Techaisle Blog

The new year (and decade) provides an opportunity for assessing the business of the channel: what has shaped the channel in the years leading up to 2020, and what we expect to see in the coming 12 (or in some cases, 24 or 36) months. Here are 10 key areas where change is afoot based on our extensive global channel partner studies leveraging our network of 250K channel partners.

1. Channel partners will become navigators in plotting customer digital transformation strategies.

To help customers expand their focus to ‘the art of the possible’, innovation-focused partners will proactively explore new technologies and educate their customers on potential benefits and related business process changes. Partners will, in short, become navigators plotting customer digital transformation strategies. Techaisle’s urgency and importance ratings showed that this was not ‘top of mind’ for channel partners in 2019 – but it will be important on the strategy radar, as partners will build plans (integration, migration, architecture & orchestration for digital transformation) for viability into the next decade. By the end of 2020, percent channel partners delivering DX will grow by 80%.

2. The NEXT Channel (Networked, Engaged, Extended, Transformed) will emerge.

Channel partners will begin to abandon ingrained behaviors and move to new approaches that will enable NEXT (Networked, Engaged, Extended, Transformed) channel businesses. The core changes in the demands on different areas of the channel business are critical and challenging, but they can be seen as more effect than cause. In all aspects of channel business, long-held business tenets will be replaced by an emerging reality that has been ushered in by the move to cloud and amplified by other trends – changes in buyer behavior, management and process changes, evolutions in service/technology delivery, how technology is being acquired and used.

3. Pure-play MSPs will drive (or attract) M&A activity.

Traditionally, MSPs have offered customers advanced and highly-efficient solutions to current problems, but MSPs do not tend to customize offerings for individual customers – doing so undercuts the efficiencies at the core of their business models. This model doesn’t perfectly address DX requirements, which begin with a vision of business rather than technology outcomes. During 2020, 40% of MSPs will foresee mergers and/or acquisitions in their 3-year plans. With the market valuing MRR-based businesses at a high multiple vs. firms based on product transactions, MSPs will appear to be in the best position to attract outside investors.

4. P2P collaboration and ecosystem alliances will move from opportunistic to strategic.

Solution packaging is a customer choice issue – and customers are choosing to move from turnkey systems to hybrid environments that can be aligned with their evolving needs. This will require an accelerated frequency of partner-to-partner collaboration, not opportunistically but strategically. Pursuit of this ecosystem business approach will require changes in go-to-market strategies and in the ability to integrate around data rather than physical system components. This escalating requirement will expose vulnerabilities of channel partners in meeting customer expectations. Ecosystem alliances and P2P collaboration will become non-optional. By end of 2020, 70% of partners will collaborate frequently for sales (not as much for deployment, support) with an average of 3.5 partners.

5. Influence of IT consultants, CSBs will increase for professional services.

IT buyers are relying much more on consultants as they look to shape strategies that are aligned with current and emerging opportunities for greater IT leverage. This trend will have a ‘trickle-up’ effect: IT consultants and CSBs will become more specialized to deliver insight on vendor and technology options, technology compatibility, architecture, deployment and management. By the end of 2020, 25% of channel partners will consider their business models as “Consultants”. However, these partners will need to incorporate unique intellectual property (IP) into their processes and offerings as they will be unable to fund their operations with margins from acting as middlemen. They will structure their businesses to deliver professional services - billable in one form or another – to address customer needs for strategy, planning, onboarding/training, integration and support.

6. Market will reward channel partners who flexibly deliver multi-vendor solutions.

Toolkits and not hammers. The “law of the hammer: if the only tool you have is a hammer…everything [you see] is a nail.” Channel partners have tended to concentrate on a limited number of core platforms – typically, those that they have invested in, via certifications – and looked for opportunities to build around these platforms wherever they engage. Successful channel partners will tailor multi-vendor solutions that address customer business requirements, layer in support and integration, and land on a position that offers a platform for repeat business and healthy margins. Single-vendor solution providers will most likely be focused on promoting features which will lead to reduced profitability because single-vendor solutions are easy to comparison shop (leading to discounting). By the end of 2020, 50% of partners will be experts in assembling multi-vendor-best-of-breed cloud options.

