Convergence Is Becoming 'The Law Of The Jungle' For Solution Providers

In a world where convergence is king, channel partners with historically different focuses and business models are starting to join forces. Solution providers that continue down the well-worn path of offering only legacy services could be left behind.

Earlier this month, IT distributor ScanSource announced it would acquire Petaluma, Calif.-based Intelisys for $83.6 million plus earn-outs. The deal marked the first time an IT distributor purchased a master agency. If that combination begins to bear fruit, IT distributors could be pressured to pursue a cloud and connectivity practice of their own, said Patrick Oborn, co-founder of Sandy, Utah-based master agent Telarus.

But the large distributors aren't the only companies that need to branch out. Solution providers can't afford to stay on their "uni-dimensional" paths anymore, selling the same services and products they're used to selling. And solution providers that partner with distributors and master agents will need to step outside their comfort zones and embrace new kinds of services to better serve their end customers, Oborn said.

[Related: ScanSource CEO On Taking A 'Risk' With Watershed Intelisys Deal And Sacrificing Top Line To Drive Profitable Recurring Revenue]

Sponsored post

Many traditional resellers, or VAR partners, that primarily focused on hardware in the past are now looking to get into cloud and connectivity sales as hardware margins narrow. At the same time, agent partners that have built their businesses around telecom and connectivity services must consider branching out by offering consulting, managed security, and cloud-based services, if they aren't already.

"Convergence will soon be something we don’t talk about anymore; it will be the law of the jungle," Oborn said.

Solution providers can use their core competencies -- such as telecom and connectivity expertise -- as a way to get their foot in the door with a new client. From there, the partner can start offering additional services once a relationship is built with the end customer. The partner that controls the most "spokes" in the IT infrastructure wheel will ultimately own the account, he said.

"An agent's, VAR, [or] MSP's core business will merely be an entry point into an account, with the real spoils of victory being the other services they can capture once inside," he added.

Convergence is changing the game dramatically for partners that have built their businesses on selling only the services that match up with their core competencies, according to Ted Schuman, CEO of PlanetOne Communications, a master agent. The deal between ScanSource and Intelisys will give partners, especially VARs, access to more services so they can sell the entire package, he said.

But while many master agencies agree that offering strategic services beyond connectivity is critical for solution providers that want to stay in the game, some partners remain leery of an IT distributor/master agent relationship, and if the combination will ultimately be in the best interest of all the partners -- namely, the telecom agent partner.

Scottsdale, Ariz.-based PlanetOne is leveraging the ScanSource-Intelisys deal to potentially kick start new relationships with solution providers that may be on the fence about the future with their master agent relationships.

PlanetOne is a family-owned master agency with a specific focus on cloud services and education for its partners. Last week, it issued a letter to partners that may be wondering about the future of their recurring revenues with Intelisys, and encouraged those partners to "diversify."

At the same time, however, Schuman expects a "flurry of M&A activity" in this space as solution providers seek out more strategic services and new recurring revenue channels, he said.

"ScanSource has essentially put the Good Housekeeping seal of approval on the entire connectivity market," he said.

Whether or not more master agents decide to team up with distributors, master agents are still going to be a valuable resource that partners can tap to learn about new technology and services, Telarus' Oborn said.

With the help of their supplier partners -- vendors and service providers -- many master agents like Telarus, Intelisys and PlanetOne are actively targeting agent partners that have a stranglehold on connectivity and telecom services to get into areas like consulting, disaster recovery, security, Microsoft Office 365, AWS and Azure. At the same time, many VARs are trying to migrate away from such technology as premise-based phone systems in favor of hosted PBX solutions. While some of these partners might ultimately decide to build their own connectivity and cloud practices, these partners could also benefit from a relationship with a master agent that already has relationships with service providers, he said.

"The partners who have prepared to compete in the new [IT] environment will make a ton of money, while the [partners] who continue on their same path will get left behind," Oborn said. "The good news is, partners have plenty of advanced warning [and] the great news in all of this is that there are [master agents] who can help partners navigate the shift, shorten the learning curve, and even close business for them."