The Evolution of the UK Channel ecosystem

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CHANNELBIZ LAUNCH

THURSDAY, 15 MARCH, 2012

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Who am I?

Why ChannelBiz?

There’s still money in the channel

But the channel has changed

There are big challenges for the channel

The vendors are moving everything to the cloud

Vendors need to pump more money into the channel

But companies have to get smaller, because small is beautiful

Smart technology means more points, and points mean prizes

Distribution, and lorries are far from dead

Vendors need distributors more than ever

Etailers are not smart enough

Channel Biz UK will focus on smart money, and smart starts

Our research shows that there are both opportunities and threats

Thierry Hamelin will now present our qualitative and quantitative results

Editor in chief -

ChannelBiz.co.uk

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EVOLUTION OF THE UK CHANNEL ECOSYSTEM - A NETMEDIAEUROPE RESEARCH STUDY -

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1. OVERVIEW

2. END-USERS SURVEY : ANALYSIS AND STATISTICS

3. CHANNEL SURVEY : ANALYSIS AND STATISTICS

4. CONCLUSION

http://www.mytech.it/home/index.hp

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WHY THIS RESEARCH?

1/ Find out how the market trends impact on the channel ecosystem

How vendors shortlisting is influenced by social media ?

Are new channel competitors (MSPs, hosters) dangerous for legacy players?

What are the incoming evolutions of IT procurement (direct vs. indirect, E-Markets)?

How does the increasing adoption of cloud computing impact on the channel?

2/ Identify the stakes for the channel

What are the key challenges regarding the economic perspective and the rise of Cloud computing?

What does the channel think about cloud computing?

What does the channel expect from vendors and distributors to support the move to a cloud service provider model?

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OVERVIEW

Coverage Channel 2nd tier End-users

Country UK UK

Number of interviews 80 100

Contacts CEO, MD, GM, Business DM CIO, CTO, IT DM

Company profiles VARs, Pure resellers,

Managed service providers, System integrators, Hosters…

All sectors

Company size All All

Populations surveyed: two distribution levels

End-users

2nd tier channel players

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SAMPLE STRUCTURE

(CHANNEL)

Company size Job function

< 50 empl. 91%

>=50 empl.

9%

Pure reseller 32%

VAR 32%

Managed service

provider 19%

Consultant 5%

System integrator

4%

Other (Etailers, Retailers,

etc.) 9%

Main business model

CEO, MD, GM 53%

Business DM (Sales, Marketing)

38%

IT & Operations Manager

9%

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SAMPLE STRUCTURE

(END-USERS)

Company size Job function

Industry 22%

Public sector 12% Services

66%

< 50 empl. 91%

>=50 empl.

9% 50-99 empl. 12%

100-499 empl. 16%

>=500 empl. 20%

Business area

IT Manager 43%

IT Director, CIO, CTO

22%

IT Business DM 12%

IT Business Developper

9%

CEO, MD, GM 7%

IT Consultant

7%

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1. OVERVIEW



4. CONCLUSION


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How do you gather information to create your shortlist of vendors for

IT product and solution purchases?

VENDORS SELECTION SOURCES

59%

48%

43%

42%

42%

34%

33%

19%

14%

7%

Vendors’ websites

Events, seminars, shows

Feedback from peers

IT media

Direct networking with vendors

Direct networking with resellers

Reseller web sites / e-mailing

Consultancies

Social media

Other

The two main sources for shortlisting are vendors’ websites and the participation to events, seminars or shows.

Feedback from peers and IT media are also widely used.

Social media is not perceived as a direct source for building the vendors shortlist, at least not consciously.

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What social media do you currently use for IT procurement ?

IT PROCUREMENT THROUGH SOCIAL MEDIA

47% 46%

34% 31%

19% 18%

12% 12%

10% 9%

3%

IT blogs, boards and forums

IT community websites

LinkedIn

Webcasts

Twitter

Google+

IT Social platforms

YouTube

Document sharing

Facebook

Other

If Social media is not perceived as a direct influencer when it comes to create a shortlist of vendors, it indirectly guides decision making.

