Techaisle Blog

Not long ago, channel partners tended to fall into two camps: those primarily engaged in transaction-client relationships and those who believed (or wished to believe) that their customer relationships were consultative and advisory.

Today, the channel window has changed. Forget the “trusted advisor” moniker; become a “success partner” because shared risk agreements are reshaping the channel landscape.

Shared Risk, Shared Success: The New Channel Paradigm

Techaisle has seen a rise in outcome-based relationships – in which customers define their target objective (rather than issuing an RFP detailing a specific set of products) – and shared risk agreements, in which the client contracts for a specific outcome (often, one which is tied in some way to financial metrics), where the partner is paid on achievement of the goal rather than delivery of a bundle of technology.

Techaisle’s recent Channel Survey confirms that this migration is well underway. Across all 2,115 channel partners, more than 45% describe their current “relationship philosophy” as outcome-based or shared risk. These new relationship models are best established in the MSP community, where shared risk is a primary philosophy for more than one-third of the survey’s MSPs, with an additional 23% reporting that they primarily engage in outcome-focused agreements.

Shared risk is also a critical relationship model for SIs. This seems like a logical step forward; SIs have often been targets of complaints about solution timeliness or completeness, and a shared-risk agreement helps forestall these potential objections. In contrast, VARs are only half as likely as SIs to pursue shared risk agreements; they are far more likely than any other channel group to establish transactional relationships.

The End of "Trusted Advisor"? Why Channel Partners Must Embrace Shared Risk for Mutual Success

There are few more cherished channel objectives than attaining the position of being a 'trusted advisor' to clients. The phrase connotes a relationship rooted in respect, where the channel partner provides sage counsel to clients who rely on the partner for technology and strategy. Channel partners who act as trusted advisors can direct client attention and investments in ways that enhance the long-term relationship between supplier and buyer.

Users recognize the value of advisory services. More than three-quarters believe that there is a real advantage in a supplier's ability to respond to business pain points with helpful advice. 71% report that a partner that "listens to business needs and guides a customer towards the right technology solution" provides a vital service. Nearly two-thirds believe that a firm that "shares vision and partnership with both IT and business units" facilitates outcomes important to supplier selection.

The predictions rely on an extensive research initiative conducted throughout 2021 – the year in which the impact of the pandemic on economic activity and IT consumption was becoming more apparent. Leveraging a panel of over 250K partners, Techaisle surveys more than 5000 partners and has qualitative conversations with hundreds of partners. Techaisle's 2022 in Focus research series illuminates issues and requirements in the vast and complex partner ecosystem.

1. Cloud economics and cost optimization consulting will challenge channel
Cloud cost optimization and economics will be the top cloud consulting service demanded by customers, challenging partners (and their vendors) to provide transparency into cloud costs and ensure that customers receive the best available Ts& Cs. To deliver value to the customer, both partners and suppliers will need to define the current state of workloads and a forecast for the future state, adding value through the development and deployment of processes to support cost optimization and compliance/risk management.

2. MSPs will expand their portfolio to include cloud managed services
Cloud technology velocity will open new services opportunities. For example, as businesses will increase their reliance on cloud-managed services to align IT with business strategies, deep-pocketed, progressive MSPs will increase investment in staff training to grow their professional services revenue. As a result, the MSPs will focus on containers (Kubernetes), microservices, open-source, agile development, API management, hybrid cloud workload management, and security and compliance management.

3. The gap between the cloud "haves" and "have nots" will increase
Cloud vendors will invest in cloud channel leaders rather than in the channel as a whole which will accelerate the gap between leaders and laggards and stress the viability of channel firms left behind. As a result, the year will see a separation between channel partners that have the expertise to combine transformative and traditional business models and those that do not.

4. Vendor and partner equilibrium will be unstable
Vendors have been mitigating channel conflicts through "double bubble" compensation models, creating clear guidelines around where the vendor will sell direct and reducing competition between dissimilar channels. However, the complexity associated with cloud consulting and digital transformation adoption acceleration will have vendors questioning the role of partners. Channel partners will be present in several accounts coveted by direct sales teams – increasing vendor/channel conflict. Vendors will manage conflicts and will not eliminate them.

5. The cloud marketplace will be lots of smoke, but the fire is nearer
ISVs and channel partners will have a tough time finding each other and ultimately finding the end customer. Despite low barriers to entry, few will find immediate profitability. Both partners and marketplace operators will need to build and manage relationships, plug into sales and marketing programs, drive investment in the implementation and support for end-users, and fund all of this on a fraction of the monthly fee associated with each service sold. A high percent of end-users will be marketplace curious and not committed customers. It is not how enterprise customers purchase, as yet. Marketplaces will not kill the channel; instead, channel partners will be a vital link in the buyer's journey.

