2016 IT Channel Outlook: Optimism and Obstacles

By Michael Vizard
2016 IT channel outlook

As far as the 2016 IT channel business outlook is concerned, the coming year is starting to look like the usual best and worst of times for the channel.

On one hand, there are more emerging technologies beginning to find mainstream acceptance than in any time in recent memory. This bodes well for mobile and cloud computing solution providers in the near term and longer term for channel companies skilled in big data analytics tools and techniques and Internet of things (IoT) applications.

On the downside, pressure on both product and services margins has never been greater. Couple that with a massive disruption in terms of how IT services are now being delivered via the cloud, and it's clear that 2016 is shaping up to be another challenging year for the channel.

For example, a new survey of nearly 100 organizations in North America finds that more than 70 percent of respondents said their annual IT budget has stayed the same or even decreased over the past three years. Fewer than 15 percent expect to see any increase in the next three years, according to the study based on a recent survey conducted by Spiceworks on behalf by ioFABRIC, a provider of storage systems. Areas that are expected to be affected most include reduced hardware spending (71 percent), reduced software spending (42 percent), cutting back on outsourcing and professional services (42 percent), and reduced human resources spending, including salaries and training (29 percent).

Although some of this downward spiral reflects the shift to the cloud, the downtrend has been consistent for several years, said Andrew Flint, vice president of marketing at ioFABRIC. "The impact on storage, in particular, has been significant, even though organizations have to store more data than ever," Flint said.

As a result, it's never been more critical for solution providers to pick their spots. To that end, a survey of 50 IT organizations conducted by IDG Research on behalf of WEI, a solution provider based in Salem, N.H., finds that the top four IT priorities for these organizations is backup and recovery (42%), application development (40%), network security (36%) and private/hybrid cloud computing (34%).

The key to success for any solution provider is to invest and develop IT skills in advance of when customers actually need them, said Jennifer Burl, senior director of product marketing and management for WEI. For that reason, big data analytics tools and techniques and IoT applications are top-of-mind right now, even though the adoption of those technologies is occurring at markedly different rates, Burl said.

"Right now, a lot of organizations are focused on getting value out of their data," Burl said. "The Internet of things is a little further out."

Seth Robinson, senior director of technology analysis for the IT industry trade association CompTIA, noted that technologies, such as mobile and cloud computing, are just now moving out of the early adopter phase. As a result, solution providers that invested in these areas in 2015 stand to benefit from mainstream adoption of these technologies in 2016.

"It comes down to making investments in the right places," Robinson said. "For many organizations, the cloud and mobile are just now becoming a reality."

Despite all the technical and business challenges most solution providers regularly face, they largely remain optimistic. While there are clearly challenges, a growing economy is giving many solution providers any opportunity to expand their business. How they go about achieving that, however, tends to differ by region. A solution provider such as Fixed Fee IT in Beaverton, Ore., for example, is likely to have a much different growth strategy than MERIT Solutions in Chesapeake, Va.

"The economy in Beaverton is growing, so we expect to pick up a lot of new customers," said Larry Gray, CEO of Fixed Fee IT.

In contrast, MERIT Solutions President Randall Spangler said the solution provider expects to grow its business by offering additional services to existing customers.

"Most of the potential new customers in our area are already someone else's customer," said Spangler. "If they switch providers, it's usually for a reason that might wind up being more trouble than it's worth to us."

Regardless of the approach to growing their business, the good news is that there are now a lot more budgets that solution providers can tap in order to get an IT project funded. While IT budgets overall are expected to be relatively flat, more departments outside IT are allocating funding to IT products and services.

In fact, a new survey of 161 solution providers conducted by Nintex, a provider of workflow automation software, finds that 45 percent of respondents report that the interaction between IT and other departments is increasing within their customers' businesses. Specifically, the survey shows that 37 percent of the solution providers find that line-of-business executives are involved in purchasing IT solutions, and executives from the finance and procurement departments are part of the process nearly a quarter of the time.

At over 67 percent each, sales and operations lead the way for those who have encountered line-of-business leaders, but marketing is present nearly 45 percent of the time, the Nintex survey finds.

Internal IT departments are often not the primary decision maker when it comes to IT, said Josh Waldo, vice president of channels and strategy for Nintex. "There's been a real change in buyer persona," Waldo said. "It a change that has been taking place over the last two years."

The challenge that many solution providers now face, Waldo noted, is that they don't have enough relationships outside the IT department. As such, the total amount of available budget a solution provider might be able to tap is being constrained by the depth or the lack of depth in the relationships they have with any given customer.

In fact, a similar survey of 500 IT leaders conducted by TEKsystems, an IT staffing and talent management specialist, finds that about three out of five IT leaders report that functional areas other than IT are expected to spend the majority of their organizations' technology budget. Jason Hayman, market research manager for TEKsystems, noted that increased spending on IT solutions winds up making organizations more dependent on external IT service providers that have already invested in the skill they need most.

"We're seeing a decentralization of IT spending," Hayman said. "The internal IT department is becoming less relevant."

While internal IT organizations are clearly still a force to be reckoned with for most solution providers, there's no doubt that business executives are savvier about technology than ever before. As a result, going into 2016, solution providers would be well-advised not only to keep their technical skills sharp, but also make sure they can elevate the IT solution conversation in a way that business executives can really understand.

This article was originally published on 2015-12-28