7. Value creation will start with the customer and not from vendor out.

Traditionally, the notion of ‘value add’ in the channel is referred to a reseller’s ability to demonstrate that they augment the base product with some combination of technical and/or logistical support. Technology is generally sold on the basis that it will help businesses to cut costs, accelerate cycle time or expand reach and revenue, once a transaction is complete, the onus for realizing these objectives rests with the customer. Cloud and its pay-as-you-go model will impact this balance, and the inexorable twinning of IT solutions and business processes / outcomes will further disrupt mainstream business expectations. Channel partners will innovate in value creation for customers and will gain more durable advantages than those who continue to focus tightly on new technologies. As a result, in 2020, channel partners will go ‘deep’ rather than ‘wide’ specializing and clustering around four segments.

8. Cloud application deployment and delivery to mainstream customers will come into sharp focus.

With the notable exception of Microsoft, most of the primary cloud suppliers (hyperscalers – notably AWS and Google – but also SaaS suppliers) have lacked deep experience with the channel, and haven’t developed effective programs or coverage strategies. There will be an increased investment in staff training, certification to increase professional services revenue with a focus on containers (Kubernetes), microservices, open source, agile development to deliver cloud apps for customers’ customer facing apps as well as apps to support customers’ internal processes and operations. However, channel partners will be challenged due to legacy integration issues, missing APIs, lack of development/QA skills and inability to conduct extensive security testing. Regardless, by the end of 2020, slightly more 50% of cloud partners will have one or more cloud app development capabilities and MS Azure will be the hyperscaler of choice. AWS VMWare solution at the edge, a recent addition, will be of interest to channel partners. Red Hat Ansible for automation will find a footing within partners.

9. IP-led solutions and solution development funds will be key elements of success.

A successful cloud channel partner’s desire to keep its own IP front-and-center in the solution will be rooted in several wise channel objectives. By end of 2020, 60% of channel partners will rely on sell-to and sell-with sales models. And for 45% of partners, solution development funds will be among the top 2 preferred vendor incentives. Historically, the hardware vendors had several levels of compensation and though software suppliers and the hardware vendors started in different places relative to partner compensations, they are now getting to a similar model. By the end of 2020, 25% of established channel partners’ cloud revenue may be attributable to products that they have built internally, their own IP, on top of vendor products.

10. Channel empowerment will align “customer-in” rather than “product-out”.

Channel empowerment (as opposed to channel enablement) will feature into vendor program requirements. Channel partners have looked to vendors for information on technology directions and the dependence will grow more acute because of structural industry change. Vendors-channel partnership approaches, however well intentioned, often ends with the channel partner being positioned as a type of vendor sales agent. The channel’s greatest opportunity is in meeting buyer needs – and that requires that the channel partner plot a path that is attuned to buyers rather than vendors. In 2020, successful vendors will build programs that empower channel partners to maintain vendor presence in complex solution environments – not sales agents. These programs are unlikely to arrive fully-formed; they will evolve as needs and success paths become more clearly understood. In 2020, look for leading vendors to provide empowerment approaches that focus on business outcomes and shared risk partnerships.

1. Connected business will be everyone’s problem.

The key focus of business investment will be more about the “work”: the ways that an increasingly-connected business can support pursuit of previously-unattainable objectives. The most important SMB & Midmarket technology-related adoption in 2020 will be this focus on connectedness – cloud, platforms, edge, devices, applications, security, collaboration, workspaces and insights. With the connective fabric rapidly becoming ubiquitous, businesses of all types and sizes will move beyond just the network access, and concentrate instead on using technologies to drive progress across the four pillars of digital transformation: operational effi-ciency, customer intimacy, employee empowerment and product innovation.

2. Momentum building for consumption-based IT acquisition.

Increasingly within SMBs and midmarket firms discrete sales of individual products or integrated systems will be replaced by agreements to provide IT capacity and business functionality “as-a-Service”. In 2020, the trend will be more midmarket driven than small businesses. 20% of midmarket firms will move towards OPEX-based agreements where these firms will look for flexibility and will prefer to acquire technology based on usage – namely IT consumption model – driven primarily because of current IT asset under-utilization.

3. Customer intimacy will take a whole new meaning.

Every SMBs’ survival is dependent upon customers and 2020 will see a ground-breaking year when customer intimacy (acquisition, retention, experience & satisfaction) will drive IT adoption and business process evolution. By the end of 2020, for 45% of SMBs, need for customer intimacy will drive IT adoption and 76% of new SaaS adoption will be customer focused. As a result, 15% of small businesses and 24% of midmarket firms will have “Top Notch” customer facing digital presence.

4. Need for Embedded Collaboration will be clear and present.

Anywhere, anytime also means any type of collaboration. Collaboration solutions cannot be deployed on stand-alone platforms – they need to be viewed as a framework for integrating multiple capabilities, native to multiple applications. By the end of 2020, 80% of SMBs will benefit from embedded collaboration and for high-growth, innovative businesses, effective, e¬fficient collaboration will be in their organizational DNA to deliver decision agility, business agility and innovation agility.

