If We’re Not a Channel Anymore, What ARE We?

The channel has changed dramatically and will change even more dramatically in the coming decade. Should we even call it “the channel anymore”?

Before we get to a possible answer, let’s set the stage with a quick look back into history.

In August 1981 IBM introduced their Personal Computer. Since it was a corporate rule that nobody but IBM could sell IBM, they needed a workaround for this IBM PC. They sold them to aggregators, the precursor to today’s distributors, and stipulated that these companies could “re-sell” the IBM PC to “resellers” who would then resell them to customers. They dubbed this path from them to customers as the “reseller channel.”

In 1983, The Computer Factory, an early retail chain where I once worked, and a few others began the downward spiral of margins by discounting heavily in competition with each other. That spiral continues to this day. So yes, you can blame us.

In 1985, a VP at The Computer Factory read the tea leaves, was among the first to see where future revenue would really come from, and put me in charge of all technical and professional services, including the new “networking” stuff. He wanted me to bring “a sales mentality” to the services organization because they were giving everything away.

VARs, Resellers, Solution Providers, MSPs All Give Up

The idea behind value added resellers (VAR) was to compete for those IBM PC sales by adding some valuable services along with the product. That idea died a quick, ugly death when too many of us gave up on it and started discounting. At least it didn’t linger. And, yeah, that means “VAR” was over with about 35 years ago.

From the mid-1990s forward we’ve all been transitioning to the managed service provider (MSP) or some similar form of IT service provider model.

More recently, many of us have decided to stop actually selling products to our services customers. Due to competition, they only generate basis points, fractions of a percent, in “margin.” That is immediately consumed by the credit we must extend to purchase and extend to the customer, and also the cost of operations, including cutting purchase orders, receiving, invoicing, warehouse, inventory holding, and more. Ultimately it actually costs us to sell products. So no more of that.

For channel partners this is just plain smart. Unless you’ve developed some excellent strategy, you can’t make money on products so you focus on where you can make money, delivering services.

Also read: From VAR to MSP: Managing the Shift from Push to Pull

The Channel Will Change Even More: Forrester’s McBain

There was a time when if a vendor told us they had a direct sales force we threw them out of the office. We had no desire to encounter channel competition with direct. We despised companies like Dell that were proudly all-direct.

But with more and more partners no longer selling products, somebody had to pick up the slack.

In fact, according to Forrester’s Jay McBain, there are about 175,000 independent software vendors (ISVs) globally, and the estimated average of their sales that are coming from the channel is between 20%-30% and shrinking. Many have eliminated their reseller channel programs. Even two-thirds of software-as-a-service (SaaS) sales are bought outside of IT and outside the channel for the most part. The sales are being transacted instead by direct market resellers (DMR), subscription, direct sales, or through marketplaces.

But McBain also points out that about 90% of the deals that generate these sales will be either partner-led or partner-assisted by the end of this decade, with Microsoft already leading the way at 96%. Microsoft now has a category called “non-transactional” partners that is growing very quickly, according to various executive announcements over the past year. Yes, partners are driving the sales but not executing the sales transaction or holding the paper or shipping or receiving anything.

In part, this is what has driven the Toolsmith business model we’ve been highlighting in this column (see The New Software Provider Business Model – Toolsmith). Let’s use the products these ISVs provide wisely. Use them to create new services you can offer to your customers.

A Professional Solution

Some of you may have already noticed a little semantics problem.

We were called a “channel” because we moved product from producer to consumer. Most of us simply don’t do that anymore. We deliver services.

We really aren’t a channel anymore.

So, what are we?

For many, many years I’ve been encouraging various organizations to participate in the effort to make us what we really should be, a profession.

Business leaders depend upon us for IT assistance and guidance as much as they do their lawyers, their accountants, architects, doctors and others. Professionally, there is no difference between the value of the services we provide, the training we take, or the hard work we do.

Our technology people are truly professionals. It’s time they received accreditation just like all others.

Recently, I was invited to join a new organization. Visitors to the home page of the National Society of IT Service Providers (NSITSP) are greeted by the headline: “It’s time to transform our industry into a profession.” Driven by the approaching legislation and regulation that are coming our way, this group of dedicated colleagues are bringing everyone together to achieve professional accreditation for our industry and our people so we can speak with one voice. Bravo!

To learn more about them, visit https://www.nsitsp.org/

Please keep this important conversation going. Please reply to me at [email protected] Let me know what you’re thinking about how our community is changing, and how you feel we need to prepare for our future. How can all MSPs, ITSPs, CSPs, and others help each other? That’s how the channel grew. Let’s learn from our successes.

Howard M. Cohen
Howard M. Cohen is a 35+ year executive veteran of the Information Technology industry who writes for and about the IT channel. He’s a frequent speaker at IT industry events, including Microsoft Inspire, Citrix Synergy/Summit, ConnectWise IT Nation, ChannelPro Forums, Cloud Partners Summit, MicroCorp One-On-One, and CompTIA ChannelCon, and he frequently hosts and presents webinars for many vendors and publications.

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