A Tale of Two Channels

Finding the right channel strategy in the Age of Digital Transformation

This is a story of two sales channels driven by the digital transformation.  If you’re a fan of Dickens, you may recall the famous opening “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness.   Is the digital transformation creating the best of times or worst of times for the channel?  It depends on how vendors adjust their channel strategy in this rapidly changing environment.

Impact on the Customer 

Digital transformation is impacting every industry, opening the door to “born in the cloud” startups while challenging even the best of the incumbents.   IDC talks about the Digital Transformation and the 3rd platform of Cloud, Social, Mobile, and Analytics.   It’s what’s driving the Internet of Things, 3D Printing, Robotics, and Machine Learning.   And it’s impacting every vertical industry.   Manufacturers, healthcare, energy, and retail are at the head of the curve in not only becoming data-driven, but actually becoming software companies themselves, creating an incredible amount of data that they want to monetize.

Digital transformation’s impact on buyer behavior is an entire shift in the customer’s consumption model.   Depending on the customer, gone, or rapidly going away, are the multi-million dollar investments in hardware and software that may or may not be implemented.   Managed services are disrupting the market. Gartner estimates that by next year buyers will have shifted as much as 50% of their sourcing to managed services.    Recently I attended an IOT event sponsored by Arrow.  They talked about a $1 trillion sales opportunity around IoT.  The biggest piece of that was in managed services.

We all know about the success of Salesforce and Office365, and the shift to the consumption model is much broader than just CRM and email.   Customers are now expecting managed services for disaster recovery, security, and increasingly, analytics.    Cloud IT spending is soaring, and cloud analytics is growing at an ever faster pace, expected to reach $23B by 2020 according to a research report by Markets & Markets.

Impact on the Channel

These changes in buyer behavior are driving changes in how and from whom customers want to buy technology.   And it’s having a dramatic impact on the partner ecosystem.

Value added resellers of analytics are used to competing against other solution providers who don’t look all that different.   Now they’re competing with analytics startups, digital marketing agencies, and global system integrators who are adding managed analytic services to their offerings.   Vertical industry companies are productizing their data and IP to create new analytic services to use internally and to sell into their own industry ecosystem.   This is what IDC calls the Industry Cloud, and their potential is huge.

Channel Strategy in the Digital Age

So what should a software vendor’s channel strategy look like in this age of digital transformation?   This is the tale of two channels.  Vendors need to continue nurturing and enabling their traditional resell partners who have built strong relationships with their customers.   Many of these resellers are adding their own managed services.   At the same time, vendors need to be building a cloud channel for the new world of managed services with an entirely different looking partner ecosystem.

Maintaining a strong foundation of traditional resellers while building your next growth channel is what Paul Nunes and Tim Breene of Accenture refer as Jumping the S-Curve.  Top performing companies are ready to jump the curve quickly, but there are a number of recurring themes within companies that fail to seize new opportunities.  Cap Gemini’s research on Digital Disruption highlights five key areas: 

  • Complacency
  • Fear of cannibalization
  • Lower margins in the transition
  • Key resources unaligned to opportunities
  • Slow decision cycles

If any of these symptoms are prevalent in your company, they need to be addressed quickly.

So is this the best of times or worst of times?  That depends on your channel strategy and ability to adapt to this age of digital transformation.

I look forward to hearing your tale.