Future-Proofing the Channel Business Model

By Steve Wexler  |  Print this article Print

Level Platforms CEO Peter Sandiford is outlining the future of the channel in a series of 'megatrend' blogs; the key prediction is that the traditional channel -- selling products and services -- is dying and VARs and MSPs must transition to trusted business/IT advisor.

The channel as we know it will not exist in as few as five years, says Peter Sandiford, CEO of LPI Level Platforms, a managed services platform vendor based in Ottawa, Canada. While technology will continue to increase in complexity, product margins will continue to erode and most professional services will be provided remotely from countries like India where the labor costs will beat out local competition.

"The whole idea of professional services just goes away and VARs, if they exist at all, will just become CIOs," he tells Channel Insider. "So it will be the end of VARs as they exist today and the creation of something new, advising customers on technology choices, selling, advising and being a partner in the business."

He expects the local services business to collapse as the big -- and low-cost -- players go directly after the SMB market and do it over the Internet. Sandiford also believes that while the channel's future lies in being their customers' trusted adviser and CIO, specialization will be critical. If a service can be provided over the Internet via a software-as-a-service (SAAS) or cloud model, then "a specialist will always be able to beat the local generalist."

Obviously having a vested interest in the channel's survival, Sandiford decided to write about seven megatrends that will reshape the channel. The first two -- Megatrend One: Large Corporations Enter the Market and Megatrend Two: SAAS and Cloud Computing Change the Game -- are already written. In the works are: unified communications moves from buzz to reality; collaboration becomes a core success strategy; system integrators and offshore remote infrastructure management (RIM) providers will enter the market; vertical market service providers gain market share; and managed services growth goes international.

Large corporations are entering the managed services market and the channel needs to understand who is offering what, says Sandiford. A number of these organizations, including telcos, retail, ISVs, enterprise service providers and Dell, "who plays lip service to the channel" will look to go direct to their customers. Others, like Ingram Micro, Intel, Acer/Gateway, Cisco, "have made a significant commitment to support their channel partners."

He expects the rest of the vendor community to get involved. "Vendors can't just sit back." Other vendors will support managed services in their customers and "put them at a permanent disadvantage."

VARs need to think of SAAS and cloud computing exactly as they would any other product, says Sandiford. "But they're not thinking of it as that, nor are suppliers thinking of the channel, they're looking to sell direct. They don't realize that in the sub-100 market, the VAR is the IT guy, and if the SAAS is going to work, the VAR is required."

Through this series Sandiford wants to identify what he sees as the threats and opportunities for everyone in the SMB IT channel and generate discussion about the megatrends transforming the industry. The channel needs to step back and understand the bigger picture, what's going on with the customer, and how can they help them succeed.