IT blogs or forums, as well as community websites are widely used as information sources.

LinkedIn is well positioned with regards the use of social media tools, opposite to Facebook (which is only used by one out of ten ITDMs).

82% of ITDMs use social media as a source of information for IT technologies.

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IT PROCUREMENT THROUGH SOCIAL MEDIA

Yes 71%

No 21%

Don't know 9%

Do you think you will increasingly use social media

for IT procurement within the next 3 years?

Social media will be intensively used on a mid-term basis. Among non social media users, half of ITDMs plan to use it within the next 3 years.

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How do you usually acquire your IT products?

THE IT PRODUCTS PROCUREMENT CHANNEL

68%

54%

35%

27%

7%

6%

63%

51%

43%

26%

11%

5%

Reseller

Directly from the vendor

E-markets

Retailer

Hosting provider

Other

Currently

In 3 years

Resellers and direct channel will remain the main sources of IT products purchase.

Nonetheless, alternative channels such as E-markets and hosting providers gain additional points. Online shopping becomes more popular among ITDMs, due to the raise of consumerisation.

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SAAS ADOPTION RATES

Yes 39%

No 48%

No, but plan to use

it 13%

Do you currently use SaaS solutions?

Vendor 38%

Consulting 15%

Reseller, VAR 12%

Services company

12%

Hosting provider

8%

Peers 8%

Other 8%

Who did you solicit first to enquire about

SaaS solutions?

Four out of ten organisations have already adopted SaaS . On a short-term basis, 50% will use it.

The vendor is an integral part of the SaaS ecosystem as its marketing and branding are still direct influencers of the purchase process.

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1. OVERVIEW



4. CONCLUSION


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What are the key challenges for your business within the next 3 years?

MID-TERM BUSINESS CHALLENGES

72% 42%

40% 32%

25% 23%

21% 19%

12% 11%

9% 7%

5% 2%

5%

Stay competitive

Develop new skills to enter new markets

Control costs

Increase sales force

Develop niche expertise

Develop E-commerce to better reach customers

Find new partner vendors

Finance development / investments

Switch from product to service led culture

Increase marketing budget

Provide consulting services

Switch to a recurring revenue service oriented model

Obtain more certifications

Provide training and certification degrees to customers

Other

Staying competitive and developing new skills are the main mid-term challenges for the channel players.

Controlling costs comes just behind, as it rhymes with business efficiency.

Switching to a Cloud related recurring revenue model seems to be underestimated (only 7% consider it as a challenge).

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PERCEPTION OF THE CLOUD COMPUTING

An opportunity

56% No impact 25%

Both an opportunity and a threat

11%

A threat 9%

How do you perceive cloud computing with regards your business?

Cloud computing is perceived in a positive manner.

A quarter of the channel is not currently impacted by the cloud. Most of them are VARs and resellers.

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TOP CLOUD OPPORTUNITIES Why do you perceive the cloud as an opportunity?

47%

34%

26%

18%

16%

13%

8%

5%

11%

Source of recurring revenue

Source of additional revenue

Develops new channel partnerships

Lower setup costs

Only few resellers provide appropriate cloud services (yourself included)

Allows selling more expensive software than in a traditional licensing model

Higher margins

Geographical proximity to customers is no longer an advantage

Other

The main cloud opportunities are profit oriented. On the other hand, the cloud doesn’t mean higher margins. This is one of the channel “cons” regarding cloud solutions. New partnerships arise from the necessity to reselling cloud solutions within the channel in order to benefit from the specialists’ expertise.

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… AND TOP CLOUD THREATS Why do you see the cloud as a threat?

