EDGE 2017 - Uncovering the 5 new partner types now at the customer table

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.

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Technology is so intertwined with business today that younger people look to themselves as sales, marketing, HR, operations or finance leaders and that technology is an obvious and ubiquitous part of their job role.

With all that said, born-in-the- cloud is still a formidable shadow channel as the skill level is high, business model optimised and energy level higher.

5 - Start-ups looking to disrupt traditional industries

It is difficult to measure start-ups, as many countries don’t keep track. The best estimate from the Global Entrepreneurship Monitor is there are about 613 million people trying to start about 396 million businesses.

About one third will be launched, so you can assume 133 million new firm births per year, with just shy of two million of those being technology start-ups.

These are big numbers and it’s safe to say that both innovation and entrepreneurship are as hot as ever. Each of these companies have a new idea or, what they think, is a better way to do things.

The shadow channel effect is that traditional service-based opportunities could be automated, replaced or deemed redundant in the future. The traditional channel is not immune to the reported 47 per cent of jobs that could be replaced by artificial intelligence, machines and robotics in the near future.

Future impact

It is hard to predict the impact of each of these shadow channels against the future technology opportunity.

We do know that competition for traditional partners is shifting from the business across the street to a myriad of influencers on end customers.

The good news is that the pie is also growing. The technology industry grew 5.1 per cent during 2016 and is looking positive for years to come. The skills and resources to take advantage of this pie look much different than they did even three years ago.

The shadow channel is currently the wild west — the equivalent of where the traditional channel was maturity-wise in the early 1990’s.

They are putting customer businesses at risk everyday by playing fast and loose with customer data, financial and even HR data. Proprietary information is flying everywhere across public clouds by smaller start-ups with little control or regard for the ramifications (or regulations).

The traditional channel has an opportunity to play a crucial role as the adult in the room. Through strategic partnerships of their own, mergers, acquisitions, hiring/adopting the right skills, as well as business model changes, they can ensure that maturity is injected back into the system.

Things such as business continuity, security and compliance are critical requirements of the lines of business departments — and very few in the shadow channels can execute at this point.

Partners of the future

Tquila

“Tquila is a pure-play Salesforce Platinum Consulting Partner helping customers with today’s business imperatives of digital transformation.

“What makes Tquila unique is our depth of expertise in Salesforce implementations across Salesforce multi- cloud solutions, such as marketing; services, community, analytics, CPQ and integration with back-end and legacy systems.

“Even though we are still a young start-up, we have built a team of over 51 dedicated Salesforce professionals holding 100+ Salesforce certifications.

“We deliver a full range of services — from strategy, implementation and integration, through to custom applications development, governance and support.”

— Jo Masters - CEO, Tquila A/NZ

HubOne

“We write software and solutions targeted at the financial services vertical that resellers can sell to their clients, making additional margin and differentiating themselves in the channel. Our software focuses on extending Microsoft 365 to perform enhanced document management.

“We’re an ISV with deep relationships with Microsoft, rhipe and several existing channel partners and we also partner with common accounting practice software such as CCH iFIrm and Xero.

“From a capability perspective, we focus on providing better development and documentation, while technical writing is key to enabling our partners.”

— Nick Beaugeard - CEO, HubOne

Insentra

“We provide multiple layers of value, are non-competitive and entirely accretive to the IT channel. We hold quite a unique place in the ecosystem — we are a system integrator, a managed service provider (MSP) and distributor all rolled into one.

“We are an SI in that we integrate technologies however we don’t sell any tier-1 software or hardware (our partners do that) so vendors find it hard to provide us metal status’ as we don’t attribute any revenue
to our name.

“We are an MSP because we bring managed service offerings to our partners and we are a distributor because we represent several international ISVs, bringing their solutions to market.”

— Ronnie Altit - CEO, Insentra

Oreta

“We are a start-up service integrator for cloud where we pride ourselves on being vendor agnostic when it comes to choosing the right fit for the end customer, alongside our growing advisory practice.

“Digital agendas are underpinned by cloud with a robust network and mature operations capability, and we are fiercely independent to ensure we maximise this opportunity.

“Strategic and collaborative are the two words that come to mind to describe our vendor relationships, with security now a big focus area for our business. As the dependency on data is growing in this digital world, back-up and disaster recovery solutions continue to grow in importance.”

— Sachin Verma - Managing Director, Oreta

Jay McBain is principal analyst of global channels at Forrester, specialising in research and advisory for global channels, alliances, and partnerships. McBain focuses on B2B marketing in the age of the customer; understanding and navigating the complexity of multiple routes to market; ensuring contextual and relevant content to accelerate the indirect sales process; and describing the technology infrastructure to build and support channel relationships.