Earlier this month, I sat in on a presentation by Casey Hughes, a longtime channel exec who runs KMunity, a consulting practice. He introduced the idea that the channel needs to work better together in a more cooperative and trusting ecosystem that mirrors the Visa venture started back in 1968. That venture began with just a few banks but has grown to 45,000 members. Casey postulates that what is getting in the way of a vibrant channel community is a lack of trust within the ecosystem.
Listening to him talk, it struck me how dangerously close many technology vendors may be to becoming irrelevant by the close of this decade. During the dot-com boom we read much about the disintermediation that was to befall the middleman in transactions. The theory, according to the pundits of that time, was that distributors, VARs and "brick and mortar" companies would be bypassed by direct marketers exploiting the Internet. Now, many predicted losers in that era are thriving while thousands of dot-coms are long gone. In fact, I believe the companies at risk of disintermediation are in the vendor community. Yes, you heard me right—I believe vendors are at risk.
For years, the vast majority of VARs and solution providers have struggled with anemic profits and growth, oftentimes during eras when our vendor partners were making 20 percent to 40 percent post-tax profits. Channel execs at these companies talk about managing their partner base, but many have really done very little to promote the success of their so-called partners. They allow for overdistribution of their products while maintaining tiered pricing that promotes discounting and gray marketing. These selling tactics promote the success of the vendors, but partners have suffered dearly with lackluster profits. In this regard our interests are misaligned.
Still, the channel has rebounded with new strategies and financial models. More solution providers have restructured around tighter relationships with their clients, creating strong solution offerings and managed services. Many are acquiring tight, almost monopolistic mindshare with their clients: They are not so much associated with the brands they represent but with the brand image they have cultivated around the solution they provide. Less and less do VARs represent the interests of a vendor. More and more they represent the interests of their clients—and sometimes the vendor is involved in a much more subtle way.
Had vendors earlier taken partner profitability as seriously as they take their own, I think a much different landscape would exist today. VARs and solution providers are transforming into managed service providers and other high-value-added organizations that have achieved a new level of customer intimacy that vendors will never enjoy. As IT becomes more mission-critical, businesses will look more to service providers to take on increasingly critical roles. Vendors that don't respond with healthier channel management and MSP-friendly technology risk becoming disintermediated.
Think about a new house. Do you know or care who makes the water heater or central air conditioner? When it comes to new cars, do you know who makes the tires, stereo or GPS system? What about your cable box or satellite dish? We don't care, we just want the service. We know the house builder, the car maker and the television content provider—the person who brings the solution or service to life. And so it will go in the IT service sector.
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