The Generation Game

Disruption in the IT Channel is encouraging entrepreneurs to evaluate the risk of change. For many it feels like the first time they opened their doors.

Whenever I’m asked to comment on the unprecedented change and disruption the channel has seen over the past 18 – 24 months, the natural ‘default’ position is to talk about a whole array of things including the ‘as a service’ models, public/private cloud, digital transformation, AI and data analytics. However, having time to reflect, I do wonder if this disruption is simply down to the fact that everything is cyclical, and a generational shift is at play.

The birth of the modern channel

It’s easy to forget how the channel began its journey and what the founding principle was. Indeed, it’s difficult to get any one definitive answer but, having come across an article dating back to 1996 which talked about Novell Inc’s story and its ensuing success, you can clearly see why the reseller business model took off back then. Going up against the big giants that were IBM and Microsoft was never going to be easy and yet, Novell’s record was remarkable – its success due, in no small part to the cultivation of a 25,000-strong reseller channel who would go on to promote their products and deliver complex integration.

IBM quickly took stock of Novell’s approach and the advantage of using the channel – so much so that in the mid-90’s, it decided its new RS/6000 systems would be distributed via the channel rather than going direct. It wasn’t long after that we saw many ex-employees of IBM, particularly within the U.S. market, recognising that there was money to be made and so, a deluge of new companies evolved with the sole focus of becoming IBM product resellers.

This is where it gets interesting and my ‘generation’ theory can be realised. Many of these traditional resellers that started back in the mid-90’s have been in business for the best part of 25 years and are now at a point in their career where they would quite happily cash in their chips. Indeed, recent research from Forrester indicated that a staggering 70% of MSPs are looking for an exit but is this anything to worry about? Does this mean that it will continue to get harder to operate within the channel? Not necessarily – it’s simply down to a generation who are now looking to pass the reins and enjoy their retirement.

Is the reseller model dead?

The short answer is no. If we look at the 90’s where we saw the big boom in the reseller VAR model – a model that worked, everyone understood it, people made money and the vendors, channel partners and customers were all happy. I would argue that this model isn’t fundamentally broken or irrelevant for today’s market – all that is happening is that it’s evolving. Therefore, there is still a need for an ‘agency’ model of some kind that connects buyers to sellers – whether you call it a reseller, VAR or MSP is irrelevant.

The Salesforce business model

Salesforce is a great example of where the channel adds value. The business model is such that everything is delivered from the cloud as a SaaS and physical distribution is not a problem. However, Salesforce still had an issue in that its standard framework doesn’t do everything that the customer needs it to do – CRM system needs to integrate with their ERP system for example. Does Salesforce want to do that? It makes no sense as it will negatively disrupt its business model of high profit margins.

Enter the ecosystem approach. Many channel partners who traditionally sold software, have recognised that there is a greater need, and frankly speaking, opportunities for higher profit margins in being an integrator for Salesforce. And so, Salesforce fostered this idea of an ecosystem rather than a pure reseller channel which is proving to be hugely popular.

It’s for this reason you’re now seeing companies like IBM herding this new evolution that is an ecosystem, rather than a channel. But what does that mean in real terms? Fundamentally, it’s centred around this idea that there is actually no one company, vendor or channel player that can do it all. You need to integrate with lots of different types of companies.

Are we facing an identity crisis?

Although the introduction of the ‘ecosystem’ makes sense for the multi-dimensional market we’re now operating in, it has led to huge confusion. We are always hearing about VARs, MSPs, CSPs, system integrators and digital agents but what does it all mean and are businesses clear on who they are and how they truly fit into this ecosystem. I think, more often than not, it is unclear and therefore, creates an identity problem – a problem that businesses need to overcome if they want to ensure they continue to add value to their customers and safeguard their future.

That said, there will be businesses who are clear which direction of travel they are going. Whether it’s a complete change of business model, for example moving from a VAR to an MSP, or adding capabilities to the current business model, CEOs are always looking for this to happen seamlessly and at pace.

The evolution of GlassHouse Systems (GHS)

Recognising that the traditional VAR market was declining around the globe, the Toronto-based IT infrastructure company was looking for new growth and took the decision to evolve into a managed services business. Founded in 1993, GHS is renowned for its deep technical expertise and is one of the largest IBM VARs in the country with a very diverse range of clients. It now employs 75 staff and has annual revenues of $100m.

Although a cloud managed services business would present strong opportunities for GHS to build sustainable revenues and expand the business, the transition was proving to be a challenge. Eric Walker, Senior VP of Technical Services at GHS explains: “Predatar came in as our catalyst for business transformation offering us business advisory expertise, a unique and tested Evolution Framework and a powerful management technology platform that brought about whole new levels of automation and insight.”

GHS could see that this would enable it to build new revenue streams in managed services, scaling up its own differentiated service offerings without the need for investment in extra headcount. The evolving business was quickly able to deploy the power of the Predatar platform’s automation and advanced, remote-management capabilities to provide co-managed or fully-managed services. Eric believes that the biggest impact of Predatar had undoubtedly been in allowing the business to scale up into managed services without hiring extra staff and incurring heavy new overheads. Eric continues: “The Predatar team used their expertise to demonstrate how a managed services business could be created around our existing skillset in IT and data protection. They helped define the business model so that we can confidently deliver new services that are attractive to the market. The framework they have created is invaluable.”

Pragmatism is key

Let’s be pragmatic here. There’s nothing in this world that will dominate 100% – in the same way that Amazon isn’t going to dominate every part of our life – despite what they say! Life doesn’t work like that. One high profile public scare story could tip the scales, sending customers into a frenzy where we see workload being brought back on premises.

Yes, there is disruption and yes, the channel will still exist. To what degree and in what format – only time will tell. What we can be sure of is that there will still be a need for the traditional resell, customer owned kit but equally, there’s also going to be environments whereby a different business model is required. What businesses must do is evaluate their current model and decide what they need to do, if anything, to ensure that they are set up with their customers requirements in mind. Ultimately, customers don’t care about process or the name you give yourself, whether it is VAR, MSP, CSP or digital agent – what they care about is the value you can deliver.

Accelerating business transformation

Any shift in business model carries some degree of risk, complexity and potential overheads. What is certainly true of today’s IT infrastructure market is that its evolving at speed. If businesses want to stay ahead of the competition, they need to arm themselves with a framework and the technology and processes that allow them to transform their business at pace – only then will they be able to truly reap the revenue rewards this dynamic market offers.