State of the IT Channel

The  State  of  the  Channel  

March  2012  

Nancy  Hammervik,  SVP  Industry  Rela>ons  

Tim  Herbert,  VP  Research  

CompTIA,  the  Not-­‐for-­‐Profit  IT  Trade  Associa>on  

Educa1on        

Cer1fica1on                            

Advocacy                        Philanthropy      

CompTIA  Communi>es  Connect  the  Industry  

The  Channel  Model,  Circa  1997  

Product  Vendor   Distributor   IT  Dept.  Reseller  

Key  Concepts:  Technology  Silos,  Transac6onal  Business,      Many  Parallel  Channels,      IT  Department  Gatekeeper  

The  Channel  Model,  2012  

Product  Distributor  or  VAD  

Customers  VARs,  SPs,  MSPs,  ??    

Product  

Product  

Key  Concepts:    More  of  Everything,    Convergence,  Recurring  Rev,    New  Complexi6es,      Further  Commodi6za6on  

DIY  

Key  Roles  Within  the  Channel  

u Value  Added  Reseller  (VAR)  u Systems  Integrators  

u Solu>on  Provider  u Managed  Service  Provider  (MSP)  

u Independent  SoOware  Vendor  (ISV)  

u Applica>on  Developers  

u Cloud  Service  Providers  u Telephony  Agents  

u Master  Agents  

u Tier  1  Vendor  

u Tier  2  Vendor  

u Value  Add  Distributor  u Channel  Partner  

36%  

26%  

38%  

46%  

54%  

Fixed  Voice/Data  

Wireless  Voice/Data  

SoQware  

IT  Services  

Hardware  

Source:  IDC  

Telecom  –  2011  Revenue  Mix  for  U.S.  Market  

Core  IT  –  2011  Revenue  Mix  for  U.S.  Market  

Sizing  the  IT  Industry  |  Channel  Impact  

Profiling  the  IT  Channel  The  Channel  is  Dominated  by  Small  Firms  

According  to  the  U.S.  Economic  Census,  there  are  ~115,000  U.S.  IT  employer  firms  (payroll)  that  could  poten1ally  be  considered  channel  firms.  .    

According  to  the  CRN  VAR500  list,  the  company  ranking  #500  generates  less  than  $20  million  in  annual  revenue.  

98%  

%  of  channel  with  fewer  than  100  employees  

Profiling  the  IT  Channel  Con>nued  

%  repor1ng  a  NET  GAIN  in  vendor  program  par1cipa1on    in  2011      

43%  

On  average,  channel  partners  belong  to  8  vendor  programs    

14%  %  of  channel  partners  belonging  to  >15  vendor  programs  

The  Converging  IT  -­‐  Telecom  Channel:  The  View  from  Agents/Master  Agents  

9%  

61%  

31%  

Referral   Strategic  –  key  to  business  pordolio  

Tac1cal  –  driven  by  opport-­‐unis1c  needs  

Nature  of  Agent/Master  Agent  Rela1onship  with  IT  VARs    u  9  in  10  agents/master  agents  report  

having  at  least  one  IT  VAR  partner;  50%  report  having  mul>ple  partners;  most  expect  to  increase  partnerships  over  coming  year  

 u  Slight  majority  of  agents/master  agents  

report  genera>ng  less  than  25%  of  revenue  from  IT  VAR  partner  work  

u  Two  primary  factors  drive  partnership  ac>vity:  1).  Desire  to  reach  new  customers  for  core  services,  and  2).  Address  exper>se  gaps  in  emerging  technology  areas    

Channel  Transforma>on  Framework  

Technology  Delivery  Model  1  

Customer  Engagement  Model  2  

Technology  Stack  Layer  3  

Technology  /  Solu=on  Por?olio  4  

Customer  Segment  /  Specializa=on  5  

On-­‐Premise   Hybrid   Off-­‐Premise  

Transac1onal   Project   Recurring  

Infrastructure   Applica1on   Process  

Product   Package   Solu1on  

Size   Ver1cal   IT  Style  

“[A]  commodi6zed  partner  that  is  targe6ng  the  baseline  fulfillment  price  is  not  interes6ng  to  me.  You  have  to  be  a  company  that  knows  how  to  sell  business  value.  If  you’re  selling  into  the  C  suite  you  need  to  have  value  props  that  are  financial  and  business  oriented  as  well  as  technical.”      –  VP  of  Worldwide  Partner  Development  –  Hardware  vendor  