Management of P2P ecosystems is not a core focus of many vendor channel organizations – but it will be increasingly crucial to success in providing channel coverage for complex technologies. One distinguishing characteristic of a traditional channel firm is its ability and willingness to test, learn about, deploy, integrate and support new solutions as customers need them. However, increasing solution complexity has made it more difficult for channel partners to master all of the different technologies required by their clients. This has, in turn, led the channel to look at partner-to-partner (P2P) alliances as an alternative to the building (through training/certification) or buying (through new staff hires or acquisitions) unique expertise whenever required. Vince DeRose, President, PEAK Resources, Inc., said it very well, "it is difficult to staff engineering/delivery talent for every solution we sell. Training and certification are generally required to have a meaningful and relevant relationship with a manufacturer/OEM." Techaisle research shows that costs are high for staffing skills with certifications. In an increasingly complex market (e.g., IoT, hybrid IT), partners need access to many products – certainly more than they can afford to be certified. Certifications may work for some products, but they constrain options for partners dealing with configurable solutions. P2P collaboration is the panacea for delivering complex customer solutions.

The enduring issue of Partner-to-Partner

PEAK Resources, a 30-year-old DMR, actively believes in and participates in P2P to augment skill gaps – technical and geographical. Initially, most of its IT skills focused around IBM offerings, but now there are many prominent vendors in the market with varying solutions and platforms to meet changing customer demands, such as Cisco, VMware, Dell, and more. In addition, projects are becoming much more complex, requiring many different and complex IT skill sets to solve for the customer. Vince DeRose continues, "a P2P platform, like P2P Global, Inc. is vendor agnostic. It works specifically great for emerging technologies and vendors who have immature partner programs. Vendors are making efforts to develop their P2P enablement programs. Still, most see their platforms filling a gap in their portfolio instead of partners' preference for fulfilling a skills gap. "

Techaisle saw this trend start to take root with security, where deep and diverse protections (and threats) opened the door to mainstream channel collaboration with MSSPs and other specialized security providers. However, the channel partners could not immediately replicate the security experience in other areas. Channel partners often act as gatekeepers, reducing client exposure to other solution sources and internalizing as much of the IT-related business requirements as possible.

Still, though, with the industry-wide trend away from rigid solution definition and towards fluid, flexible configurations that integrate multiple components, P2P collaboration (and from a vendor's perspective, ecosystem alliances) is moving from opportunistic to strategic. In addition, the COVID-19 pandemic catalyzed technology and IT companies to become more flexible and quickly roll out more efficient and seamless digital solutions for partnering and completing projects.

CohnReznick, a 100-year-old firm specializing in tax and audit work and deep expertise in ERP core consulting for midmarket firms, has strategically jumped into P2P ecosystem participation. But, again, the pandemic was the great accelerator. It joined P2P Global, and whose "platform shines as it is laser-focused on curation versus throwing up matches like a job board type solution," says Reed Dailey, Director, Strategy, Technology, and Transformation, CohnReznick.

Partnering To Be Efficient

Techaisle sees solution packaging as a customer choice issue – and customers are choosing to move from turnkey systems to hybrid environments that can align with their evolving needs. In many cases, this requires an accelerated frequency of partner-to-partner collaboration. Real-world demands for predictable, rapid responses to customer demands requires that channel businesses be proactive in building effective relationships with trusted allies.

Karl Kleinert, Director, Advisory Services, CohnReznick, adds, "typically, the vendor solutions are closed ecosystems to their network, but end-customers are not only buying or using solutions from one vendor. We are in a heterogeneous world. The vendor platforms break down pretty quickly in terms of their partner networks as soon as a partner has a project with even a minimal level of complexity that requires ancillary and adjacent technologies. We are very particular about the partnerships that we enter into and make sure we have a route to market model that fits us and that we have good rules of engagement and well-defined roles and responsibilities. Customers are demanding new technologies, which exposes new skill gaps within the partners. A vendor agnostic P2P collaboration platform gives us the kind of flexibility that is important for business success. A good example was a rollout of Infor's Birst data analytics solution supporting a global ERP deployment. CohnReznick owned the overall implementation, and we leveraged another partner for the data migration."