5. Regardless of the question, analytics will provide an answer.

In 2020, SMBs will see a new attitude and culture that will value and use data as a meaningful way to gauge overall performance and specific areas of interest at a glance will become prevalent. SMBs will demand Key Performance Indicators (KPIs) as a standard part of application architectures as well as a meta-directory of KPIs that all applications can access. It may finally become possible for SMBs and Midmarket firms measure and optimize for elusive objectives like Return on Marketing Investment, Optimal Pricing, Cost of Acquisition and Lifetime Customer Value. By the end of 2020, 15% of SMBs will be highly data driven and 30% will be using cloud-based prescriptive analytics and 50% of midmarket firms will demand AI-driven analytical platforms to proactively prescribe actions that will mitigate risk / increase opportunity within the predicted future.

Dell was always been relevant for small business and education markets but is now in an exalted position to stake its claim within the enterprise segment and the new battleground – the midmarket firms. In this Techaisle Take analysis I cover Dell Technologies’ On Demand offering, Progress Made Real initiative, expanded PCaaS for SMBs, focus on customer advocacy, continued SMB investment, new converged infrastructure PowerOne, Unified workspace solution and channel partner strategy.

Dell Technologies Summit in Austin was a showcase of bold announcements and understated commitments to corporate social good and customer advocacy. Dell has certainly transformed in the last five years. It has moved along a path from a PC company to end-to-end solutions provider to a digital transformation partner to a place where it is driving its own transformation through the power of analytics with a goal of delivering customer success. Dell has catapulted itself into relevancy for the next decade.

In 1984, when Michael Dell founded his namesake company in his college dorm, I was a freshly minted engineering college graduate working through my first job at a tractor manufacturing plant in India. My first interaction with Dell was in early nineties when an India-based firm was awarded a contract manufacturing deal. I was then running the secretariat of a computer manufacturer’s association in India. Since then not only technology has progressed but both the consumers and commercial buyers have evolved. Dell has not only moved with the times but sometimes has been ahead of the curve. One such “ahead of the curve” initiative is “Progress Made Real for 2030” announced at the summit.

Progress Made Real for 2030 stands on four pillars:

1. Advancing sustainability: for example, one-for-one recycling, that is, every product that Dell sells it will recycle an equivalent product
2. Cultivating inclusion: committing to 50 percent of Dell workforce to comprise of women by 2030, 40 percent of managers of people will be women, 25 percent of US workforce will be Hispanic or African American
3. Transforming lives: for example, Dell’s work with Tata Trusts, with a goal to reach 40m under-privileged people from the current 11m
4. Upholding ethics and privacy

Enabled by a combination of pervasive use of technology and vastly-expanded solution options, the technology user and buyer community has become more diverse in both composition and focus. Business decision makers (BDMs) are not content to await IT’s blessing to pursue technology options that align with business needs: an increasingly tech-savvy business user/management community plays an ever-expanding role in assessing technology options, and even in specifying solutions and managing their rollout. At the same time, the solution options themselves have expanded to become more accessible to non-IT staff. Some technologies, such as analytics and IoT, directly address business management questions. Others, notably cloud, provide support and delivery options that give business units the option of avoiding IT oversight. Even core IT functions, such as storage management (especially with respect to Big Data) and security (particularly with regard to cloud and mobility) are reshaped by system requirements imposed by BDM needs. It is not out of place, as an analyst, to say that Dell has been a little late in recognizing and pursuing the shifting patterns. Regardless, Dell has been a believer of technology democratization and has begun a concerted effort to manage technology chaos with a differentiated customer strategy and drive the ability to scale human capacity. These are very lofty and moonshot initiatives. But then Dell is a founder-led company whose founder is skilled at assembling the proverbial ship piece-by-piece and navigating it through uncharted and occasionally choppy waters.

Dell Technologies differentiated customer strategy is built on four key points:

1. Driving social impact with purpose-driven relationships
2. Creating customer advocates for life by honoring customer loyalty and delivering success
3. Making it easy to do business with Dell by executing on basics
4. Unlocking customer value by leading with insights

Dell’s customer advocacy team is constantly analyzing 9.5K social conversations per day, looks at 33K customer verbatims in addition to its 16K sales team members sharing feedback. Dell’s plan to delivering a seamless and simplified customer experience is not very different from recently announced customer lifecycle experience, aka race track, by Cisco. End goals are the same, approaches are slightly different. But the fact that all suppliers are landing at the same end-state is significant on how the technology industry has evolved.

