Adoption of private and public cloud and managed service offerings by solution providers is now in full swing. Roughly 12 months ago, feedback from solution providers who traditionally sold hardware, software and/or services to customers to support the data center refresh cycles indicated a dislike of the concept that their businesses would have to “transform” in order to remain relevant to the IT buyer who pursued a service level agreement or a lower total cost of ownership.
Today, I see Transformative solution providers (greater than 50 percent of their revenue generated by recurring revenue) capturing the 25 percent or more IT budget spend that has transitioned to recurring revenue. They built new skills and adopted new vendor products in an effort to support hybrid clouds or public cloud resale, or hosted their own cloud services. Progressive solution providers (added recurring revenue solutions, though more than 50 percent of their revenue is generated by on-premises resale or services) are aggressively adding new offerings, building new skills and adopting new vendor products as they embrace the transition of their businesses to capture IT budget spend whether it’s in the customer data center or not.
The proof point for this transformation manifests itself in the solution provider interviews we conduct. There are today a noticeably higher rate of responses to questions around traditional measures of partner profitability, for example, services attach rate. The responses indicate most partners offer at least some recurring services today that are reflected in their financials as recurring revenue services. Services attach rate, the ratio of project consulting services to product resold, is no longer the profitability indicator it once was to vendors and solution providers. Services attach rate no longer offers a keen insight to product profitability because it may not take into account recurring services or offerings.
We see most solution providers today open to the topic of transforming their businesses. In addition, we observe solution providers approaching their vendors as a first point of contact looking for direction and education.
My question then is targeted at IT vendors. Are you prepared to assist your partner base in this business model transformation? As you set your budgets for partner education for new product and certification, did you also set aside funds to develop programs that address the nonproduct transformational issues like sales compensation, development of new service offerings, selection of professional services automation packages, and remote monitoring and management packages to assist in the administration of recurring revenue invoicing, help desk ticket management and management of the IT assets as a service to achieve service level commitments? As an IT vendor, have you partnered with your distributors or with IT solution provider associations like HTG, CompTIA or others to provide guidance for the partners you support through these groups?
Solution providers: If you’re struggling with the transformation, don’t wait. Get to know your vendors’ programs. Check with your service provider if you have not settled into a curriculum with your vendor, distributor or IT reseller association.
IPED has been talking about solution provider business model transformation since March of 2010. In March 2012, if you are a vendor or solution provider who has not acted, I would encourage you to do so. Best of luck!
BACKTALK: Contact SVP, IPED MarketBridge Alliance Rauline Ochs via e-mail at email@example.com.