Informed by end-user and partner survey research, Techaisle sees substantial and increasing demand for solutions integrated around data rather than physical system components. The escalating requirement will require changes in channel go-to-market strategies. Channel businesses that are not actively developing P2P capabilities will be vulnerable to gaps in their ability to meet customer expectations, reducing their ability to maintain solid and profitable relationships with existing clients. Results from the 2021 research indicate that channel businesses that are effective in P2P are more likely to experience growth – and higher growth – than those that rarely collaborate with other channel members. Vendors with solid ecosystem management programs with a platform that helps facilitate P2P collaboration have an opportunity to help engaged partners to obtain above-average returns, strengthening the vendor and its partners alike.

The Benefits of a P2P Ecosystem

Connectria, a 20-year-old managed services and cloud migration services provider with 180 partners, is "getting its feet wet" in the P2P ecosystem collaboration space by recently joining P2P Global. Jeff Swartz, Director, Channel Sales, Connectria, said, "our objective is to glue our partners together so not only do they get the benefits of doing business with us, but they also get the benefits of doing business with all of our other partners." For ten plus years, Connectria has been in IBM Power hosting business but has been branching out into managed services for AWS, Azure, and Google Cloud. Connectria is successfully conveying the message to its customers that it is essentially bringing them more value. P2P Global allows it to expand on the relationship that it has with existing customers. "Particularly over the last year, customers want to see more value from the suppliers they are doing business with, not value addition but value creation. Value addition is akin to selling hardware which is a race to the bottom with very little money,", says Jeff Swartz.

One of the core tenets of channel-ready products is that they are 'designed for relevance, rather than elegance' – that they predictably address a defined issue, rather than being designed so that they can be applied to address a range of potential issues. Resellers then build these products into turnkey solutions that help a target audience to achieve a defined outcome. One result of this approach was that vendors connected to partners in a 'hub and spoke' model, where multiple partners relied on one vendor for a component of a turnkey solution, and the vendor relied on numerous partners to deploy their products within well-defined target markets.

Ecosystem Partnerships

John Guido, CEO, and Founder, P2P Global Inc., has a great perspective on the IT channel and provides valuable insight, saying, "We developed P2P Global to help facilitate P2P engagements for channel partners – to help them solve for skill gaps. In the end, while our platform is easy to use and very efficient, it is only a tool. If a solution provider believes they can deliver more customer value and competitive advantage by leveraging an ecosystem approach, then they will also need to create a company culture that embraces scaling partnerships. While we know our platform can help deliver ecosystem value, we also know continuing to scale membership will be critical to further our value proposition. I believe vendors and distributors will be key to scaling and enabling their channel partners to participate in platforms like ours."

In the "as-a-service" world, a solution is based not on a defined hardware/software configuration but the orchestration of multiple on-demand services integrated with existing legacy systems. In an important sense, this is a liberating factor for the channel partner. However, it also means that channel partners have to increase their collaboration with other channel members, not opportunistically but frequently, similar to what PEAK Resources (a DMR), Connectria (an MSP), and CohnReznick (a consulting firm) are doing.

Rola Dagher is the new global channel chief at Dell Technologies. Proverbially speaking, changing of the guard brings in its wake anticipation of partner program changes. Because of the success achieved, Dell Technologies does not feel compelled to make significant modifications to its partner program. On the contrary, continuous fine-tuning of the program has helped Dell drive channel partner growth. While the core tenets of Simple, Profitable, Predictable remain, Dell plans to target consistency and constant validation with some refinements. For example, Dell is simplifying the partner preferred program (now to be named Power Up), launching a new platform to track earnings, MDFs, MyRewards with lower latency and cloud-like functionality of partner portal increasing investment earn-outs with potential to cross-sell and upsell. Dell had launched MyRewards in 2017 to capture the mindshare of the channel sales reps. The system awarded $1 value in points for cash to redeem for products and travel. 2017 also saw Dell launch its digital marketing platform (which has grown enormously), introduce Activation Packs for smaller partners with pre-approved MDF dollars, and develop compensation to channel partners on contract value for the cloud (consumption models).

Dell and its partners have been pleased with the channel strategy, and, as a result, Dell does not plan to change course. While every other IT supplier is planning for channel transformation, Dell's channel leadership believes in "evolution, not revolution." The enterprise partner preferred and commercial preferred programs (for targeted account lists) have been successful, yet they were complex to follow and execute. Learning from the experience, Dell has simplified the program to make it even more impactful for Partner of Record (PoR) partners. An identified list of accounts where partners are already working with Dell competitors; Dell sellers commit themselves to joint account planning to shift the customer to Dell. Partner competitiveness, better sales engagement with clarity of seller-partner offering, and robust programs on competitive takeout and customer acquisition have helped Dell and its partners. All part of the evolution strategy.

