talk feeds & speeds, or even, the odd patois that blends tech talk with business benefit in ways that neither techies nor businesspeople fully trust. The IT industry is not deep in sales/marketing professionals who can hold business-level conversations, which will have the impact of making future sales situations even more protracted.  To intersect this with one other trend from above, think about how the need for business-level discourse is accelerated in the event of a recession.  Businesses will reduce discretionary IT spending immediately and will look to rein in maintenance spending as a next step. The suppliers who are able to sustain business volumes will do so because they are able to successfully describe the business benefit of IT investments to senior managers—projects that aren’t seen as central to the business’ need to save or generate cash won’t be funded, if cash is in short supply.

8.  Ongoing consolidation.  Lastly, there is a wave of channel business owners who are ready to cash in their chips, and their ranks will grow as the economy gets tougher and it gets harder to turn a profit for yet another year. We can expect to see customers and vendors alike having relatively fewer options to connect IT with business need in the SMB market—and for sellers to see multiples (which seem to be at roughly asset value + 4x annual profit today) to decline.

So—that’s the list as it looks today, at least from my standpoint.  As I said, some of the points overlap, but then reality is often kind of messy around the edges.  How does this compare with what you’re seeing?  Feel free to provide your feedback to me via e-mail at michael.oneil@channelinput.com. I look forward to hearing from you and will react to both comments and the survey findings as soon as the data is ready.

Michael O'Neil is the president and principal analyst of the boutique channel consulting firm Channel Input, and the co-founder and CEO/CCO of social media site IT in Canada.

 
 
 
 
 
 
 
 
 
























 
 
 
 
 
 

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