The New Channel Model: Rise Of The Strategic Service Provider

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Douglas Grosfield
Douglas Grosfield, Founder and CEO of Five Nines IT Solutions

Douglas Grosfield says the decision to sell the services provider business he put his blood, sweat and tears into over the past decade in order to start a new Strategic Service Provider business came not as an epiphany, but rather as a "death by a thousand cuts" reality.

The founder and onetime CEO of Xylotek Solutions, Cambridge, Ontario, honored numerous times for its fast growth, says he is energized and fired up to forge a new company, Five Nines IT Solutions, built from the ground up to drive strategic business outcomes for customers with recurring revenue cloud and managed services.

Grosfield sees the new business model as 10 times more profitable with fewer employees and a simpler, more reliable, scalable and predictable IT model for his customers. "If you are truly listening to your customers, you are hearing over and over again the challenges they are facing and the frustration they have with IT. There is a different answer needed today," said Grosfield. "The preponderance of evidence for me came to a point where I understood that something needed to change. The model is changing, and you better be changing with it."

[Related: 2015 Solution Provider 500]

Kitchener, Ontario-based Five Nines, launched last month, is an "opportunity to start over" with a focus on providing a complete end-to-end IT service for customers for a single monthly recurring fee, said Grosfield. "The goal for me is to provide everything a customer needs for one monthly fee," he said. "All the software, hardware, licensing and all the support; they don't have to worry about any of it. When that happens, IT becomes an enabler to the business rather than an inhibitor." That amounts to a holy grail of sorts for those picking up the Strategic Service Provider mantle.

But where there are great rewards for those that make that journey, there also is unprecedented turmoil. The new Strategic Service Provider dynamics have sparked record consolidation among solution providers in 2015—cemented further by blockbuster moves from legacy vendors like Hewlett-Packard and Symantec splitting their businesses in two; Dell moving to buy EMC in a $67 billion enterprise deal; and networking leader Cisco Systems acquiring companies at a feverish pace to become a bigger player in cloud services and security.

The pace of deals in the solution provider market has been just as frenetic. In the current quarter thus far, there have been 15 M&A deals—all aimed at giving those players a leg up in the race to become a Strategic Service Provider. Among the bigger deals in the quarter: Presidio, No. 21 on the CRN Solution Provider 500, buying Sequoia Worldwide and using it as the foundation for a new cloud business unit; PCM, No. 29 on the CRN SP500, acquiring Systemax's North American business-to-business assets—that deal done just weeks after PCM acquired MSP highflier Acrodex; SS&C Technologies Holdings, No. 38 on the CRN SP500, completing its fourth acquisition in less than six months with the purchase of Primatics Financial Holdings, a maker of cloud-based financial risk software; New Signature, the 2015 Microsoft United States Partner of the Year, acquiring InfraScience weeks after snapping up Canadian developer iMason; and Tyler Technologies, a provider of software and services to local government, acquiring New World Systems, a maker of public safety software.

New world indeed. The game-changing deals strike at the heart of the definition of a Strategic Service Provider: an independent trusted technology consultant driving business outcomes with an emphasis on cloud and managed services delivered via a recurring revenue model.

For solution providers, that means delivering anything and everything aimed at driving business gains from on-premise infrastructure to the full complement of IT services that make up business solutions. This new channel ecosystem includes communication service providers like Verizon and Comcast; application service providers like Microsoft and Salesforce. com; platform/infrastructure service providers like Hewlett Packard Enterprise, Dell and Amazon Web Services; and service aggregators such as distributors like Ingram Micro and master agents like Intelisys.

Robert Faletra, CEO of The Channel Company, which publishes CRN, said the evolution toward the Strategic Service Provider model marks the fourth major shift in channel nomenclature since the publication's founding in 1982. When the channel was born its constituents were known as Resellers, a business model CRN declared essentially dead in 1990 in favor of VARs (value-added resellers). VARs evolved into Solution Providers, a term that incorporates both Managed Service Providers (MSPs) and Cloud Service Providers (CSPs). And now CRN heralds the dawn of the Strategic Service Provider era.

Faletra said the new model is an "aspirational" evolution from the solution provider model that has dominated the landscape for the past two decades. But more importantly, the Strategic Service Provider paradigm shift is the most dramatic change yet in the channel landscape, providing great risk for partners but even greater rewards in a model where recurring revenue is king.

"The channel is once again moving higher up the IT ladder, this time establishing deep strategic ties throughout the organization starting with CEOs, CIOs, CSOs and CMOs running through each and every critical line of business," Faletra said. "This transformation is all about delivering strategic business gains for customers that are digitally transforming their businesses for the cloud era by integrating off-premise cloud services with on-premise infrastructure in a new hybrid cloud model. For solution providers, that is a far different role than they played delivering on-premise infrastructure with a focus on physical technology procurement."

The partners who will emerge as winners in the Strategic Service Provider era will have a high quotient of business consulting acumen and an uncanny ability to translate business knowledge into competitive advantage—a far cry from the generalist technology procurement specialist of the past.

Another hallmark of the Strategic Service Provider is its emphasis on recurring revenue from cloud and managed services. The new model is a big shift from the strictly on-premise physical IT infrastructure provider.

Just as critical as it was in the solution provider era is the role of partners to work in concert with IT vendors, teaming to provide business solutions with a full complement of presales and post-sales support, Faletra said. "The channel has prospered because of its role as a trusted adviser for customers making complex technology decisions," he said. "That trusted adviser role becomes even more compelling as solution providers become Strategic Service Providers, helping customers struggling to find the right journey to the cloud to digitally transform their businesses."

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