This is a two-part blog article. The first part below deals with “SMB IT channel reaching an inflection point”. Second part is on “New wave of SMB channel conflicts in building a cloud practice”.
SMB IT channel has reached an inflection point. In some sense, this statement appears to be just another observation of a recurring phenomenon: the SMB channel is constantly in a state of flux, responding to changes in the underlying industry by adding (or deleting) products and capabilities to its portfolios. The SMB channel’s situation in 2016, though, is different. Changes in the ways that IT is used within SMB organizations, the relationships needed to build solutions addressing these needs, and the skills required to support these usage patterns and solutions are fragmenting the channel into discrete (if overlapping) communities.
Rewind
To put this into perspective, let us rewind a decade, or two, or three. In each case, we see a channel that is reliant upon relationships with customers and suppliers, and which forms the connection between the two groups. Looking first at the customer relationships, the SMB channel organization works with SMB firms in a defined market – generally, a regional market, but in some cases, a market defined by region and industry, and in fewer cases still, a market defined by adoption of a particular type of technology (e.g., a specific type of software – content management, design, etc.) or a specific vendor’s products. The SMB channel firm deals with a tightly-defined contact or set of contacts within the customer organization: in most cases, the IT manager where this role exists, or a senior executive/partner/owner in firms too small to have in-house IT staff. And it provides management services for installed technology, support for users, and analysis and recommendations for new technology.
This position as a “trusted advisor” (or at least, regular supplier) to a defined customer base makes the channel a valuable partner for IT vendors. The vendors can work with the channel partner to introduce new technologies to a target market. The channel benefits by having access to products that shape future analysis/recommendations to customers, extending the channel/end-user connection. The channel also benefits from obtaining margin from the vendor and from vendor investments in channel marketing activities, as well as from a degree of co-investment in skills development. The channel aggregates new vendor offerings to extend existing customer infrastructure, completing the connection between buyers and new products.
For decades, this model worked largely because most new products could be added to most existing infrastructures. IT followed an incremental and relatively homogenous path; companies deployed servers and storage and a set of core financial applications in the back office, PCs and productivity software for individual workers, and upgraded to keep current with interoperability and maintenance requirements. Towards the end of the 1990s, web servers became a core component of this corporate compute portfolio, and firms would occasionally add capabilities (such as IP telephony) in advance of competitors, but like the upgrades and extensions, the progression of new technology was more deliberate than disruptive.
Today
In recent years, IT adoption has become more diffused.
It could be argued that the wholesale shift from a PC-only to a mobile-first user community, which thrust smartphones (not typically sold by the commercial channel) to the forefront of client devices, created the first real breach in the pattern. It could be argued that cloud, which disrupts core back-office configurations, adds tremendous scope for end-user purchases of “unauthorized” applications and is predicated on an entirely different purchase and payment pattern, was the point at which the model broke. Or it might be said that the explosive growth in non-IT management control over IT decisions, which changes the buying point and jeopardizes the value of the channel’s IT relationships, is the change that signals the dawning of the inflection point. There’s merit in each position, and in several others as well. What is clear, though, is that the IT channel is changing, permanently and in ways that are entirely different from what we’ve seen in the past. In the same way that “cloud” refers to a very wide range of very different IT models and deployments, “the channel” is becoming a generic phrase that describes a set of business approaches that is increasingly specialized and fragmented.
In our research, Techaisle has divided the channel into four technology-focused groups:
- Mobility, which includes the channel members who are looking to regain relevance in the client market by providing management solutions that address the sprawl of applications (and as a result, complexity and GRC exposure).
- Managed services, which hones in on firms that are successfully pursuing a services-led, recurring revenue-based business model.
- Cloud, which represents – at least in our view – the mainstream opportunity of the future, and which will ultimately divide further into segments clustered around delivery models, customer sets and/or technology specialties.
- Virtualization and converged infrastructure, which represents the evolution of the traditional channel focused on sales of back-office technology.
Today, there is a great deal of overlap between the four groups, but we have hit an inflection point, and the (more or less) common starting point is launching multiple distinct paths. At present, though, this diffusion of channel interests and capabilities is the source of a great deal of complexity within the channel, and as a result, within the vendor and buyer ranks as well. All three of the core supply chain communities – buyers, vendors and the channel – need to understand what is required for success so that the channel can make the investments needed to support emerging requirements, vendors can commit to the investments and partners needed to drive success, and buyers can identify the suppliers able to deliver business benefit from advanced technology acquisition.
Many vendors will struggle with simply understanding this fundamental change in the market, and more will fail to understand the focus and investment required to grow with partners through this transitional period. Those who succeed, though, will have an incredibly valuable asset: a channel that is well-positioned to act as a primary or sole source of IT-as-a-service delivery to an SMB community in which performance-oriented business buyers coexist with technology-oriented IT specialists.