No one can argue the disruptive nature of cloud computing, mobile computing, big data and social media. Everywhere you look, the trade press is covering how these technologies -- collectively referred to as the "third platform" -- are transforming enterprise IT. What you don't hear much about is how these technologies are impacting IT channel businesses. In previous articles, we looked at the business opportunities afforded by cloud computing, mobile computing, big data and social media. In this article, we take a step back and look at how the third platform as a whole is transforming the way IT channel companies do business.
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If anything is constant, it is change. IT channel companies are, by their very nature, at the forefront of technological change. Their clients depend on them to deliver the latest and greatest technologies. But there is a bigger change afoot as value-added resellers (VARs), solution providers and systems integrators recognize the need to change how they deliver new technologies. This must be done not just to continue meeting customers' needs but also to stay viable within their market.
There is a demand [for help around big data], but the channel providers are not moving forward and trying to push the process through because they are not looking beyond the sale.
founder and CEO, Sixth Sense Advisors
"Unless you're a large VAR that's basically an extension of a manufacturer, there's no way you're going to be able to survive [without recurring revenue]," said Tom McDonald, president at Naugatuck, Conn.-based NSI. NSI is a managed services provider whose offerings include cloud services.
CompTIA's December 2012 report Trends in Managed Services Operations confirms this: "The long-term lifeline for a large segment of today's IT channel depends upon cultivating a successful business that sells and delivers technology services on a recurring revenue basis. … Burgeoning trends such as cloud computing and mobility, combined with expanded customer choice for procuring technology, are factors hastening this transition urgency in the industry."
McDonald said his customers can buy hardware for the same price he can buy it for. "Everything's a commodity, whether it's a $500 PC or a $5,000 SAN. [Customers] will try to grind out the best price, and it's hard for a company like us to provide and show value in that equation," he says.
According to Alex Zaltsman, former co-founder of a technology services company and current CEO of Piscataway, N.J.-based InnoviMobile, a mobile application development firm, "Customers rely on [VARs] less for the on-premise infrastructure stuff. There's very little need for innovation in those places. Maybe there will be updates, but those aren't opportunities anymore."
Even within a growing space like mobile computing or big data, reselling hardware offers low margins. The more lucrative opportunities are focused on helping companies solve a larger business problem. As Seth Robinson, director for technology analysis at CompTIA, a vendor-neutral IT training and certification provider, was quoted in our mobility article, "The most lucrative facet of any new technology tends to be the more complicated. These are the areas where more companies that do not have technology expertise are going to struggle. For mobility, that's the integration, figuring out how these devices integrate in with the business. The buying and reselling, repair of devices will tend toward the commodity side."
Thus, Zaltsman advises IT channel companies that want to leverage third-platform business opportunities to "get out of the 'reselling of technology' business and get into the 'help my customer's business' business."
Because companies already rely on their VARs and solution providers to address their technological needs, these IT channel companies are in a good position to help their clients understand the business strategy driving third-platform technologies. To do so, however, "[IT channel companies] will have to become almost like business consultants," Zaltsman said.
Generating revenue from managed services or other projects based on third-platform technologies requires a new sales strategy, one that is often referred to as "consultative sales" and seeks to solve the client's business problem. McDonald describes the manner in which his team approaches a consultative sale: "The initial sales call is to qualify a customer to see if they are a candidate for us. Do they have a problem we can solve?" he said. The goal during this call is to gather information. Next, the NSI team performs an assessment to gain a firsthand understanding of the problem. The team then presents the client with a plan for solving the problem.
"That's the only way we really want to do business. I don't want to sell them hardware or do a project. I want to have a long-term relationship with the client because it's ultimately better for them and better for us, as well," McDonald said.
Referring specifically to "big data" business opportunities, Krish Krishnan, founder and CEO of Chicago-based Sixth Sense Advisors, an independent analyst firm, said, "There is a demand, but the channel providers are not moving forward and trying to push the process through because they are not looking beyond the sale. … They are looking at [the sale] as a need that needs to be solved." After the sale, the solution provider doesn't push for more related business, he said. "Channel providers need to push to the next realm, which is to say … provoke thinking; make sure our customer understands that we can do this work and bring in partners who can help them accomplish this work. Until channel providers make this behavioral change, they cannot satisfy the demand. But the demand is there. Absolutely," Krishnan said.
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Crystal Bedell is a freelance writer specializing in technology. She can be reached at email@example.com.