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The year 2014 was a year full of IT changes – and Neuralytix sees the rate of change accelerating, compared with previous year. It is so fast that it’s outpacing the rate of change that we are seeing in other markets.

The IT market moves at lighting speed, because new players are emerging consistently. This happens as new startups enter the market – and as larger companies buy them up, in an effort to “buy” rather than “build” to innovate faster. This pattern of acquisition will continue to reinforce the dominant players’ position, but it will not impact the rate of change all by itself. In fact, many of these large vendors do contribute their own IP – and they play an important part in the rate of change!

It is, in fact, a virtuous cycle. After releasing new technologies into the marketplace, many key leaders go “back to the roots” and do it all again.

The IT market changes affect tangential businesses such as the channel. IT suppliers look to the channel to deliver solutions quickly and efficiently to the IT customers, while delivering important services “close to the customer.”

To make this more interesting and add another dimension, the channel is changing as well. The following are priorities for vendors as it relates to the IT channel in 2015:

  1. Pick your friends/alliances well – the IT channel will see further consolidation, through acquisitions, partnerships and mergers. Some of this will be familiar – such as when two infrastructure-based partners come together to build larger “uber” resellers. More recently, we have seen many complementary partner activities, such as Infrastructure partners working with software partners/services partners. This is an effort to provide a solution to the customers. Start-ups are not the sole domain of the vendors. Those emerging entrants in the channel are largely focused on cloud offerings. It is too soon to call their success, but one clear option is that they will become an acquisition target or merger target.

The priority is to keep your friends close – and do so with caution! In a fast moving market such as this, all bets are off on what acquisitions will affect you and your partners. Stay close.

  1. Get to know your key partners well! The amount of IT sold through the channel has increased due to the fact that more suppliers reach out to the channel to sell their product, BUT the number of partners for these solutions is going down. This is due in part to consolidation, or the partner’s business model. It is also, in part, due to the convergence of technology – with servers, storage and networking being combined in more IT products. Due to the pace of change in the delivery model, some partners are not able to transition fast enough to embrace new subscription offerings—and they will suffer, or sell out or close their business.

Priority – keep your key partners and key target partners close. Help them with their business, with training on the transition, or assist them with the sale of their business. These key partners have built their business on your success (or on a competitor’s business, if the channel partner is an acquisition target). Now, do the math! And you’ll see why this is our key question for you: What is this worth to your business – Ask yourself: Are they worth fighting for? And, just as importantly: Can you put some skin in the game?

  1. Have you looked “outside the box” for partners? As noted above, the number of ‘traditional’ partners is going to be reduced (although the absolute number of potential partners — including non traditional partners or startups — is, in fact, growing). Have you tested the water in looking beyond your partner base to look at competitive partners and emerging partners? Clearly, new entrants will join the channel. But they will join with different models including Independent Software Vendors (ISVs) and Managed Services Providers (MSPs) for example. This phenomenon, as well as the market dynamics, may reduce the traditional on- premise product sales and payment patterns. That’s one reason why many customers choosing OPEX vs CAPEX, choosing to contain IT costs by outsourcing them to third parties for management, running on an efficient infrastructure base.

Priority – heads up! New partners will be born of the cloud! They will have built their businesses around the cloud. This is a quite different business model, and it will require different partner programs. Our advice: Get in front of this, especially if you haven’t already started to modify the program to meet these new model’s needs.

  1. The traditional/existing partners, especially infrastructure partners, are more resistant to the cloud model. Many partners are not offering a cloud-model of delivering services. Either they do not see this transition in their base – at least not yet, or they are not offering this type of service delivery. But it’s important to know that many new customers are, in fact, moving to the cloud. That’s why not paying attention to this, or not being prepared for this, could be costly oversights.

Priority – pay close attention to key partners’ progress on expanding their base, understand and address the concerns around cloud (often related to payment models). Be sure to work as a team, so that both you and your partner can be poised to take advantage of the newer emerging models. Transitioning resale businesses – with changing margin and rebate models — need to adapt to a subscription model of acquiring data services. It is already clear that this is a winning, and growing, market offer for IT customers, given their increasing adoption of cloud-delivered data services and outsourcing, and some migration of workloads away from traditional data center infrastructure.

Priority – Do not let this become a chicken-and-egg discussion. Often, these resale businesses need to receive full payments for cloud subscriptions or any other subscription.  However, we note that paying for IT on a by-the-drink basis can substantially reduce end user costs, especially for workloads like application development, where short-loved projects come and go – and the infrastructure supporting them is no longer needed for that project/workload but can be used for another.

Managing the movement of the company into subscription-based services, rather than rely on year-by-year annual license payments, is financial. You should work on plans to help them cross the chasm. Winners in this market segment will create options and programs to ease the transition to a cloud-based subscription model.

  1. We will continue to see the telecommunications providers and their channel cause friction with the IT suppliers and their channel. The telcos have some inherent, longtime advantages, such as having a very broad customer base, already paying on subscription, but they have a limited knowledge of IT organizations. That’s because they often sold their systems into “silos” or business units, within the larger business organization. That’s why it is too soon to call a winner if there is one. The end-result may be just closer alignments or more acquisition. The winner will be Services, both in terms of implementation as well as integration. For now, this story has only just begun! Early entrants to the expansion of the telco and IT partners are focusing in these areas: automated home management (e.g., thermostats, heating and air conditioning) and physical security). There are more to come, as the Internet of Things (IoT) develops—and sensors are deployed into our daily lives, our hospitals, and our roads and traffic systems. Who will win?

Priority: This is truly an example of the saying: “The enemy of my enemy is my friend.” Vendors and partners alike have to split their role with the telcos as both customers and partners – not as competitors alone. Pick your battle wisely – vendors/partners cannot choose just one partner for this race. Hedge your bets.

  1. While all this transition/conglomerations of the various channels ranges on, more and more suppliers are now selling cloud direct to end users such as Amazon Web Services (AWS), or Microsoft Azure. At the same time, they are recruiting partners. That leads us to one more question: should we expect another change, such as a large OEM, such as Dell for example which expanded beyond its original all-direct model to a combined direct/indirect model in recent years, being direct to being a channel player, now? New supplier entrants tend to start off out of the gate with a channel only model. Only time will tell.

Priority – Expect the unexpected! This is one area in which the “fat lady hasn’t sung!” Stay close to this one – this is a continuation on a recurring theme. We have seen this movie before – direct/indirect which will win.

  1. To change/morph their businesses in the age of Big Data and the Cloud, the heat will be on the distributors even more now. All of the IT distributors have other businesses, in addition to managing the resale partners who are their longtime channel partners. Put simply: this segment of their business has to change. Distributors need to add move value to the partners, to better align with their supplier partners. They must determine customer needs and optimal distributor role to accomplish these goals. Some are already offering cloud services, even though they are still deriving much more revenue from their traditional channel business. One way they can expand their business model is to offer financial help to channel partners as they transition from a resale model to a subscription model.

Priority: There is both risk and benefit for both suppliers and partners in creating a better alignment between their respective business models. Let’s be clear: Many conversations are already taking place right now, but the timing and the level of urgency needs to be increased as soon as possible. Otherwise, precious time-to-business opportunity will be lost for providers and channel partners: In short, everyone who fails to “cross the chasm” to this new way of doing business will suffer.

Change is inevitable. Too much market change is and has been going on in the marketplace – so much of the planning and change of business mode has to be done almost in ‘real time’. We know, and understand, that the larger organizations often find it harder to change quickly – in contrast to smaller organizations and startups that can transform their business models more quickly. But, make no mistake: it is imperative that you start your planning NOW for the rapidly changing distribution model.