Until last year, Dell had struggled to simplify deal registration, both due to the task and technology transition's inherent complexity. Dell is therefore launching a better partner experience portal. Regardless of the complexity, due to relentless execution and commitment, Dell's partners made giant strides. There is no question that Dell has a complete product portfolio in the IT industry. This position has significant potential benefits but can lose impact due to the need for partners to navigate an immensely complex set of offerings. Dell deserves plaudits to recognize this challenge and respond with partner programs that mute the various solutions' roar and enable partners to focus on working effectively – and profitably – with their customers.

Channel partners are the custodians of customer needs. Armed with knowledge, training, and experience, partners are and can be in a great position to guide, design, architect, deploy and manage technology solutions for end-customers to work through the crisis and the future. Despite the headwinds, channel partners are quickly adopting both tactical and strategic approaches to solving customer problems to deliver customer success. Partners are the beacons that customers are looking for – partners who listen, share pain points, advise, and are responsive. It may be the best of times to develop a transformative strategy that is customer-in rather than product-out.

To help frame understanding of go-to-market investments, Techaisle asked its panel of channel partners to identify which of a handful of statements they believed to be accurate for their business. Data shows that the channel is in a longer-term transition. There is a need for sales staff to react to increasing customer's technical knowledge by being more innovative is essential and vital for their businesses. There is also broad and growing agreement that line-of-business selling is rising as a proportion of all sales and that "the as-a-Service model has significantly changed what a partner looks for in sales and business development professionals." These findings indicate that channel sales staff can't rely primarily on fulfillment-centric deals. Instead, they need to demonstrate a real understanding of customer business issues and how technology can deliver meaningful business benefits.

Dell is working on its partner training and sellers to transition from product to solution selling, from pricing-led to outcome-driven strategy. It seems to be yielding results. For example, in Q3, over 60% of Dell's new customer activation was through the channel. An increase in incentives to 20% for flex-on-demand offerings (for both referral and resell) lead to US$1.3B in offers in as-a-service. Dell is working to enable partner participation with Project APEX and access to Dell's as-a-service portfolio. The first offering in its portfolio will be Dell Technologies Storage as a Service (STaaS), delivering a pay-per-use model and elastic capacity and deployed on-prem. It will launch in the US for Dell's direct business in the first half of the fiscal year. Dell will share an update later this fiscal on partner availability with Project APEX, including STaaS. The key enabler of Project APEX is the Dell Technologies Cloud Console. This single web interface enables both customers and partners to manage cloud workloads and services. The Cloud Console's initial rollout will allow customers to browse a marketplace of IaaS products, services, and solutions. For partners, Dell is working on a roadmap and timeline for the console to be API eligible, allowing partners to integrate with their marketplaces.

Techaisle data shows that transformation partners are targeting revenue growth over quarterly, short-term incentives. But incentives seem to work wonders for Dell. Channel partner interest in fees and activity-based incentives are driven primarily by firms with traditional channel business models. SIs and VARs, who form most Dell partners, consider this type of stimulus most important to their businesses. But firms developing IP prefer solution development funds (which has been introduced by VMware). Channel partners focused on commodity products may not capitalize on deal registration, and only large partners would have access to staff/embedded headcounts. Rebates may be popular, but they do not increase margin much and often depress street price instead. Fees and activity-based incentives support solutions that require very long sales cycles, which would not be as beneficial in a rapid-turnaround niche. Solution development funds can be instrumental in building an ecosystem around a platform product but may take a long time to generate tangible results. SPIFs are generally helpful to shaping sales behavior but can be expensive, require effective targeting and management, and only work where there is buy-in from the partner business's owner. Within the overall channel partner ecosystem, 50% prefer fees and activity-based incentives, and 43% want solution development fund. Staffing and embedded headcount are preferred by 37% of partners.

It is evolution and not revolution. Those expecting Dell to make market-shattering transformative changes will likely be disappointed. Dell is working towards simplifying operations, educating partners, and enabling better digital marketing. Yes, there is a lot more Dell needs to do. Recent work by Techaisle shows that the need for updated understandings of channel management imperatives has expanded beyond the tactical questions of sales or management metrics or marketing activities. The pandemic has been an accelerator. Digital transformation provides enormous opportunities for the channel. It offers a means of establishing a customer relationship that secures ongoing/escalating account revenue and influence, improving the business outlook of channel firms who can capitalize on customer need for digital transformation support. For now, Dell's channel partner program has both its feet firmly planted on solid ground. Dell does not want and does need to take flight. Instead, it plans to and should continue its fight to remain valuable and loyal to the channel partner community.