Perhaps the most important announcement at Dell Tech Summit was its On Demand offering. Dell went to great lengths to explain its genesis and development but it is clear that it a direct response to the growing popularity of HPE GreenLake. Regardless of HPE commanding the media-waves Dell has jumped headlong into the as-a-service, post-transactional market with Dell Technologies On Demand Autonomous Infrastructure available via DT Cloud. Dell is prepared to deliver solutions today and at scale. And it is also within reach of midmarket businesses. Key takeaways of Dell’s On Demand solutions are:

1. On-demand, consumption-based and as-a-service solutions for on-prem infrastructure / services is customizable, integrated across the full-stack for Dell's end-to-end portfolio from edge to core to cloud
2. Dell widened the product of their Flex On Demand offerings for PowerEdge servers and their new PowerOne autonomous converged infrastructure solution (announced at Dell Technologies Summit). With this announcement, Dell’s consumption-based on-demand solutions now cover PCs, servers, storage, CI/HCI, IoT, datacenters, networking and data protection. Ideally applicable for firms with a minimum $250K 3-year contract-value but end-points including PCaaS is available for SMBs (at lower committed contract values).
3. Dell knows how to create simplicity within complexity. Businesses can customize and select their on-demand path from:
   1. Payment: Pay As You Grow, Flex On Demand, Data Center Utility
   2. Services: ProSupport, ProDeploy, Managed services
   3. Portfolio: Edge, Endpoint, Core, Cloud
4. On Demand offering provides two options for channel partners to participate:
   1. Referral fee – 7%-10% on committed contract value including tier credit program benefit. Dell owns and manages the customer. The partner still plays an active role in managing the customer relationship. The referral fee model positions the partner to address the customer’s solution needs, and enhance their customer relationship without having to take on the usage and credit risk associated with offering a pay for use solution.
   2. Resell – Partner owns and manages the customer. Allows partner to uplift base usage charge and earn program benefits including rebates, marketing development funds, and tier credit

Pay As You Grow is for committed workloads. The metering coverage in Flex On Demand includes processor, memory, and GB consumed. Data Center Utility adds metering based on VM and per port. The solution is still in its early stages and Dell views this as a journey rather than a destination. But the offering, in early stages, is finding acceptance at many of Dell’s customers. Scalar (a CDW company) has been configuring on-demand solutions with unlimited scalability for major Hollywood studios.

Relative to the cost of conventional hardware and software, on-demand cloud solutions are generally more cost effective than equivalent CAPEX-based on-premise alternatives, and its OPEX-based billing model works well for cash-constrained SMBs and midmarket firms. Cloud’s ‘as-a-Service’ delivery model reduces the need for individual SMBs and midmarket firms to attract and retain specialized IT staff; scale up as the organization grows, and cloud provides SMBs and midmarket firms that are often unable to maintain refresh cycles with ‘always-on’ access to current technology.

SMBs are not being left out from Dell’s strategy. In fact, small and midmarket businesses are two of the fastest growing segments for Dell. Its small business advisory has witnessed tremendous success but the team is not resting on its laurels. It aims to add 100 more small business advisors in the next one year. Each advisor goes through 160 hours of in-person classroom training. Dell has built a progressive hierarchical advisory structure, based on “needs complexity” to help SMBs learn, identify, buy and deploy technology. Small businesses with specific and simple requirements can also use Eva – a chatbot – to help guide through product selection and purchase.

Cisco Partner Summit, Nov 4-7, Las Vegas, was a whirlwind of interlocking, interdependent, important set of announcements to guide and assist channel partners to transform, own their competitive edge and target an elusive yet huge small and midmarket opportunity. The genesis of a transformed partner is the idea of relentless focus on Customer Lifecycle and begins with rebranding to Cisco Customer Experience (CX) Success Portfolio. Oliver Tuszik, Senior VP, Global Partner Organization is committed to developing a partner program that delivers customer success. Under the leadership of Maria Martinez, Cisco has thought through the channel enablement levers – customer content and assets, digital tools, co-marketing, co-selling and incentives at each “mile-marker” along the entire “race-track” aka, customer life-cycle.

Naturally, Cisco is expecting and forecasting many upsides for its channel partners including and not limited to 15% increase in revenue because of bigger deals and new deals, 20% increase in professional services that are fixed-price / right-sized deals and 5%-10% increase in HW pull-through. Partners who embrace the CX Lifecycle can hope to double their business in 3-5 years.

