10 channel partner predictions for 2020

The new year (and decade) provides an opportunity for assessing the business of the channel: what has shaped the channel in the years leading up to 2020, and what we expect to see in the coming 12 (or in some cases, 24 or 36) months. Here are 10 key areas where change is afoot!

1. Innovation

• • What we’ve seen: The channel as a conduit for change. Channel members have traditionally played a critical role in connecting innovative technologies to business needs. Often, the use cases for these innovations are proved before the channel becomes deeply invested, as large enterprises adopt and integrate new technologies before they become important to the mainstream (SMB) business clients served by the channel.
  • What we expect to see in 2020: Channel partners will become navigators in plotting customer digital transformation strategies. In the digital era, the lag time between enterprise and mainstream business adoption has eroded: mainstream businesses can’t wait for best practices in cloud, analytics and similar technologies to be proved out by large enterprises before they begin to embed them in digital business practices. To help customers expand their focus to ‘the art of the possible’, innovation-focused partners will proactively explore new technologies and educate their customers on potential benefits and related business process changes. Partners will, in short, become navigators plotting customer digital transformation strategies. Techaisle’s urgency and importance ratings showed that this was not ‘top of mind’ for channel partners in 2019 – but it will be important on the strategy radar, as partners will build plans (integration, migration, architecture & orchestration for digital transformation) for viability into the next decade. By the end of 2020, percent channel partners delivering DX will grow by 80%.

2. NEXT

   

• • What we’ve seen: The channel as a champion of incremental integration. One key difference between vendors and channel members is their focus on new account acquisition: new accounts are a vendor’s lifeblood, while the channel has been primarily dedicated to incremental introduction of new technologies to current customers’ existing environments. This is useful for customer planning purposes, and it is especially important to the channel businesses themselves, as it limits the extent of internal disruption – to the sales, technical and management teams – caused by extensive new portfolio additions.
  • What we expect to see in 2020: The NEXT Channel will emerge. Channel partners will need to abandon ingrained behaviors and move to new approaches that will enable NEXT (Networked, Engaged, Extended, Transformed) channel businesses. The core changes in the demands on different parts of the channel business are critical and challenging, but they should be seen as more effect than cause. In all aspects of channel business, long-held business tenets will be replaced by an emerging reality that has been ushered in by the move to cloud and amplified by other trends – changes in buyer behavior, management and process changes, evolutions in service/technology delivery, how technology is being acquired and used.

3. Revenue Matters

• • What we’ve seen: A transactional channel with diminishing enterprise value. Channel business owners are faced with a difficult truth regarding the value of their chief asset: ten or fifteen years ago, a healthy channel business (limited debt, a reasonably diversified client base, meaningful margins) would be valued at 3-5x its annual revenue, while today, that same business might be worth 10%-15% of annual turnover. Channel owners who want to realize substantial returns when they exit need to position their businesses in ways that are attractive to prospective investors.
  • What we expect to see in 2020: Pure-play MSPs will drive (or attract) M&A activity. The leverage associated with the MSP model is compelling to many firms that might otherwise act as a ‘one stop shop’ for a diverse group of mainstream business customers. That doesn’t mean that the MSP model is a panacea, particularly when considering the needs of clients who need extensive assistance in embracing digital business platforms and practices; traditionally, MSPs have offered customers advanced and highly-efficient solutions to current problems, but MSPs do not tend to customize offerings for individual customers – doing so undercuts the efficiencies at the core of their business models. But while the MSP model doesn’t perfectly address DX requirements, it does offer part of the answer to an increasingly-fragmented set of questions which begin with a vision of business rather than technology outcomes. Recent Techaisle research finds that during 2020, 40% of MSPs will foresee mergers and/or acquisitions in their 3-year plans. With the market valuing MRR-based businesses at a high multiple vs. firms based on product transactions, MSPs will appear to be in the best position to attract outside investors.

