IT and Business Insights for SMB Solution Providers

The Death of the Channel Has Been Greatly Exaggerated (But It’s Not Entirely #FakeNews)

The transition to SaaS applications and an expanding buyer community are forcing many IT firms to rethink their sales and marketing strategies. By Jay McBain

TECHNOLOGY CHANNELS have proven to be remarkable change agents—from both a customer and personal business perspective. From the first non-networked personal computer to the latest ransomware threats, IT partners have been building and displaying impressive support skills in a variety of critical areas. At the same time, channel firms have transformed their business models from reselling, break-fix, installation, and maintenance, to solution providing, managed services, consulting, and other recurring revenue-generating activities. 

The one thing that had remained relatively constant was the way customers planned, decided upon, and procured technology. With CIOs and IT departments often at the helm, channel partners and vendors fine-tuned their product, content, and sales approach to capitalize on their clients’ buying journey.

Now, driven by cloud and the growing adoption of SaaS business application ecosystems, that customer buying process is being turned upside down.

Forrester has discovered that more than 65 percent of technology decisions are now being influenced or made by line-of-business executives. Sales, marketing, finance, operations, and HR department leaders are increasingly taking ownership of their own digital transformations. And more than half (52 percent) of them are using their own budgets to buy technology instead of asking IT or finance for the money. In fact, 29 percent of those decisions are now being made with no IT involvement at all—and that number is trending upward.

These newly emboldened business executives are planning, building, and executing these solutions with little or no internal assistance. An important point for partners and vendors is that 58 percent of those decision makers are choosing outsourced talent for things like integration, implementation, security, backup, compliance, and disaster recovery.

Another factor is the different buying behaviors these business leaders are displaying. While the majority are building robust peer networks, partnerships, and alliances to aid in all aspects of the technology decision, 73 percent would prefer to deal directly with the vendor. The level of self-service functionality in the solution can strongly influence whether they make a purchase. In the cloud and SaaS world, taking a margin from simply reselling technology is a relic of the past.

In the past 18 months, we’ve noted, business leaders are increasingly relying on a new set of influencers—those who belong to what I call “shadow channels.” That group includes SaaS ecosystem partners, industry-based professional services and consulting firms, ISVs, born-in-the-cloud providers, and those from the startup community.

Uncover the Gaps

Why are pundits predicting the collapse of our traditional technology channels? The four areas that concern them the most include:

1. The lack of sales and marketing skills—As Michael Gerber’s book, The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It, masterfully outlines, most SMB channel partners are technicians at heart and haven’t focused on acquiring the sales and marketing skills needed to scale their businesses. Now, with 10 times the buyers and decision makers at each customer site, that weakness is amplified.

Most vendors are guilty of a similar lack of sales and marketing focus. They center too much on the IT buyer and assume their products and services are just as relevant in today’s world.

2. Basic economics—With the commoditization and consumerization of IT over the past decade, continually shrinking margins, incentives, and return on invested capital have squeezed many partners to the point of insolvency. The shadow channels operate differently. They do not rely on front- or back-end margins, MDF, or any other type of financial incentives from the vendor community. Those technology specialists are chasing downstream integration and implementation work that brings in four times as much revenue as the cloud purchase. The margins for that work are substantial—80 percent or higher in some cases.

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