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SaaS ecosystem partners reshape the channel's competitive landscape

CompTIA said the competitive landscape for channel firms is expanding, as more nontraditional partners enter the fray. New players include the vast networks of SaaS ecosystem partners.

Channel partners can expect to contend with nontraditional sources in the year ahead, according to a new report from IT trade association CompTIA.

The IT Industry Outlook 2017 report, published by CompTIA last week, highlighted an expanding competitive landscape for channel partners. Specifically, CompTIA noted the presence of new types of players that have "upended" the traditional channel arena -- software as a service (SaaS) ecosystem partners, nontechnology firms and digital marketing agencies among them. While competition from nontraditional sources is nothing new for the channel, it is growing even greater and bringing into question the go-to-market approaches that have long been relied upon by traditional channel firms.

"[The competitive landscape] really runs the gamut now. It's hard to define what a channel partner really is," said Carolyn April, senior director of industry analysis at CompTIA, based in Downers Grove, Ill.

The rise of SaaS ecosystem partners

The CompTIA report pointed to the partner communities that have emerged around SaaS ecosystems as a growing source of nontraditional competition.

[The competitive landscape] really runs the gamut now. It's hard to define what a channel partner really is.
Carolyn Aprilsenior director of industry research, CompTIA

"The ISVs, as they realize that they can't sell everything direct if they want to scale ... realize they need an indirect channel themselves," April said.

SaaS ecosystem partners generally don't fit the traditional solution-provider mold. Many of these partners work on a referral-only basis, "not taking any title to the application itself," she said, while others do the implementation work and ongoing management of SaaS applications for their customers, also without taking a standard title to the applications.

Additionally, many of these partners are tied to a particular ecosystem, such as Salesforce or Microsoft Azure. The CompTIA report noted that these ecosystems can be immense -- the 2016 Salesforce Dreamforce conference had more than 100,000 SaaS partners in attendance.

Since SaaS ecosystem partners generally work on referrals, the types of compensation models that traditional channel partners have relied upon diminish in importance. Volume discounts, back-end rebates, sales performance incentive funds and market development funds lose relevance. Instead, SaaS ecosystem partners rely more heavily on their own sales and marketing efforts to drive their revenues, and, as a result, "are not encumbered by the older means of compensation that, at one time, were so valuable to the channel."

While there is currently little to no intersection between SaaS ecosystem partners and traditional channel partners, that could change, she noted. "Whether or not this becomes one giant, blended channel or two distinct groups of channel partners that will be competing with one another, I think the jury's out on that right now."

Nontechology firms, digital marketing agencies

Nontechnology firms, especially those in professional services, pose another source of competition from outside the traditional channel space.

In a 2016 study of the professional services market, CompTIA found that small organizations, such as accounting, law and marketing firms, were being tapped by vendors to refer their vertical-specific applications, April said. These firms frequently have developed expertise in the particular software applications they use in their practices.

She added that some vendors in the accounting space have formalized programs around accountants to refer and resell their accounting software.

Digital marketing agencies also continue to grow as competitors to traditional channel firms.

Freedom from legacy businesses

Carolyn April, senior director of industry research, CompTIACarolyn April

April said the main advantage nontraditional partners have is many aren't hampered by the legacy lines of business that traditional partners tend to have. Over the years, the industry has sent solution providers a widespread message to move to a recurring revenue model, managed services and into cloud, but the transition has proven difficult. Their legacy streams of revenue, such as selling hardware, remain important.

The transition is "a huge investment that many of these small [companies] don't have, so they have to do it incrementally, and it takes a little more time to move to a new model," April said.

Digital agencies, on the other hand, either started out digital or they have already moved into the cloud, making them nimble and capable of hitting the ground running.

What AWS Managed Services means to the channel

The report also noted Amazon's recent entry into the managed services arena. Although Amazon Web Services Managed Services explicitly targets enterprise customers, many managed service providers (MSPs) may decide it's time to enhance their businesses in case Amazon decides to take its service downstream.

If that were to happen, "it will be a very tough road for a lot of MSPs," April said, namely because she anticipated Amazon would apply its aggressive, rock-bottom pricing strategies to the managed services offering.

But the arrival of AWS Managed Services doesn't mean MSPs should panic, she added. Instead, AWS Managed Services should be taken as another wake-up call for MSPs to "begin retooling their business and what they do." This would include offering advanced services, evaluating internet-of-things opportunities and developing expertise in a vertical niche.

"I don't think everybody needs to be shuddering about Amazon's entry just yet. But ... it's a good wake-up call to retool and scale your business up into more emerging services," she said.

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