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IT channel business model: Blurred lines and new strategies

For channel partners today, the pressure is on to disrupt and change your business model. The strategic changes you make today will matter tomorrow.

It's tough being a channel partner today. In fact, it's been tough for the past few years as every channel business model blurs and what partners thought they knew about the business morphs. They shouldn't despair. While the upheaval in the channel is likely to continue through 2015, there's one sure thing that partners should do: Take hold of their destiny, stop viewing vendor partner programs as the center of their universe, and develop and promote their own brand. Some partners are on course with some of these strategies.

New Signature, a 12-year-old, managed services provider (MSP) based in Washington, D.C., and MasterIT, an MSP in Memphis, Tenn., in its 10th year in business, are two examples. Leaders of these companies have rethought overall strategy more than once but have always been fanatical about customer service, are disciplined around business processes and differentiate themselves based on value-add, focus and depth of expertise -- the foundation for developing a brand. Both of these firms' income is from recurring revenue and professional services. They are not immune to the change going on around them. But rather than weakening them, it keeps them focused.

"In the 10 years that we've been in business, we've never succumbed to the temptation to be all things to all people. We're focused and disciplined around our processes. The only way to get better and to innovate is to make our processes better every day," said Michael Drake, CEO of MasterIT.

The MSP goes deep in several vertical industries, such as healthcare, financial services, legal, distribution and high-level nonprofits -- specialized industries that have their own language, their own compliance and regulatory requirements, their own line of business software, and their own culture.

"These verticals are also rabidly dependent on technology for revenue or [being] intimate with their clients. They demand a high level of IT outcomes and they're willing to pay for it," Drake said.

Named the 2014 Microsoft United States Partner of the Year, New Signature’s depth is around Microsoft products. The partner provides business productivity systems, application platform technologies and tools, and core infrastructure to its customers. New Signature is a cloud-first company that offers high-value consulting along with white-glove services, including application development work, for complex projects. The partner specializes in design, customization, management and support of private and public cloud services, as well as hybrid environments.

The company is zealous about keeping its staff expert around Microsoft products. With 95 employees, New Signature holds more than 400 certifications in Microsoft technologies.

Expertise is what drives intelligent conversations with customers, according to Reed Wiedower, CTO at New Signature."If we didn't do this, we'd be parodying a Microsoft marketing deck," he said.

Channel confusion

There are many factors contributing to an increasingly amorphous channel. With the advent of the third platform, expanded vendor partner ecosystems, new competition, a redefined distributor value proposition and new customers/buyers, disruption is everywhere. Some or all of these factors will at some point impact a partner's business, if they haven't already.

Paul Edwards, director of infrastructure channel and ecosystems at IDC, noted that today about 50% of traditional value-added resellers (VARs) are engaging in higher-value services. More importantly, the traditional vendor channel owns the second-platform IT spend opportunity. This second platform consists of infrastructure hardware, servers, networking, storage, etc., and is still significant, Edwards said. However, 60% of traditional partners in the U.S. are not proactively engaged in cloud. Even fewer are engaged in third-platform opportunities, those in mobile, cloud, big data and social networking.

"That's what's driving vendors to engage with new partners and new partner types, such as ISVs [independent software vendors]," Edwards said. Other new partner types orbiting in the partner ecosystem are born-in-the-cloud partners and digital marketing agencies.

Traditional VARs are also lagging other partner types in another key way. The top objective of traditional VARs is to maintain their client base, while the No. 1 objective of other partner types such as MSPs and system integrators is to get new clients, according to IDC research. "These other partner types are offering customers something of higher value," Edwards said, and in many cases they are picking off accounts from traditional partners.

Next Steps

Read about the channel trends of 2015 and how they're driving transformation

Learn how managed cloud services impact MSP business operations

Cisco Marketing Velocity event encourages business storytelling, always-on marketing

This was last published in March 2015

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What partner type do you consider your company to be? How will your channel business model change?
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No company should ever be dependent on any channel program. Programs change, companies get rid of them for many different reasons, it's too much risk.
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