Order  Takers  Beware  

“[T]he  partners  that  have  made  a  living  in  the  past  targe6ng  a  customer’s  procurement  office  are  slowly  going  away.  Their  value  to  that  par6cular  customer  in  being  able  to  be  a  single  source  for  all  different  types  of  technology  isn’t  what  it  used  to  be.”    –  Head  of  Global  Channels  –  Hardware  vendor  

Factors  Channel  Partners  Believe  Are  Having  the  Greatest  Impact  on  Vendor  Partnerships  

12%  

21%  

39%  

52%  

59%  

Specializa>on  models  

Industry  consolida>on  

ShiO  from  transac>on-­‐based  to  recurring  revenue  models  ("everything-­‐as-­‐a-­‐service")  

Expanding  op>ons  available  to  customers    

Transi>on  to  the  cloud  

Channel  Partner  Transi>on  to  the  Cloud  

42%  

22%  

22%  

15%  

13%  

16%  

30%  

41%  

Not  involved  in  cloud  

End  user  of  cloud  only  

Sell  cloud  services,  but  don't  use  internally  

Both  sell  and  use  cloud  solu>ons  

2011   2010  

Many  channel  partners  have  mixed  feelings  about  the  cloud.    

Top  Decision  Factors  for  New  Vendor  Partner  Programs  Joined  During  2011  

1   The  product(s)  

Ease  of  doing  business  with  

Quality  leads/demand  genera>on  

Quality/availability/affordability  of  technical  training  

Pre-­‐  and  post-­‐sales  support  

2  

3  

4  

5  

Vendor  Percep>ons  of  Channel  Partner  Needs  

“Partners  like  to  see  simplifica6on  of  processes  in  the  overall  experience  with  a  vendor.  And  that’s  a  difficult  one,  because  the  business  is  geVng  more  and  more  complex.  But  it’s  an  important  one,  because  complexity  in  processes  typically  means  wasted  money.”      

–  Strategist,  Worldwide  Partner  Programs,  Hardware  vendor  

“So  they’re  saying,  ‘Make  it  easy  for  us.’  Ease  of  doing  business  is  a  big  one.  Every  vendor  has  their  own  thoughts  and  their  own  processes  and  their  own  ways  of  submiVng  different  pieces  of  data.  From  deal  registra6ons  all  the  way  again  to  forecast  and  pipelines.  So  they’re  asking  for  that  in  doing  business:  ‘Make  my  life  easier.’”      

–  VP  of  Channel  Sales,  SoQware  vendor  

Factors  Influencing  Decision  to  Leave  Vendor    

•  Margins  •  Discounts/rebates  •  Cost  of  membership  •  Lack  of  deal  registra>on  

Money  Issue  

•  Product  line  not  a  good  strategic  fit  •  Conflict  with  vendor’s  direct  sales  •  Volume  requirements  too  high    

Strategic  Issue  

•  Constantly  changing  requirements  •  Difficult  to  do  business  with  •  Insufficient  or  ineffec>ve  support  (marke>ng,  training,  pre/post  sales)  

Execu>on  Issue  

60%  or  channel  partners  report  evalua6ng  their  vendor  partner  program  par6cipa6on  quarterly  or  semi-­‐annually.    

Puong  the  ‘Partner’  in  Channel  Partner  

“I’ve  been  in  the  IT  channel  for  more  than  25  years,  and  this  year  is  the  first  6me  a  vendor  has  bothered  to  ask  me  how  my  business  is  doing  …  and  actually  demonstrate  that  they  want  to  help.      I  don’t  know  whether  the  vendor  can  do  anything  to  directly  affect  my  profits  beyond  changing  the  margins  they  share  on  product  sales,  but  I’m  definitely  willing  to  listen.  A`er  all,  if  solu6on  providers  generate  a  majority  of  a  vendor’s  sales  revenue,  it  stands  to  reason  that  if  we’re  not  financially  healthy,  neither  are  they.”    –  IT  Solu1on  Provider  

“Evolu6on  is  not  mandatory;  but  then  again,  neither  is  survival.”    –  IT  Solu1on  Provider  

Assessing  a  Key  Element  of  the  Vendor-­‐Channel  Partner  Rela>onship  

4%  

33%  

49%  

15%  

Exactly  where  it  should  be  

Very  close    

Moder-­‐ately  close    

Not  close  to  where  it  should  be  

Top  Informa1on  Gaps  with  Vendors  [from  Perspec>ve  of  Channel  Partners]  

u  Training  material,  course  requirements,  etc.      