4. P2P
   • –What we’ve seen: Channel firms provide a full suite of products and services to meet the needs of current customers. One distinguishing characteristic of a traditional channel firm is its ability and willingness to test, learn about, deploy, integrate and support new technologies as they are needed by customers. A crack in this shell appeared with security, where deep and diverse protections (and threats) opened the door to collaboration with MSSPs and other specialized security providers. Still, though, the channel’s chief loyalty has been to the customer rather than any specific product – and channel firms have acted as strict gatekeepers, internalizing as much of the IT-related business requirement as possible.  
   • What we expect to see in 2020: P2P collaboration and ecosystem alliances will move from opportunistic to strategic. Solution packaging is a customer choice issue – and customers are choosing to move from turnkey systems to hybrid environments that can be aligned with their evolving needs. This will require an accelerated frequency of partner-to-partner collaboration, not opportunistically but strategically. Pursuit of this ecosystem business approach will require changes in go-to-market strategies and in the ability to integrate around data rather than physical system components. This escalating requirement will expose vulnerabilities of channel partners in meeting customer expectations. Ecosystem alliances and P2P collaboration will become non-optional. By end of 2020, 70% of partners will collaborate frequently for sales (not as much for deployment, support) with an average of 3.5 P2P partners.
5. Services-focused

   

   • What we have seen: Services as the margin-bearing component of integrated offerings. For many years, the channel has increased its emphasis on margin-rich services as a means of making sales of margin-poor products palatable. What it hasn’t been particularly successful at – at least, on the whole – is productizing those services. Much of the services revenue in a traditional channel organization is tightly coupled with product sales, delivered as deployment, integration or support. This has the advantage of creating a single invoice that can tell different stories – lower cost for equipment (by shifting costs to the services lines), lower costs for specific services, etc. What it doesn’t answer, though, is the question of ‘if the entire transaction is comprised of advice rather than products, how can the channel profitably engage?’
   • What we expect to see in 2020: Influence of IT consultants, CSBs will increase for professional services. IT buyers are relying much more on consultants as they look to shape strategies that are aligned with current and emerging opportunities for greater IT leverage. This trend will have a ‘trickle-up’ effect: IT consultants and CSBs will become more specialized to deliver insight on vendor and technology options, technology compatibility, architecture, deployment and management. By the end of 2020, 25% of channel partners will consider their business models as “Consultants”. These partners will need to incorporate unique intellectual property (IP) into their processes and offerings as they will be unable to fund their operations with margins from acting as middlemen. They will structure their businesses to deliver professional services – billable in one form or another – to address customer needs for strategy, planning, onboarding/training, integration and support.
6. Toolkits not hammers

• • What we’ve seen: The “law of the hammer: if the only tool you have is a hammer…everything [you see] is a nail.” Channel firms have tended to concentrate on a limited number of core platforms – typically, those that they have invested in, via certifications – and looked for opportunities to build around these platforms wherever they engage.
  • What we expect to see in 2020: The market will reward channel partners who flexibly deliver multi-vendor solutions. Successful channel partners will tailor multi-vendor solutions that address customer business requirements, layer in support and integration, and land on a position that offers a flexible platform approach supporting repeat business and healthy margins. Single-vendor solution providers will most likely be focused on promoting features which will lead to reduced profitability because single-vendor solutions will struggle to stay current with evolving, diverse customer needs, and are easy to comparison shop (leading to discounting). By the end of 2020, 50% of partners will be experts in assembling multi-vendor-best-of-breed cloud options.

7. Value-creation focused:
   • What we’ve seen: The channel builds value from the vendor out. Traditionally, the notion of ‘value add’ in the channel hs referred to a reseller’s ability to demonstrate that they augment the base product with some combination of technical and/or logistical support.
   • What we expect to see in 2020: Value creation starts with the customer. IT has never been a shared risk endeavor: while technology is generally sold on the basis that it will help businesses to cut costs, accelerate cycle time or expand reach and revenue, once a transaction is complete, the onus for realizing these objectives rests with the customer. Cloud and its pay-as-you-go model started to impact this balance, and the inexorable twinning of IT solutions and business processes and outcomes will further disrupt mainstream business expectations. Channel firms that innovate in value creation for customers will gain more significant and durable advantages than those that continue to focus tightly on new technologies.
8. It’s getting late, early

