Channel Co. Exclusive Research: Strategic Service Providers Are Driving A New Era Of Business Outcome-Based Cloud Services Growth

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Strategic service providers, which are driving a higher percentage of sales based on solving business problems , have $1 million more in annual revenue and nearly double the percentage of cloud and managed services sales than solution providers that have not moved to the new business model, according to a new The Channel Co. research study.

"These best-of-breed strategic service providers have separated themselves from the pack by solving business problems with services-led solutions," said The Channel Co. CEO Robert Faletra, who over the past three decades has helped power the channel transformation from reseller to VAR to solution provider and now strategic service provider. "They have made the jump to solving business problems with cloud services and generating recurring revenue."

The minimum criteria to meet The Channel Co. strategic service provider research benchmark is 20 percent of annual engagements from business problem-solving rather than procurement, 34 percent of overall revenue from services rather than products, and 55 percent of total services sales from recurring revenue rather than IT project-based services, according to The Channel Co research. 

Approximately 20 percent of the 170,000 solution providers in North America meet the minimum strategic service provider criteria and includes systems integrators, consultants and ISVs.

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The Channel Co. research, which is based on an annual census of more than 600 solution provider respondents, is being presented in a six-city nationwide road show titled "Surviving & Managing The Shift To The Strategic Service Provider Model." The road show kicked off March 23 in Irvine, Calif., and concludes April 26 in Austin, Texas. In addition to the strategic service provider research, the road show includes exclusive The Channel Co. research on the partner’s buying journey.

Faletra called on technology vendors and solution providers to think through necessary changes based on The Channel Co. research in order to thrive in the new era. "This data is crucial for vendors and solution providers trying to survive the shift to the strategic service provider model," he said.

For solution providers, the shift means benchmarking themselves against the minimum strategic service provider criteria, said Faletra. For vendors, it means profiling partners for the three dimensions of the strategic service provider model, providing strategic consulting guidance for partners, and then providing channel programs and sales policies to support the new model.

The changes between the emerging strategic service provider population and the rest of the solution provider universe are striking. The new strategic service provider channel elite with 40 percent of their annual engagements coming from solving business problems are driving 68 percent of their median $4.29 million in annual sales from services, with cloud services accounting for 17 percent of sales, according to The Channel Co. research. That compares with 55 percent of $3.2 million in median sales from services for other solution providers, with cloud services accounting for only 9 percent of sales.

“But this is a balancing act,” said Faletra noting the more traditional model isn’t being erased any time soon so suppliers need to manage both sides of the channel model equation.

Strategic service providers have a higher level of services and product growth because they are solving business problems at the very outset of the client engagement, said Rauline Ochs, a channel strategist for The Channel Co.'s IPED Channel Research Consulting & Training Business, discussing the data compiled from the in-depth census. 

"Customers are literally betting their business on these strategic service providers," said Ochs. "They are trusted advisers driving the business problem resolution before the commodity hardware and software purchases are made. They have greater control of the technology sale and, with their influence, they are getting the follow-on product sales and consulting services."

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