Get ready for a year of accelerating consolidation in channels and the industry as a whole in 2013.
There are many reasons why 2013 looks to be a year of heavier-than-usual action. From a channel perspective there are a number of factors. First and foremost, many partner organizations that are in the $100 million range and above have a large appetite to acquire. Many of these players believe they will gain significant advantage in the market as more businesses move to the cloud. While that may prove to be true, the more important driver here is expertise acquisition. Specialization gained through mergers can help accelerate organic growth.
Some manufacturers are even encouraging these rollups and, in some cases, helping them along by either bringing the right parties to the table or helping them with funding.
Another factor for the acceleration is being driven by a generational shift. Some very solid partner organizations in the $25 million to $50 million range are owned and run by people approaching retirement age, and unless there is a family member with a desire to take over the business then a transition has to take place. This is just a reality of the industry.
Personally, my belief is that we are seeing a bit of back to the future in channel makeup right now. When the indirect sales channel was first born in the late 70s, it was made up of a lot of small players that got the model right, making them huge players in the market. That happened in a few different ways via both the franchise model and company-owned model.
Looking ahead, the channel makeup will be different in that we will have many more larger partners in North America. At the same time, we will see thousands of newly formed partners move into the market with born-on-the-cloud models that are very different than many of the partner business models of today.
Born-on-the-cloud partners sell business-solving solutions and more often than not avoid a bill of materials in the sales proposal. The reason for this is that they want to focus on the solution and not be shopped based on product set.
It's an excellent model that from my experience is showing higher margin and resulting in rapid growth. In short, I believe it's the preferred sales model of the future for solution providers.
At the same time that this is happening, the DMRs are seeing the same pressure and many are trying to remake the business for solution sales. Some will make the transition, and those that already have a services arm are better positioned to do so. In the end, those DMRs that cross the chasm will be more profitable. Those that don't and remain in the volume game will become less so.
While all this is happening there are new competitors and suppliers to the channel. Amazon.com is highly likely to make a more concerted effort to get the partner community to sell its hosting services in the future and is looking to build out a channel team to do so. The service providers are clearly getting more serious about building the data channel.
A few years from now, the strength of the billion-dollar channel players will be able to push vendor thinking in directions we don't see today. All this is not being lost on the supplier community, the brightest of which are already preparing different go-to-market plans with partners.
It's going to be an exciting time in the channel, and the opportunity to get the new model right and build a stronger business is high.
BACKTALK: Make something happen. Robert Faletra is CEO of UBM Channel. You can contact him via email at robert.faletra@ubm.com.