45%

36%

27%

18%

9%

High infrastructure investment costs

New competitors arise such as managed service providers and application hosting providers

Metered billing difficult to set up for bundled cloud services

Vendors bypass the channel to sell unsophisticated solutions

Other

By enabling end-users to offload infrastructure and maintenance, the cloud passes it on to the channel ecosystem.

At the same time, application hosting providers and MSPs are well placed because they have already adopted a recurring revenue oriented model and the cloud seems a natural evolution of their skills.

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WHAT TO EXPECT FROM VENDORS AND

DISTRIBUTORS WITH REGARDS THE CLOUD What do you expect from vendors and distributors to provide you

for your business transition to a cloud service provider model?

61%

57%

34%

5%

66%

61%

34%

11%

Training

New accreditation/ partner programs

Access to infrastructure

Other

From distributors

From vendors

Expectations are rather similar from vendors and distributors.

They are logically based on training but also new accreditation and partner programmes in order to better meet to customers’ needs.

Access to infrastructure in order to propose their own cloud solutions (Iaas, PaaS and services) comes after.

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59%

35%

33%

30%

28%

4%

Hosters / managed service providers

System integrators

Telecom carriers

Converged voice and comms solution providers

E-markets

Other

CHANNEL PLAYERS IN THE CLOUD In your opinion, what channel players are more suitable for selling cloud services?

The most suitable partners for selling cloud services are the hosters and managed service providers. Their core business is based on outsourcing and cloud technologies.

They are followed by the system integrators for their competencies in building specific cloud applications and for their cloud infrastructure.

As for E-markets, Amazon is a good example of cloud adoption.

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1. SUMMARY



4. CONCLUSION


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END-USERS KEY INSIGHTS

Two out of three ITDMs plan to increasingly use social media for IT procurement within the next 3 years An opportunity for vendors to promote their solutions but don’t forget that social

media is not limited to LinkedIn, Twitter or Google+ ! Almost 50% of ITDMs use IT blogs, forums and IT community web sites

E-commerce players will continue to rise on a mid-term basis. 43% of organisations will make use of them (a gain of 8 points within the next 3 years) How far can Amazon or Ebay go? Will they be able to provide to small software

vendors the infrastructure to host and sell their software “as a service” ?

Vendors are still an integral part of the SaaS ecosystem, as 38% of ITDMs solicit them first to enquire about SaaS solutions

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CHANNEL KEY INSIGHTS

The main challenge for the channel players is related to competitiveness (72%) through nurturing new skills and entering new markets (42%)

Nonetheless they tend to underestimate the challenge of a cloud related recurring revenue model for their business (only 7% feel concerned about it).

The cloud is mainly perceived as a business opportunity in terms of recurring and additional revenue source.

However, it is not synonym to higher margins - (only 8% relate it to higher margins)

Channel players tend to always promote training and new partner programmes from vendors and distributors to support their move to a cloud service provider business model.

=> Access to infrastructure (allowing the channel to customize cloud offerings instead of only reselling SaaS) is not a priority, but it could rapidly become a stronger expectation.

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MID-TERM CHALLENGES FOR THE CHANNEL

GLOBAL CHALLENGES SPECIFIC CHALLENGES Succeed in building relevant influencer strategies in correlation with the increased role of social media within IT procurement

For Manufacturers > Rationalization of IT spending via virtualization > Reorientation of the offer due to increasing demand from the untraditional channel (SaaS / IaaS providers) and decreasing demand from customers

Move from traditional billing to a “pay as you go” financial model (related to cloud computing)

For software vendors Invest into a reliable and secure infrastructure (on premise or in partnership) to provide their software “as a service”

Acquire deeper expertise by creating a brand new market strategy involving business decision makers and not only ITDMs (due to the rise of cloud computing based on services)

For Distributors Find new sources of revenue to counteract the rise of dematerialization and the nebulous nature of business

For VARs and Resellers Many of them still lack cloud related skills. They have to hire cloud specialists and invest in certification.

For Pure Resellers They are in real danger because of shrinking margins and lack of value added business
