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Why your current routes-to-market may no longer be fit-for-purpose

05 September 2016 | Phil Brown

The pace of change across the technology industry is relentless, and many vendors have failed to adapt their routes-to-market strategies to reflect the shifting landscape. The impact can be lower growth, lost market share and missed opportunities.

In this article – the first in a series of three – we look at the forces that are driving the need for change in vendor channel strategies.

The forces of change

There are several factors at work disrupting established channel models. These include:

Rapid technological change forcing continual vendor realignment.

We are currently in a phase where multiple transformational technologies are in play simultaneously. Developments such as the Internet of Things, mobile-first strategies, Big Data and analytics, and the incorporation of social and collaborative techniques are all changing the way we ‘do’ business. Every one of these technical evolutions places established vendors under pressure, and there will be inevitable casualties along the way – IDC predict that “by 2020, more than 30% of IT vendors will not exist as we know them today”.

In order to maintain relevance, vendors are continually realigning their offerings. Many of the largest established technology players – IBM, Oracle, Microsoft, HPE, Dell/EMC and others − are currently in the midst of a reinvention process. But when vendors are constantly changing focus and offerings, channel relationships need to be repeatedly re-evaluated to ensure they are still fit-for-purpose.

Mainstream cloud disrupting existing business lines

Once used for proof of concept prototyping, cloud has become a core part of many organisations’ operations – many even utilise cloud-first strategies for their IT developments. Right Scale’s latest research found that 82% of enterprises now have a multiple cloud strategy, and according to Canalys, the cloud infrastructure services market was worth US$8.2 billion in Q1 2016, up 53% on the previous year.

As a result, many channel businesses are seeing their margins on traditional products being squeezed.Gartner has predicted that disruption to the data centre infrastructure market will put severe pressure on vendor and channel margins.

Convergence challenging existing categories and channel relationships

One of the significant trends that we’re seeing across the ICT industry is the move towards converged solutions. For instance, unified communications tie phone, email, video calling and instant messaging into a single interface to improve corporate communications. Meanwhile converged infrastructure combines server, storage and network technologies into pre-integrated solutions.

Although it usually delivers superior value to customers, convergence often disrupts existing product categories and can cut across established channel relationships.

Bi-modal IT introducing different buying behaviours

Gartner have promoted the concept of bi-modal IT, and there is evidence that an increasing number of businesses are adopting this approach. One mode is tasked with managing core IT functions, focused on stability and efficiency. The other is more focused on agility and innovation to support new initiatives.

Selling into these separate modes of IT presents different challenges. Decisionmakers are likely to have different drivers and buying criteria. Different messages will resonate and different sales approaches will be required.

Vendors therefore need to ensure that their routes-to-market are appropriate for the type of buyer they are targeting. Channel partners that are successful with one mode of IT, may fail with the other.

Line of Business owners critical to sales success

Partly as a result of the move to cloud services, IT purchasing decisions are increasingly being made, or heavily influenced by, non-IT buyers. For instance, one recent LinkedIn study found that a whopping 72% of professionals with influence over IT budgets do not work in IT. Meanwhile IDC have predicted that by 2019, 47% of IT purchases will be funded outside of the IT department4.

As a result, IT providers will need to engage and influence non-IT contacts to achieve sales success. For some channel businesses that are heavily reliant on traditional IT department relationships and lacking the skills and knowledge to sell to business contacts, this presents a major problem.

Insight and value key to customer engagement

Well-informed buyers now complete a large portion of the buying journey unaided. By conducting their own research, they no longer need to speak to suppliers to find out about products, and they are increasingly resistant to traditional, product-led marketing.

Instead, most IT buyers are looking for suppliers who can offer insight, opinion and advice to help them make the connection between new technology and business value. And with complexity a growing issue, customers are looking for suppliers who can help them simplify their IT environments, rather than just selling more products that add to the problem.

While some channel businesses are capitalising on this opportunity, others are struggling to adapt, too wedded to their technical credentials or a product-push approach.

A channel undergoing rapid transformation
As a result of these factors, the channel landscape itself is in a state of flux. More than a third of partners already see themselves in a state of rapid transformation.

Established VARs and Distributors have sought to re-invent themselves to ensure they stay relevant and to take advantage of growth areas such as cloud, security and mobility. For example, many leading distributors such as Avnet, Arrow and Ingram Micro now have active cloud programmes.

Hybrid business models have become the norm. According to CompTIA research, “top business models now include IT solutions, consulting, managed services, IT repair and support”6. Two thirds of VARs now garner more profit from managed services than from product resale2. Other vendors have gone further still, investing in application development capabilities so they can deliver customised applications and build out their intellectual property portfolio. SCC, for example, recently announced the establishment of a major new DevOps facility in Vietnam.

At the same time, established vendors face a significant challenge from ‘born-in-thecloud’ channel businesses. Unhindered by cultural baggage or addiction to cash-cow products, these cloud resellers are in many cases growing at a faster rate than older channel businesses.

Are you ready?
The cumulative impact of all of these changes is far-reaching, and has significant implications for any vendor’s routes-to-market strategy, and how it engages with its channel partners. The choice of channel employed will make a huge difference in whether a vendor succeeds or fails. In our next article we will look at just how high the stakes are.

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