The channel is involuntarily making fundamental changes at high speed and, as a result, is a different place to what it was a year ago.
There are now born-in-the-Cloud type players with recurring revenue models challenging traditional channel players and we are seeing the emergence of new independent software vendors building out ecosystems.
We have everything-as-service, a shift in buying patterns from IT to the business buyer and natural competitors like Salesforce.com and Microsoft collaborating to keep up with the consumerisation of technology.
And, of course, rapid consolidation.
But, according to Gartner analyst, Neil McMurchy, it’s not the technology coming down the pipe that’s keeping resellers and distributors up at night. It’s what they’re doing with their business model.
“The last six months have been sort of predictable,” he said. “The question really is: who can change to a recurring business model the fastest and who is just going to be left behind,” he said.
Nextgen Distribution managing director, John Walters, said it would be an interesting six months ahead. “It’s going to be more consolidation,” he said. “There are going to be a lot of businesses that haven’t transformed to the new world and are hanging on. We’ll slowly see some of those fingers start to loosen and fall off the cliff.
“For those who innovate and have got the ability to scale through good business models and cash reserves and all the rest of it, then there will be some opportunities.”
Walters said businesses needed to not only look at Cloud, but at taking services out to the market and presenting themselves as true value-add partners. “But the market it tough out there,” he said.
While he wasn’t hearing from a lot of people about their plans to adopt new models, or of anybody being overly successful with new models, Walters said, “when things get tough you have to get innovative, you have got to think deeper, think outside the square.
“You have got to try new things, you have to look for angles and opportunities to differentiate yourself.”
Channel Dynamics director, Moheb Moses, said the biggest challenge for resellers and distributors was understanding how to stay profitable while moving to a recurring revenue model and coping with delays as companies work out their Cloud strategy.
Moses said the first half of the year had been “patchy” with a few great months. “But many partners are expecting to have bumper May/June,” he said. “However, I’m not sure if the good months are going to make up for the bad ones.”
Moses said new types of partners were appearing whose business models were based entirely on recurring revenue and opex and that there was little evidence of thinning margins. “I don’t think margins have thinned,” he said.
“In fact, in some cases, margins have gone up [in some cases because the partners are discounting less because the deals are smaller]. Partners reselling recurring revenue solutions are actually seeing higher margins than on selling hardware and perpetual licenses. What has shrunk, however, is revenue. So while margins have not shrunk, the profit has shrunk because the revenue has shrunk.
He said the biggest challenge had been for hardware-oriented vendors and distributors. “Those large deals where companies bought hundreds of thousands of dollars of equipment are getting less and less.” Moses singled out Cisco, VMware, Amazon, Nutanix, Nimble and Pure Storage as vendors to watch.
The partnership landscape is also changing as vendors increasingly call on channel partners to invest more in the relationship.
McMurchy said another big trend was vendors saying to their channels, “You either go for us, invest in certifications and specialisations and we will engage with you deeply, or we will just deal with you en masse with distribution and a very light touch.”
“Big vendors are recognising they need to focus on 10 to 15 per cent of partners with deep engagement, the balance are dealt with in a programmatic light touch way.
“The channel is having to make some pretty difficult choices.”
Vendors demand investment
Read more: Economics key to unlocking public Cloud: Veeam
He said the notion of the channel partner having 30 to 50 relationships was going by the wayside. “Vendors are demanding investment in the relationship,” McMurchy said.
As a mid-size reseller you simply cannot have relationships with more than a couple of vendors. McMurchy said the channel would also see an increased level of competition at the independent software vendor level (ISV) as companies such as VMware and Cisco attempt to create an ecosystem.
“We expect to see an increased market share from companies that you have never heard of before,” he said.
But the “biggest unknown”, according to McMurchy, was whether the telcos could get their channel to work for them.
Read more: AVG becomes a Cloud company with CloudCare
“They would have 100 per cent coverage of SMBs in Australia and they already have a business model that is recurring revenue,” he said. “The promise is there, but nobody is getting it to work. The implications would be enormous.”
Oakton executive general manager, ACT, Bob Peebles, said he was seeing a different market with customers more interested in complete solutions as a service rather than components of a solution being delivered by different parties.
“You are now seeing what might be natural competitors acting collaboratively together,” he said. “Microsoft and Salesforce have entered into a collaborative arrangement. You would not have seen that six months ago. There’s a trend for multiple vendors and organisations collaborating more positively to provide a services integration approach to meet the required business outcome and there’s a need for agility for faster time to market.
“i think, it’s being driven by business agility and global competitiveness and the need to get to the end customer quicker.”
While the federal budget failed to deliver joy for the channel, the possibility of cooling confidence as result of cutbacks is on the radar.
Business confidence
Dimension Data Learning Services (DDLS) chief executive, Mal Shaw, said business confidence had improved after the election and that booking and projects were up, year-on-year. “DDLS’ biggest surprise was the voluntary liquidation of one of its competitors, ProActive Services, an ITIL training and consulting company that had operated for more than 25 years,” Shaw said. “In our view, this shows how tough the market has been for the last couple of years. However, Shaw said the outlook for ITIL training remained very positive with bookings picking up this year in ITIL Foundation Certificate for IT Service Management. “There is also growth in ITIL Service Capability courses, such as Service Offerings and Agreements [SOA], as clients use the framework to manage XaaS in their business.” He said Cloud computing and the consumerisation of IT continued to be the major disruptors for channel partners that had established models. “Organisations typically invest in training and development when they are looking to use technologies or develop skill sets. “This means when we see investment in technology areas it provides a good indication of where organisations are focusing their attention and therefore where opportunities may lie for businesses that service them,” Shaw said There was strong support for training in the areas of security, databasing, networking, IT service and project management, end user productivity and professional development for IT. “Clients are investing in the skills required to secure access to their wired and wireless networks,” he said. “We see broad support for the SQL Server tools that clients are using as a part of their Big Data strategy.” He said clients were investing in Cisco Networking skills because their secure, reliable, optimised network was the way their stakeholders use their devices to access their Cloud services. “Many end users expect their suppliers to be certified in internationally recognised best practice, and that IT channel partners that include these frameworks and methodologies in their operations will be the more successful,” he said.