It is a very ambitious initiative. Out of the 60,000 Cisco partners, a majority may not have the skills and staffing to follow-through and pull it off. Cisco is not naïve. To some extent Cisco is relying on its distributors for enablement of the tier 2 partners. It is no doubt a touch ask and the onus will lie on the partners to make themselves heard, align and participate. But distributors can play an important role in driving tier 2 partners to develop CX practices. To make that a reality, Cisco is making investments in the foundation for partner lifecycle services. Cisco has developed a framework, or model, and is providing tools and resources to help partners monetize customer success and how to organize and operate their businesses for sustained success.

Cisco launched CX Certification and Specialization to help partners develop the talent needed to support customer success and to help them differentiate their business. Cisco is providing role-based training so that partners can ingrain customer success in their organization and deliver lifecycle services at every step of the customer journey.

Cisco is a partner-driven organization. Revenue through partners was 85% in 2019 as compared to only 38% in 1996. It is a major shift with a steady 6% average CAGR over the last 13 years.

The full Techaisle Take report with graphs and charts can be downloaded here

Recap of announcements

Here is my recap of the announcements that I have grouped into five areas.

Commitment
1. Customer success is #1 target
2. Partners remain default GTM for the entire lifecycle
3. Align Cisco internal teams
4. Want and support all partners

Requires increase SW content in portfolio, cultures and teams’ alignment, design programs to increase profitability.

New opportunities
1. Platform-Enabled (Programmability + DevNet)
2. New Buying Centers (Segmentation & Sales Plays)
3. Customer Success (Lifecycle & Recurring Revenue)
4. Multi-domain architecture

Reimagine customer applications, secure data, transform their infrastructure, empower teams

Distribution
1. 2T growth engine -Distis to spend time, energy on tier 2 partners
2. SMB execution – scale, touch small and midsized firms
3. Simplification & scale to drive operational excellence
4. CX lifecycle - contribute to renewal strategy

Disti business ranges from 30% - 40%; 2/3rd of $20B is from VAR, Tier 2

Customer Lifecycle
1. Lifecycle Advantage
2. Joint engagements & digital renewals
3. Collaborative intelligence
4. Refreshed re-branded portfolio

Invest US$50m in assets and programs in last 1 year. Expectation is that partners can make up to $50K incentives on customer lifecycle

Partner Marketing
1. Marketing Velocity Program
2. Partner marketing velocity central
3. Marketing Velocity Activate
4. Portfolio Explorer

10,000 partners are using marketing velocity central and virtual demand center - moving away from leads to qualified leads

One of the big announcements of the week was a renewed focus on the SMB segment with purpose-built products supported by marketing programs.

Techaisle’s latest research forecast shows that in 2021:

- WW SMB IT spend will be US$738 B (excluding telecom services)
- WW SMB Cloud spend will be US$156 B (excluding telecom services)
- WW SMB Managed Services spend will be US$65 B (excluding telecom services)

It is too huge an opportunity for Cisco to not be a major player. Cisco therefore announced two key initiatives:

1. Cisco Designed for Business: purpose-built and curated products for small businesses. For example, Meraki Go (zero touch deployment for indoor and outdoor WiFi access points, security gateway & switch), Catalyst 1000 series switch. Cisco’s collaboration solutions WebEx and newly announced WebEx Desk Pro built for all businesses of any size is suitable for small businesses also. I am delighted that Cisco has formalized and is operationalizing its stake in the market. Cisco Deigned for Business is not only a concerted effort to appeal to the small business segment but also an announcement to its smaller resellers and distributors its seriousness in addressing the needs of small businesses by offering purpose-built product solutions. However, I caution Cisco not to be completely swept away in its “race track” customer lifecycle journey with respect to small businesses. Cisco will derive better benefits by connecting its Designed for Business with SMB business outcomes.
2. Ignite the Midmarket: with upfront margin and good discounts, bonus for sales growth, simplified deal registration, deal protection, sales playbooks that provide value propositions, multi domain reference architectures, CX customer journeys and integrated industry use cases with step by step process

Techaisle Take

• Cisco has the right strategy to enable, empower and transform its channel partners
• Cisco’s focus on customer lifecycle along with its partners can accelerate their customer’s path to success at every stage of the lifecycle to deliver their business outcomes faster
• Small businesses, specifically midsized firms are the battleground for the next decade and Cisco has announced its intent at the right time supported by an effective plan and program
• Two problem areas have been overlooked – time and resource allocation by Cisco partners and vendor partnerships as compared to overall channel partner community