• • What we’ve seen: A low level of channel clustering around cloud solutions. Cloud has affected the channel in many ways, but there hasn’t – to this point, anyway – been a great deal of herding towards specific cloud platforms. With the notable exception of Microsoft, most of the primary cloud suppliers (hyperscalers – notably AWS and Google – but also SaaS suppliers) have lacked deep experience with the channel, and haven’t developed effective programs or coverage strategies.
  • What we expect to see in 2020: The beginnings of consensus on cloud offerings through the channel to mainstream market customers. There will be an increased investment in staff training, certification to increase professional services revenue with a focus on containers (Kubernetes), microservices, open source, agile development to deliver cloud apps for customers’ customer facing apps as well as apps to support customers’ internal processes and operations. In 2020, channel partners will continue to be challenged due to legacy integration issues, missing APIs, lack of development/QA skills and inability to conduct extensive security testing. However, by the end of 2020, slightly more 50% of cloud partners will have one or more cloud app development capabilities and MS Azure will be the hyperscaler of choice. AWS VMWare solution at the edge, a recent addition, will be of interest to channel partners. Red Hat Ansible for automation will find a footing within partners.

9. IP options

• • What we’ve seen: Limited opportunities for – and visibility of – channel IP. Every channel member has some ‘secret sauce’ that they will tout as important to their – and their customers’ – success. In many cases, though, this ‘sauce’ is thin, consisting of a particular configuration or process that applies in some instances but not others; also, it is often embedded in the delivery process, such that the IP itself is not a visible, value-added component of what the customer pays for.
  • What we expect to see in 2020 (and beyond): IP-led solutions will be key to channel business success. A successful cloud channel partner’s desire to keep its own IP front-and-center in the solution will be rooted in several wise channel objectives. By end of 2020, 60% of channel partners will rely on sell-to (vendor sells to channel, channel embeds vendor product/service in a channel-branded solution) and sell-with (co-selling) sales models. By the end of 2020, 25% of established channel partners’ cloud revenue may be attributable to products that they have built internally: the channel firm’s own IP, positioned on top of or along side of vendor products. This moves partner go-to-market support needs well beyond traditional solution development funds incentives; vendor programs and sales approaches will need to further evolve to meaningfully attract IP-oriented channel firms.

10. The basis of channel support will change
    • What we’ve seen: Channel firms rely on vendors for insight and guidance. For decades, channel organizations have relied on vendor partners for input to core business decisions: vendors have provided technical information that shapes channel product plans, and business guidance that has helped equip channel sales and marketing staff with the tools and knowledge needed to advance with industry trends and customer expectations. Vendors dedicate thousands of staff hours and millions of dollars to enablement (mainly, training) and investment (primarily, sales and marketing support) activities that follow a well-defined path towards building channel go-to-market capabilities.
    • What we expect to see in 2020 (and beyond): Channel empowerment aligns ‘customer-in’ rather than ‘product-out’. Vendors tend to consider channel enablement and investment as costs associated with specific product sets – and as a result, these activities are tied to product sales performance. The limitations of this approach became clear when vendors attempted to equip channel partners to deal with cloud-related sales: vendor partnership approaches, however well intentioned, often ended with the channel partner being positioned as a vendor sales agent, which connects with internal vendor accounting requirements, but is poorly aligned with the core value provided by the channel firm to its mainstream business customers. The channel’s role – and its greatest opportunity – lies in focusing on buyer needs, and that requires that the channel partner plot a path that is aligned with buyer strategies rather than vendor product roadmaps. In 2020, successful vendors will build programs that empower channel partners to maintain vendor presence in complex solution environments – not sales agents. These programs are unlikely to arrive fully-formed; they will evolve as needs and successl paths become more clearly understood. In 2020, look for leading vendors to provide enablement/investment approaches that focus on business outcomes and shared risk partnerships.

For more information: InsightaaS and Techaisle are producing NEXT channel workshops and delivering related content to North American and global vendors. Please contact us via email at inquiry@techaisle.com or inquiry@insightaas.com.