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Channel Matters Blog > January 2015 > Cloud channel change lessons

Cloud channel change lessons

by Philip Moon
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I recently spoke with the general manager of a telco distributor about necessary changes in his business as they adapt in response to technological change. It’s been known for some time now that the telco on-premise equipment VAR business model is approaching a crunch point as more and more customers move their phone networks into the cloud. Vendors and distributors in all industries can learn some valuable lessons by looking at who wins and who loses as the telco channel moves further towards a recurring revenue model.

The G.M I spoke to is familiar with the channel transition lessons described by the Channel Enablers ChannelPRO™ best practice framework; he’s applying best-practice to keep his business growing, but many of their VARs are having a more difficult time. A lot of high-tech industry VARs are owner-operated businesses; typically their owners are now in their mid-fifties or older and many of them are thinking about slowing down, decreasing risk and perhaps selling their business. However, the rapid pace of technological change is rendering their previously successful business models obsolete as traditional sources of revenue and profit dry up, and some business owners just don't have the energy or the financial resources to reshape their businesses to fit the new marketplace. As a result, some VAR businesses are rapidly losing business value, and business owners are seeing their retirement nest egg dwindle away.

Our GM contact recognized that their traditional business development model was no longer in sync with market reality. Previously, they sought VARs who were willing to focus exclusively on their product and who would commit to aggressive business growth targets. However, with more than 40% of this mature business now a low-margin box-sell transaction, VARs are unwilling to stick to one vendor brand. Vendors and distributors have to do more to generate demand in an effort to get end-users to ask for their products by name. Popular incentives like dealer-principal holiday travel and gifts are less relevant now, and there is little money in the channel to pay for such partner programs. Nor is there any point in hiring expensive channel salespeople to recruit and manage VAR partners.

Of course, it’s not all doom and gloom. Some businesses are thriving as new cloud opportunities emerge and rapidly grow. Some telcos are doing well, attracting more and more traditional VARs to transform their businesses and become cloud resellers. Telcos and distributors are making it easier for VARs to make this shift by creating packaged private cloud offerings better suited to sale through the channel.

We’ve seen such market changes and channel transitions in the past and know that in any transition there will be some big losers, but there will also be some big winners who are willing to learn from the past and plan for change before it is forced upon them.

Lessons learned in one industry can generally be applied in other industries, too. During my conversation with the distributor's G.M., I was reminded of the new business models that emerged when the financial services industry had to change in response to increasing regulation and product complexity; I was struck by the similarities between these two quite different industries. Profit margins of small financial services providers and consultants were squeezed as they struggled to stay up-to-date and remain compliant with emerging standards; many of these smaller operators (who resemble the VARs we considered earlier) became resellers of packaged financial services provided by large financial services vendors (a bit like the telco in our previous example) or integrated financial services providers (a bit like the distributor packaging a private cloud offering) who took on much of the cost of regulatory compliance and sold through closely tied financial services agents operating under their regulatory license and brand.

The seven key performance areas in the ChannelPRO™ best practice framework can help us draw some general lessons out of stories and examples like these. Let’s touch on some of these:

Market mapping – The move to the cloud is just another reminder that it is end-user customers who drive channel change. The successful channel strategy is the one that delivers all of what the customer wants to buy at the lowest possible cost. When buying behaviors begin to change, vendors must re-examine their focus segments and how they reach their customers.

Whole product – As new products emerge from technological or regulatory change, it's vital to re-examine the role of the channel in delivery of a whole-product solution. As new offerings mature, vendors tend to assume more of the cost of whole-product creation with pre-packaged solutions offered through a low-touch, low-cost reseller channel. Again the acid test here must be delivery of all the end user wants to buy at the lowest possible cost to the consumer.

Channel partner recruitment – As new solution offerings evolve and standardize and partner whole product roles and responsibilities change, so too will the best choice of partner. The high-touch specialist VAR is no longer the ideal partner when mature bundled solutions are sold in volume through low-cost, low-margin channels.

Channel enablement – We’ve seen many vendors try to force their existing VAR style partners to become volume resellers of cloud services, and we’ve seen a lot of these partner businesses struggle to make the change. From my observation, the most successful cloud vendors have either a really well-resourced and efficient enablement process to help existing partners transform their business to a recurring revenue model, or they have gone out and recruited new cloud-specialist partners and helped them to grow. Some vendors have done both. Either strategy can succeed, but failing to resource properly and commit to enablement execution will result in a channel made up of partners who don’t know how to succeed in the new business model.

Partner programs and sales productivity – As the channel changes, the knowledge and skills of the vendor channel managers may also need to evolve. If vendors are focused on trying to transition existing partners to a new business model, they may need CAMs who can sell the business benefits and put together a financial business case. Other vendors may need more telephone-based CAMs, equipped to deal with a large number of smaller partners, or CAMs who are skilled to recruit attractive partners away from competitors. The point being that CAM skills must match the new channel strategy, and because it can take a while to re-train and re-skill CAMs, vendors need to invest in training their CAMs before making channel changes, not as an afterthought.

‘As-a-service’ offerings are emerging in a huge number of industries, not just in the high-tech space. We’ve seen sweeping changes like this before, and we know that as new offerings quickly mature, vendors must focus on gaining market share. Channel Enablers ChannelPRO™ best practice framework can help vendors get this right and do it faster than competitors, and our CAM development curriculum equips vendor channel managers with the skills they need to drive the new channels.

Last modified on 1/27/2015 9:49:42 AM
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