Why IP Is Imperative to Channel Partners’ Future

The dawn of the reseller channel came in August 1981 when IBM introduced the IBM PC. Since company policy held that “nobody but IBM can sell IBM” the PCs were sold to ComputerLand, Nynex and Sears Business Centers, which then “resold” them to customers, creating a four-step “channel” from the manufacturer to the aggregator, to the retail store and finally to the end user.

At the retail-store level, margins were 41 percent or more on sales of PCs. 

We all know what happened next. Discounting. As more manufacturers entered the PC market, the new reseller channel became fiercely competitive, giving services away for free to entice customers to buy from them. When that wasn’t enough, they lowered their prices. And lowered their prices some more–and some more. It wasn’t long before we stopped talking percentages and started to talk about “basis points,” fractions of a percent.

PCs became commodity products, and every peripheral followed along that path with them.  Soon every hardware product that emerged sold at or near list price for shorter and shorter periods. Disruptive new technologies soon became old hat and commoditized ever more rapidly.

Fast Forward

In the reseller channel of 2015, the commoditization period has almost evaporated completely.  No sooner does a hardware or software product emerge than the large catalog resellers have published prices that yield tissue-thin margins for them. Although many of the “back-end rebate” games of the last few decades have gone, products commoditize so fast that most VARs stopped adding the value for free long ago and have now made those services the core of their revenue model.

As Things Evaporate, They Become Clouds

Since “the cloud” became a way to describe data centers that delivered IT services, resellers have been trying to contend with their impact on the business. Initially, many resisted the cloud because it paid them too little, and eliminated their opportunity to sell all the services that could be attached to the commoditized selling of servers, storage and other infrastructure items.

Eventually, these resellers accepted that customers were very attracted to the higher service levels at lower costs that were available from the cloud. Many embraced cloud services into their portfolios.

Back to the Future

Even before there were PCs, there was time sharing of mainframe computers with the core infrastructure resident in a mainframe data center and users connected remotely via terminals.

Today, there are Amazon Web Services, Microsoft Azure, Google Cloud Platform, IBM SoftLayer, Rackspace Managed Cloud and many other data centers vying to be your customer’s “head-end.” Customers no longer need to purchase or own their own server or storage infrastructure. They can run all their apps, workloads and other platforms on any of these services. The entire concept of server and storage has become completely commoditized.  Login isn’t very different from dial tone. You pay to use the service, and it shows up.

Where Does This Leave You?

Since 1981, channel partners have been resellers of products manufactured by others, creations of the intellectual property (IP) those manufacturers own.

As the opportunity to sell any of these manufacturers’ IP commoditizes, something will have to replace it. That something will have to be the creation of someone’s IP, and smart channel partners are realizing very quickly that the IP they sell in the future should be their own.