Jay McBain (Forrester) addressing the A/NZ channel at EDGE 2017
A broad and diverse group of companies from all backgrounds are engaging, influencing, recommending and even reselling technology to lines of business, with a shadow channel now emerging across the industry.
Spanning five new partner types, customers are now inviting software- as-a-service (SaaS) ecosystem consultants and integration partners to the table, alongside independent software vendors (ISVs) and industry- based professional services firms.
Rounding off the list, customers are now engaging with born-in- the-cloud IT and telecom firms, alongside start-ups looking to disrupt traditional industries.
So, let’s take a closer look...
1 - SaaS ecosystem consultants and integration partners
The growth of the SaaS industry since early in 2000 has been staggering. Major, multi-billion-dollar revenue streams are still growing north of 30 per cent - 15 years later.
We are now seeing clear winners in each of the line of business categories. For example, 10 years ago there were over 300 CRM solutions competing in a very fragmented market.
Salesforce has now secured almost 1/5 of all CRM opportunity and competes in a more narrow, established market between on- premise and cloud offerings.
Other winners include companies such as Marketo, NetSuite, Workday and many others. These winners have built impressive ecosystems around their products where all boats are rising – and quickly.
For example, Salesforce has 695 partners globally that drive over US$20 billion in revenue, equating to US$5 for every US$1 a customer spends on the CRM licence. Similar numbers are seen across all line of business ecosystems.
This is primarily consulting and integration revenue. The Salesforce ISV and customised developer partnerships drive billions of more dollars of value. In fact, Salesforce CEO Marc Benioff outlined a US$290 billion ecosystem opportunity value over the next five years for those that want to compete.
According to Goldman Sachs research, the SaaS economy will drive US$106 billion in revenue
this year, growing by 30 per cent for the foreseeable future.
With the opportunity of US$5 for every SaaS dollar, we are looking at a half- trillion-dollar opportunity that hasn’t yet been realised. I personally don’t believe the number is that high, but anything multiplied by US$106 billion is significant.
2 - ISVS
Keeping on the Salesforce example, the ISV ecosystem is called AppExchange and it has 3,000 apps, generating four million downloads, US$20 billion in ISV revenue (including a couple of billion that Salesforce takes off the top in a revenue share).
An impressive 75 per cent of their customers use apps in addition to the core software.
There are several unicorns (company’s worth over US$1 billion in market value) that are completely reliant on these SaaS ecosystems.
Adding tools, workflow, customised and specialised industry solutions, and other value adds is a very lucrative environment for entrepreneurs. The investment community of venture capitalists are also eager to back companies in these ecosystems with hundreds of dedicated funds.
The shadow competition comes in the form of free services. In the rush to grab share, many ISVs (and the investment community behind them) measure recurring revenue on the software and tend to give away or look negatively upon one-time, project based services.
3 - Industry-based professional services firms
Every company is being forced to become a technology company. Whether it is a car company with Tesla sneaking up, transportation company with Uber, hospitality company with Airbnb, or any other of the 27 industries, technological disruption is threatening traditional companies with extinction.
This means that every ancillary service or consulting company supporting these industries is being forced into technology as well.
CompTIA ran an excellent piece of research in late 2015 focusing on the professional services vertical, looking specifically at accounting, legal and marketing firms.
These verticals are huge, rivalling the size of the IT and telecom channel in terms of number of firms. But more than just size, these companies are rapidly converging into the broader IT and telecom space.
For example, 51 per cent of accounting firms resell software today, with 33 per cent more considering it. The numbers are similar for offering IT compliance, consulting, advisory and assessments.
By the year 2020, more than 80 per cent of accounting and marketing firms will be indistinguishable from traditional IT channel partners - legal is slightly lower at 55 per cent, but still heading the same direction.
Now think about every company, in every industry becoming a competitor for these technology dollars that lines of business departments are increasingly spending. This casts a huge shadow and is very tough to compete with.
4 - Born-in-the-cloud IT and telecom firms
Much has been written about born-in-the-cloud – and most of it turned out to be wrong.
Don’t get me wrong, there are many successful companies that have been started in the cloud era, with business models purpose-built for this environment, and finding success as brokers, integrators and building trust within lines of business.
The great influx of millennial, born-in-the-cloud value-added resellers and managed service providers hasn’t materialised as predicted however. The technology industry is struggling to stay in the top 10 of most desired industries for university graduates.