u  Product  spec  details  for  comparison  purposes  

u  Most  up-­‐to-­‐date  sales  promo>ons/incen>ves  

u  Supply  chain  delays,  product  technical  problems  

u  Pricing  informa>on  for  products/bundles  

u  New  product  roadmap  informa>on  

Ra1ng  of  Vendor  -­‐  Partner  Communica1ons  

Small  Inefficiencies  Add  Up  and  Take  Toll  on  Margin  

13%  

28%  

40%  

16%  Frequently  happens  

Occasionally  money  slips  

through  cracks  

Rarely,  but  has  happened  

Never  

Incidence  of  Leaving  Vendor  Program  Money  on  the  Table  

NET  %  of  channel  partners*  saying  it  has  become  more  important  to  achieve  highest  1er  of  vendor  partner  program      

70%  

*NET  of  more  important  +  

significantly  more  important  

Overcoming  Training  Challenges  

“To  be  honest  with  you,  product  training  has  been  our  focus.  ...  I  think  one  of  the  problems  with  our  training,  to  be  candid,  is  it’s  focused  specifically  on  our  product.  And  it  doesn’t  include  how  our  products  fit  into  solu6ons  and  solve  customer  problems.”      –  VP  of  North  American  Channels,  Hardware  vendor  

“I  think  that’s  a  problem  everybody  faces.  Put  it  into  the  very  simple,  ‘OK,  it’s  Sales  Training  101:  How  to  Befer  Approach  a  CIO.’  Who’s  going  to  train  you  on  that?  Again,  most  of  my  training  is  focused  on  my  products  and  how  they  fit  alongside  other  solu6ons.  I’m  not  running  out  there,  training  my  partners  on  how  to  become  a  befer  cloud  infrastructure  marketer  or  seller.”      –  Head  of  Global  Channels,  Hardware  vendor  

Channel  Partner  Challenges  in  the  Healthcare  Ver>cal  

48%  Understanding  regula>ons  (e.g.  HIPPA,  HITECH)  

42%  Technical  training  (e.g.  EMR/EHR)  

37%  Adjus>ng  business  prac>ces  (e.g.  work  during  non-­‐pa>ent  hours)  

34%  Sales  training  

34%  Crea>ng  new  targeted  marke>ng  materials  

32%  Deciding  which  EMR/EHR  vendors  to  align  with  

29%  Mee>ng  criteria  to  join  vendor  partner  programs  

23%  Securing  financing  to  fund  entry  into  healthcare  market  

Overall,  solu>on  providers  report  a  very  posi>ve  experience  doing  business  in  the  healthcare  ver>cal,  but  do  face  some  challenges.  

Agents/Master  Agents  Indicate  Many  Elements  of  VAR  Partnerships  to  Become  More  of  a  Factor    

9%  

16%  

26%  

42%  

39%  

47%  

71%  

28%  

43%  

49%  

49%  

57%  

57%  

81%  

Partner-­‐provided  technical  training  

Formal  business  planning  with  partner  

Compensa>on  models/margins  

Partners'  understanding  of  my  biz  model  

Emerging  technologies  and  business  models  (e.g.  cloud  compu>ng)  

Leads  provided  by  partner  

Effec>ve  communica>ons  

Next  12  Months   Last  12  Months  

Agents/Master  Agents  Also  Recognize  Poten>al  Obstacles  to  Overcome  in  Rela>onship  with  VARs  

35%  

41%  

42%  

49%  

52%  

Seong  compensa>on  terms  

Establishing  pre-­‐  and  post-­‐sale  support  roles  

Seong  sales  strategy  (who  will  sell  what)  

Establishing  customer  interface  rules  

Establishing/protec>ng  account  ownership  

Iden6fied  as  most  difficult  to  execute  on  

For  revenue  models,  agents/master  agents  indicate  the  following  are  most  important:  u Having  no  caps  on  recurring  revenue  (72%)  u Being  paid  for  renewals  (69%)    

Challenges  in  Transi>oning  to  Managed  Services  

Importance*  Execu1on  Difficulty**  

Achieving  opera>onal  efficiency   70%   81%  

Selec>ng  right  managed  services  mgt.  soOware   67%   69%  

Customer  acquisi>on   63%   81%  

Required  level  of  human  investment   60%   75%  

Required  level  capital  investment   56%   70%  

Availability  of  trained  consulta>ve  sales  and  tech  staff   56%   66%  

Time  to  reach  profitability   54%   80%  

Determining  correct  monthly  pricing  model   54%   62%  

Migra>ng  sales  staff  to  new  model   49%   65%  

*Items  rated  as  ‘Very  Important’  **Items  rated  ‘Extremely’  or  ‘Somewhat’  difficult  to  achieve  

Channel  Partner  Classifica>on  Methods  

30%  

31%  

32%  

37%  

46%  

60%  

Vendor  wallet  share  

Partner  type  (VAR,  MSP,  ISV  etc.)  

