What's In Store For Tomorrow's IT Channel?

Driven by changing buyer preferences and the economics of the technology industry, the IT channel will look quite a bit different and undergo a great deal of change between now and 2010, research firm Gartner believes. This begs the question: What will the IT channel look like, and how will it change during the next five years?

The challenge for all players in the IT market is to anticipate these changes and adapt products, services and strategies to ensure continued relevance and success.

Business-focused solutions and the services offerings that support these solutions will drive much of the change. Changing market conditions, especially in certain geographic and vertical markets, also will play a role. Finally, pure economics that are driving down the margins of products will be a significant catalyst for these changes, as vendors seek to extend market reach and channel companies strive to enhance the more profitable components of their businesses (services and solutions)--or risk demise. This is putting pressure on most channel companies to adapt. Some are finding new paths to success, while others are quickly becoming marginalized. These status-quo firms will be bought out, or worse, cease to exist because they will become irrelevant. At the same time, these changes are encouraging new entrants into the channel, while serving as an accelerator for established players to reinvent their identities and business models.

Gartner expects to see the following broad changes in the IT channel landscape, each of which will have specific implications for all channel constituents (suppliers, distributors, providers and customers):

Fewer suppliers: The current spate of mergers and acquisitions among IT hardware and software vendors will continue, leaving fewer and larger vendors, and fewer choices for channel companies and customers.

Fewer channel companies: The inability to alter business and sales models will result in fewer channel companies. This, in turn, will cause vendors to compete harder for the loyalty of the remaining channel firms.

Narrower focus: In an effort to enhance relevance, channel companies will narrow their market focuses and build distinct practices around their chosen areas of concentration.

Changing profiles: In response to changing customer demand for solutions, many IT channel companies that historically filled very distinct roles (VARs, systems integrators and ISVs) will increasingly assume the role of a solution provider.

Service's impact: Customers will continue to address some areas of their IT needs through outsourced and utility-computing services that are predominantly offered by a select group of large IT providers. This activity will pose a challenge to many channel companies, reducing their market opportunity and forcing them to find new ways to partner with the large solution providers if they wish to participate in these engagements.

Intense collaboration: In response to increased customer demand for solutions, IT providers of all kinds will need to improve collaboration. Seldom can a single IT provider deliver all of the required solution elements itself.

New types of IT channels: Online auctions, as well as online sales and service-management sites, will be among several new technology channels that will emerge. In addition, companies like FedEx and UPS will increasingly fulfill a global logistics role.

Converged channels: Convergence of products, as seen in the communications and IT spaces, and in the consumer-products space, will accelerate the convergence of the channel communities that serve these formerly disparate markets.

Changed IT distributor mix: Fewer global broadline distributors will exist by 2010, while a larger number of specialized and niche distributors will gain increasing control over significant segments of the landscape.

New opportunities through innovation: New technologies will emerge from the research and development engines of major IT vendors during the next five years that will spur tremendous new opportunity for channel companies that can effectively build solutions around those innovations.

New partnering models: New partnering models in the channel will emerge that are less tactically focused and more strategically aligned. Channel programs will evolve to find the majority of partners in the upper, more valuable tiers of IT vendors' programs as they strive to balance the competing demands of volume and value.

Considering this inevitable change, each channel player needs to take action. Vendors should regularly and carefully profile channel partners to align the right partners to the right offerings and market opportunities. Distributors must seek new ways to offer value to both vendors and channel companies, and channel companies should understand that growing the services and solutions components of the business requires new sales and delivery models.

Michael Haines ([email protected]) is research vice president of Gartner.