The Evolution of Channel Programs and Vendor Focus

The evolution of technology and shift to new channel business models are affecting not only the solution provider landscape, but the way vendors do business with their partners. It’s not that they necessary want to, but manufacturers and distributors have to adapt to the move to managed services, the cloud and other recurring revenue offerings. This transition brings new challenges to the vendor community, including the management of declining margins, development of fair sales incentive programs and increasing the skills of engineering/support teams.

Solution providers should be aware of the way their suppliers are being impacted by these evolutionary changes in order to evaluate their future relationships. All participants in the channel need to assess the status of their business partners’ progress at adapting to all the changes, since ultimately their success is collaborative. Whether a vendor, VAR or distributor; any partner who is not able to properly support the others will likely become a liability in the future. As with any evolution, only the strongest will survive and thrive.

Rauline Ochs, senior vice president and general manager at IPED, discussed some of the key ecosystem changes affecting the vendor community at Breakaway, including the latest trends in cloud computing. There is a significant decline in customer IT budget spending for on-premise solutions, demonstrating a move from the data center to an offsite location. Vendors can help their channel partners identify the best potential business transition opportunities and capture that revenue before other IT companies do.

With the diminished margin opportunity for some of these cloud services, it may require twice as many deals to make up the profitability difference.

A solution providers’ refresh revenue also is threatened with cloud alternatives, so the vendors’ account management teams can be vital resources to help them develop a proactive sales process and secure those upgrades. Even though the partner is ultimately responsible for closing the deal, each manufacturer and distributor representative should have a basic understanding of the markets their channel partners support and how they can help.

Cloud isn’t the only area pushing this transition to consultative sales and support by vendors. Similar opportunities exist in a number technology and service segments, including unified communications, managed services, healthcare IT, IT security and many others. The vendors need to be aware of how each partner is adapting to the shifting landscape, allocating additional resources to those with the highest potential upgrade opportunities.

It’s a good idea to review and possibly revise channel programs to address the changes (to grow revenue and improve partner satisfaction. Adaption is the word and solution providers shouldn’t be the only ones focused on the needs of their clients and their own profitability. For example, a move to cloud services could significantly reduce the revenue from the services a VAR provides, leading to a decrease the value of their business (at least on paper). That could be a major concern for those looking to retire or sell their company within the next few years. Vendors should truly understand the business goals of their channel partners, and align themselves when possible to help them accomplish their objectives.

Channel program execution also requires partners to be contributors, not just beneficiaries. Though many solution providers love the vendors who provide a high number of leads, if they aren’t generating their own demand, it can be detrimental to both companies. When VARs don’t build their own revenue opportunities, it not only diminishes the value of the partnership, but it creates a dependence on a manufacturer and distributor relationship that could end at any time. What would that solution provider do if their key vendor is sold or stops delivering them leads? By growing the market opportunities internally, it allows a VAR to not only control their sales pipeline, but it gives them the flexibility to change suppliers if they when required. While the free-agent scenario is not something every vendor wants to hear, the value of those partners is high since their commitment to success is obvious.

On the vendor side, the expense of end user lead generation takes resources away from other parts of their channel programs. By shifting the time and money required to develop demand to MDF and pre-sales support, the ROI may be exponentially higher, creating greater partner satisfaction and a more proactive process that helps drive revenue for both sides.

As the IPED Channel Masters presentations illustrated, vendor executives and representatives must address the needs of their most valued partners and cultivate the business opportunities. With proper levels of communication and reviews of business plans, each side will be properly prepared to address the transformation taking place in the IT channel.