Ver>cal  industry  specialty  

By  number  of  employees  

Vendor  product  lines  sold  /  Coverage  

Annual  revenue  

Channel  Partner  Opinions  of  Vendor  Classifica1ons    49%  -­‐  Posi1ve  strategy  that  allows  customiza1on  of  benefits    43%  -­‐  Makes  no  real  difference  in  terms  of  program  deliverables    

Ini>a>ng  a  New  Channel  Rela>onship  

•  Account  set-­‐up  •  Partner  portal  •  Contract  •  Deal  reg  •  Channel  account  manager  assignment  

On-­‐boarding  

•  Reaffirming  strategic  alignment  •  Training  •  Marke>ng  •  Repor>ng,  metrics,  check-­‐ins  

Enablement  

Other  Factors  Used  in  Channel  Partner  Evalua>on  and  Classifica>on  

“Partners  should  recognize  that  each  interac6on  with  vendors  may  affect  their  overall  grade.  As  such,  partners  should  strive  to  iden6fy  and  understand  every  touch  point  they  establish  on  a  regular  or  an  ad  hoc  basis  with  their  vendors  and  establish  clear  guidelines  as  to  how  resources  such  as  training,  support,  sales,  and/or  marke6ng  assistance  should  be  requested,  used,  and  made  most  effec6ve.    –  VP  of  North  American  Channels,  Hardware  vendor  

Other  Metrics  Used  to  Evaluate  Channel  Partners  u Consistency  u Loyalty  u Engagement  u Strategic  alignment  u Quan>ty/quality  of  interac>ons  with  vendor  support  teams  u Cer>fica>ons  achieved  u Customer  sa>sfac>on  scores  

Scoring  Channel  Partner  Opera>onal  Efficiency  

Business  Process   Competency   Repeatability   Leverage  Process  Score  

DEMAND-­‐SIDE  FUNCTIONS    

Market  Research  /  Alignment  

Porwolio  Management  /  Development  

Marke>ng  /  Demand  Genera>on  

Sales  Process  

Customer  Engagement  

Account  Management  

DEMAND-­‐SIDE  FUNCTIONS  –  TOTAL  SCORE     N  

Part  I  

Scoring  Channel  Partner  Opera>onal  Efficiency  

Business  Process   Competency   Repeatability   Leverage  Process  Score  

DELIVERY-­‐SIDE  FUNCTIONS    

Product  Configura>on  /  Delivery  

Billable  Service  Opera>ons  

Technical  Support  /  Help  Desk  

Delivery  Process  Design  /  Improvement  Inventory  Management  /  U>liza>on  Resource  Development  /  Training  

DELIVERY-­‐SIDE  FUNCTIONS  –  TOTAL  SCORE     N  

Part  II  

Scoring  Channel  Partner  Opera>onal  Efficiency  

Business  Process   Competency   Repeatability   Leverage  Process  Score  

SUPPLY-­‐SIDE  FUNCTIONS    

Product  Evalua>on  /  Proof-­‐of-­‐Concept  Vendor  Rela>onship  Management  

Channel  Program  Par>cipa>on  

Human  Resources  Management  

Financial  Management  

Facili>es  /  Tools  /  Support  

SUPPLY-­‐SIDE  FUNCTIONS  –  TOTAL  SCORE     N  

Part  III  

Thank  You  

Nancy  Hammervik  SVP,  Industry  Rela>ons  nhammervik@comp>a.org      

Tim  Herbert  VP,  Research  therbert@comp>a.org    

CompTIA  Resources  

Relevant  Research  and  Market  Intelligence  u  State  of  IT  Channel  Programs  

u  2nd  Annual  Trends  in  Cloud  Compu>ng  

u  Understanding  and  Aligning  with  the  Transforma>on  of  Partner  Business  Models  White  Paper  

u  Margin  Reten>on  Through  Opera>onal  Efficiency  White  Paper  

u  3rd  Annual  Healthcare  IT  Insights  and  Opportuni>es  u  Trends  in  Managed  Services  

u  2nd  Annual  Partnering  Trends  Between  Telecom  and  IT  Channels    

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