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Channel Matters Blog > May 2012 > Time for another channel transition

Time for another channel transition

by William Vanderbilt
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About a decade ago (even earlier for some), the technology channel went through a transformation. Channel partners that had been resellers transitioned to new business models that put them in the services business. It was a transformation of necessity. Margins available to pure resellers had eroded to such a point that there just wasn't enough margin and cash flow for a reseller to survive without some fundamental change to its business. Are we in a similar period of evolution and change today?

Many channel partners made the transition to a servicesled business, but not all. Vendors and distributors helped partners make the transition, but weren't exactly sure how to help partners in the journey.

Once funded by the variable margin of resold product, the new business model that emerged still took its direction from technology, but a higher yielding services business filled the cash flow and margin gap. In many cases, it required partners to take an immense risk, building an infrastructure recruiting staff that could sustain an emerging services business. This fixed cost business model was the unknown for business owners that had spent their career managing a variable cost model. Some were too nervous to make the leap, and sadly, many of them eventually saw their businesses decline to a point where it could no longer be sustained. Some tried to move to a fixed cost model and the transition proved too difficult. The net result was a shake up in the channel that has taken a decade or more to stabilize.

But now another change looms. It is similar in that it requires a channel partner to again reconstruct its business model and in so doing risk it all. The advent of cloud and XaaS may force partners to establish an annuity based business. While it may seem simple on the surface to just transform the existing services based business model to an annuity focused approach, it is not quite that simple. After all, when transitioning from a variable cost model to a fixed cost model, many thought that transition too was really not so drastic.

Channel partners may need to study business models found in the investment world such as banks, insurance firms and investment houses. These annuity based businesses understand, manage and quantify risk, they hire actuaries and adopt a much more leveraged model than traditional channel partners.

What is the role of the vendor and distributor in this transformation? Some vendors are asking, "How can I help some of my existing partners make the transition?" Some vendors are also asking, "Should I help my existing partners or just go find new partners that 'get it'?" If history is a guide in this case, it will probably be some of both.

One thing is for sure, technology and channels move fast. This business is not for the faint at heart or the risk averse. But most of the people involved in it thrive on the excitement and have an opportunity to make a little money along the way!

Last modified on 6/30/2013 10:11:02 PM
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