As technology advancements and market dynamics continue to alter the landscape of IT at a rapid rate, the indirect sales channel must continue to adapt as well. During the past 10 years, the business model changes have been constant for traditional VARs, challenging companies to continue to adjust product offerings, vendor partners and service capabilities to ensure they remain competitive and relevant. VARs have aspired to offer additional value and provide complete solutions to customers for many reasons, yet the driving force behind many of these changes has been the desire to combat declining product margins. The continued pricing pressure and commoditisation of a number of high-volume products (such as desktops and notebooks), combined with vendors adjusting sales incentives, does not provide for a sustainable profitability model, over the long term, without some adjustments to the mix of business-generating revenue. What has worked in the past may not work in the future, so VARs that have been investing in building a healthy business will be much better prepared to weather the current economic climate.
Partners who began as pure product resellers, advancing into VARs and then into solution providers, are the predominant partner company in the channel ecosystem today. Some have continued to develop their business to an even greater service focus by moving into a more predictable, proactive and scalable managed service structure. Each of these business models provides value for customers and vendors alike, and the diversity in the channel is necessary for the market and beneficial for customers. Although some channel companies may fit nicely into one category, the common approach is to have a hybrid with a little of each of the business models included.
When channel companies make the decision to change the mix of products, services and delivery mechanisms (SaaS), the business focus and fundamentals must shift as a result. The changes required to make a successful transition are far-reaching and not limited to just the technical capabilities. The very basics should be reviewed, including the mission and vision statements, value propositions, marketing and messaging, websites, contracts, service-level agreements (SLAs), compensation plans and job descriptions. There is also the added complexity to managing a service business versus a product transaction, which will raise questions about utilisation rates, service contracts, methodologies, and processes and procedures. Building a comprehensive business plan is a great place to start, followed by communicating the proposed changes to employees, customers and vendor partners. Determining where the business is today and where the business wants to be in the future will help prioritise activities.
The future of the indirect channel includes many disruptive changes as new delivery models enter the market such as SaaS, cloud computing and HaaS (Hardware-as-a-Service). As a result, new partners will enter the ecosystem who have very little interest in reselling anything and only want to work on the business side of technology, assisting customers in integrating off-premise and on-premise solutions. Their value is in the keen understanding of tying technology with business requirements, speaking less of how it works and more about the outcome. For traditional VARs, competing against this new kind of partner-company may prove to be challenging, yet the opportunity to partner with them in certain circumstances may create a winning combination.
Staying flexible and open to new ways of working with other channel companies, building more predictable revenue streams and investing in creating a healthy business mix, must be the guiding principals for 2009. Although this year will continue to be a challenging one, IT has never been more important to the success of businesses, creating opportunities for those who are willing to put in the work necessary to come out stronger than before.
Tiffani Bova is a Vice President of Research with Gartner covering the topics of IT indirect channel programs, sales, and go-to-market strategies worldwide. Her area of specialisation includes the development of comprehensive indirect channel programs, sales coverage and capacity planning, and the evolving partner business models.
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