Managed Services Create a New Distribution Conundrum

As the channel continues to slowly move towards embracing business models around managed services, you can’t help but wonder what might be the downstream implications this business model might have on distributors.

With the exception of Ingram Micro and Avnet, the distribution community has been lukewarm about the concept of managed services.

What’s giving most distributors cause for pause when it comes to managed services is the implication this trend has on their business model, because for all intents and purposes the advent of managed services essentially means that solution providers are no longer pure resellers but instead become a type of buyer.

As far as the end customer is concerned, they are buying an IT service from the solution provider. The purchase power over what products and vendors will actually constitute the service is in the hands of the solution provider.

Are distributors becoming resellers? Click here to read more.

About the only thing that remains to be determined is what percentage of the actual products selected to deliver the service are going to reside at the customer’s location or the solution provider’s site.

Typically, the client systems along with local file servers reside at the customer site, while major infrastructure is a shared resource residing at the solution provider’s location.

But a lot of solution providers don’t have the necessary IT infrastructure needed to deliver those services and many are turning to services such as N-able, Level Platforms or Silverback Technologies to offset the cost of having to build their own network operations centers to deliver managed services.

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From a distribution perspective, this is an interesting trend because it essentially means that going forward, any new services added to the solution providers portfolio are going to be distributed through those services, which in effect turns N-able, Level Platforms and Silverback into the digital equivalent of distributors for all software and eventually hardware as well.

For example, N-able recently moved to add a hardware-as-a-service capability to its offerings.

The question ultimately facing distributors is that if the providers of managed services platforms become the new digital distributors, they will eventually be compelled to acquire these companies in order to stay relevant with their solution provider customers.

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Which brings up an interesting conundrum from the perspective of vendors that rely on the channel.

If solution providers are morphing into a type of buyer rather than reseller, do they need to relate to solution providers using traditional channel incentives, or do they need a model that more closely resembles the types of deals they offer large end-user customers that buy in volume?

And just where do distributors fit, in a channel in which vendors decide that it may be more efficient to directly manage providers of managed services that increasingly behave like large customers looking for volume discounts because they are essentially aggregating the purchasing power of hundreds of end-user customers.

Across the vendor community, this is pretty much a question that is unaddressed because it will require them to look hard at the distinctions they now make between solution provider customers and end user customers.

Given the fact that distributors are more dependent on the former than the latter, it’s understandable that many of them are reluctant to hasten a change in the economic IT landscape that could put their value proposition at risk.

None of this is going to transform the channel overnight, but the process is definitely well under way, so the time when distributors need to really come to grips with what types of services they can offer providers of managed services is already at hand.

Unless they start coming up with the answers to these questions today, it may be too late to actually do anything meaningful.