The state of the economy ranked as the main challenge solution providers are facing, according to a recent SearchITChannel survey among 279 U.S. and Canadian IT solution providers, but channel companies that are reinventing their businesses are finding they are able to differentiate themselves and experience growth.
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And while the 2013 Channel Directions survey respondents identified the state of the economy as their biggest concern, the issue is likely more complex than a simple economic downturn. Several analysts we spoke with pointed to the shift of IT purchasing power to line-of-business managers as a major factor related to the economy and technology sales.
The problem? Not all channel partners are growing with their customers, noted Tiffani Bova, a vice president and distinguished analyst at Gartner Inc. "What we've seen in our research over the past couple of years is that [the] percentage of the IT budget that has moved out from under IT's control to the business units is accelerating." The channel is seeing less spending from its traditional IT customers than in the past because new buyers are spending money on technology the channel is not engaged with, she said.
With more of the budget moving to the front office (such as marketing, sales, HR and finance departments), IT has less control over spending, which can be bad for the channel if solutions providers are not keeping pace with this shift, Bova said. They have to "move out of the conversation being exclusively with IT and procurement and move to business buyers," she said.
The solutions partners that are seeing growth are the ones that are very focused on the front office and business outcomes, not just the technology, said Bova, in areas such as customer management, developing solutions for tablets, predictive analytics, custom app development and in helping customers navigate how they position their products on the Web.
The story is same everywhere, as the majority of the partners say that the economic and business outlook is expected to be challenging over the next 12 months.
There has been a shift toward "end user buying trends" and technology trends in the market that are also impacting VARs and systems integrators, concurred Paul Edwards, director for infrastructure channels at IDC.
The big area of growth in the market in the next several years will be all the technologies that fall within what he calls the third-platform category -- cloud, social, mobile and big data/analytics -- and will account for 70 percent of channel growth.
"So you have the economy that hasn't recovered, the fact that these … new technologies or new ways of consuming technology are coming online and making up part of the growth in the market, and a change in buying behavior with customers and more lines of business and more executive-level decision making in purchases," he said. Some partners have made or are making the transition to the third-platform category while others are behind, Edwards said. There are also those that won't make the shift at all.
"I think people look at analysts as a bunch of Henny Pennys saying, 'The sky is falling,'" he noted. "I don't think that's the case. This is not a sudden change."
While there are still longtime partners that have focused on infrastructure hardware and continue to do a solid business in areas like networking and servers, over time that will diminish, Edwards said. He added that those partners don't necessarily care, though, "because they're at a point in their lives where they don't feel they're prepared to do anything about that. Those partners will keep going for a certain amount of time and will end up fading away." Partners that realize there is an important shift occurring are starting to develop the capabilities they need to serve those parts of the market, he said.
A high degree of competition and lack of differentiated services is another issue for channel partners since it is impacting customer loyalty, said Tirthankar Sen, senior analyst for partners and ecosystems at Forrester Research, in Singapore. He added, "The story is the same everywhere, as the majority of the partners say that the economic and business outlook is expected to be challenging over the next 12 months."
Like Bova and Edwards, Sen pointed to the impact of a shift toward technology spending by business managers. "The role of business stakeholders is increasing, both in influencing and leading the technology purchase process [more] than just a few years ago relative to the IT decision maker and is affecting the entire partner ecosystem," he said.
A recent IDC survey found that a lot of channel partners' growth expectations are tied to the third platform, with 45% of respondents citing cloud, and 37% citing mobile. These are not necessarily areas where those channel partners have skill sets, Edwards noted, but rather an indication of where their future growth lies.
"What I tell vendors and channel partners is, you have to start addressing this as a focus area of your business to take advantage of this growth that's expected in the market."
Big investment pays off for WWT
St. Louis-based World Wide Technology Inc. has made changes in its $5 billion business, but not necessarily in the areas cited by Bova and Edwards. When the economy started to turn, WWT opted to invest $25 million in its Advanced Technology Center (ATC) and in staff. The company has still seen good growth and has averaged between 20% and 25% annual compound growth over the last 10 years, said Tony Berg, director of systems engineering.
The ATC is used to demonstrate products to customers and for training sessions and proofs of concept across multiple vendors, Berg said. "So if they're looking at analyzing three flash storage arrays, instead of the customer having to do three separate build-outs and buy three separate proofs of concept themselves, we have that infrastructure and we can do that faster and cheaper."
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WWT has also seen growth in its Integration Tech Center (ITC), a distribution and logistics facility to help customers with just-in-time execution. By getting product, software and solutions to both domestic and global locations, Berg said, the center is able to meet ever-increasing customer demands for just-in-time delivery of complex architectural solutions.
WWT is seeing demand from customers in several areas of the data center, such as virtual desktop infrastructure (VDI), networking, converged infrastructure and comprehensive security. While the state of the economy remains a challenge for WWT's customers, Berg said the company has been able to show customers how they can take the cost out of architecture and procurement cycles. While most large enterprises buy from multiple vendors for best-of-breed products at the ITC, he said WWT can help get the product, stage it and do configurations so the customer has a completed multi-OEM architectural solution.
Perils of focusing on the back office
But WWT may be the exception, not the norm. People want an integrated experience, and the channel perspective remains top-line revenue-focused without the skills to respond, observed Bova. "This scenario has me concerned on many levels; will the channel invest fast enough in new offerings and outcomes to help customers achieve their business goals?" If partners continue to focus on the back-office buyer, they won't remain competitive, and when the customer is unable to identify real differentiation, they will default to comparing providers on price. Partners need to take ownership of where their business needs to be and should be in the next few years, and look at what's best for the customer, she said.
Sen agreed. "Partners, [as well as] some of the vendors, are still focusing on selling technology, with little or no emphasis on solving business issues. This also slows down the process of closing a deal."