The head of IDC’s channels and alliances research team told Veeam’s channel partners what changes are already underway as the industry shifts from server-client to cloud platforms, and what they need to do to keep up and prosper.
LAS VEGAS – In today’s IT world, marked by the process of transition from server-client to cloud computing, sustainable competitive advantage has become a thing of the past, and the channel needs to embrace strategies that will work as the industry transition continues. That was the thesis presented to Veeam channel partners at the VeeamON channel keynote Tuesday by Darren Bibby, Program Vice-President, Channels and Alliances Research at IDC, who leads IDC’s Toronto-based channels and alliances research team.
The theme of Bibby’s presentation was change – and disruption – requiring partners to transform their businesses, at the peril of going out of business if they don’t.
“IDC predicts that by 2018, one third of the top 20 companies in every industry will be significantly disrupted by third platform competitors like Uber,” Bibby told the Veeam partners. “There is no such thing as sustainable competitive advantage any more, which affects you as a solution provider.”
Bibby methodologically walked through eight key areas that partners must address in transforming their businesses to deal with the new challenges: technology, focus, sales motion, time horizon, marketing, activities, competition and alliances.
In the area of technology, the theme is that the channel needs to move from the second to the third IT platform – from client server to cloud. [The first platform, in the unlikely event that anyone interested in this topic would not know it, was mainframes]. Bibby showed a graph illustrating that IDC sees the second platform declining over the next five years while the third platform rises over the same period, passing the second platform in 2016.
“You can stay in business if you stay on the second platform, but you will have to take a lot of share from competitors to do so,” Bibby told the audience.
The third platform will grow to the point that IDC predicts that service providers alone will account for over 43 per cent of total server shipments by 2017, as the cloud market grows.
“These are big numbers and big shifts,” Bibby said.
Bibby also warned Veeam partners not in the cloud that 70 per cent of CIOs will soon embrace a cloud first option.
“This does not mean that they will buy cloud, but they will look for a public cloud option first, and go elsewhere only if they don’t see a good option,” Bibby said.
Bibby’s second theme was the need for solution providers to focus – to move from being broad to being specialized.
“VARs in the past offered all things to all people, but that won’t fly for too much longer except in a few areas,” Bibby said. “It’s too easy to find a specialist on Google.”
Bibby stressed that VARs need to have an understanding of their target markets business processes to differentiate themselves.
“You have to move from selling IT ingredients to IT departments to selling business outcomes to business people,” he said. “By 2016, line of business executives will be directly involved in 80 per cent of new IT investments. Can you talk to them? Do you know how to?” Bibby said that training people to talk to these execs has become a priority, to the point where companies are hiring people from the target industry to sell to them. The logic is that it is easier to take, say, a banker with deep knowledge of business processes in banking and teach that person about your technology, then it is to teach a technical person the necessary deep knowledge of banking.
The third area Bibby covered, sales motion, is all about moving from doing the deal, to creating the relationship.
“We are moving from where in the past, everything was getting the transaction and moving on, to a recurring revenue model,” Bibby said. “In this model, if a customer doesn’t renew, you don’t make money.”
Bibby said that solution providers are used to a quarterly by quarterly model, where you can make up a shortfall in the last week of the quarter.
“That all changes in the new recurring revenue business model based on renewals, and our industry is going that way, to recurring revenue,” he said. Other industries are as well. He pointed out that some barbers are now offering unlimited haircuts over a year for an upfront payment – essentially offering a service-as-a-service model!
The fourth area, time horizon, in which value of a business moves from short term to long term, is of particular interest to VARs who own a business, especially if they are close to retirement.
“Any part of a business which is recurring revenue is valued at least twice the value,” he said. “In the valuation of a company, moving business from variable and project-based to regular and recurring revenue improves valuation.”
The fifth area, marketing, is all about the transformation from traditional to digital.
“This is absolutely huge,” he said. “Today, 65 per cent of B2B buyers usually engage a sales rep only AFTER they’ve already made a purchase decision.” The way to address this, he added, is through great online content. The easiest way for solution providers to do this is through blogs, and white papers are also valuable for this purpose.
The sixth area is the change in the activities partners engage in as they transform their business. Partners who are in resale must transform to services, those in professional services must move to managed services and, those in services now must move to creating unique intellectual property.
Bibby showed a graph indicating why a change in activities made sense, showing that gross profit margins in resale were 15 per cent, professional services 35 per cent, managed services 45, and packaged IP 70 per cent.
“These are overall numbers, and I know that Veeam’s margins are good for the industry, but in the long run, you do have to move into other areas,” Bibby told the Veeam partners.
In the seventh area, competition, Bibby said that VARs will see their competition change from traditional rivals (companies who look like them) to non-traditional firms, like born in the cloud companies who are willing to sign up users at a very low user cost per month, hoping to make it up in volume.
The last area of change Bibby considered is alliances, where things are moving from a ‘do it yourself’ perspective to partner collaboration.
“If you are concerned about partners taking business, you are probably looking at the wrong partners,” he said.
He noted that the quartiles that did most partner collaboration to get revenue had a growth rate of 19 per cent while others have 11 per cent.
“This doesn’t mean that partnering brings you more growth, but it does mean the best companies are partnering,” Bibby said.
Veeam has been strongly pushing a message to its partner sales force to get with the cloud if they aren’t already, and expand it if they are, so bringing Bibby and IDC’s message to the channel keynote was designed to reinforce the point. It likely had the desired effect.
“If your culture doesn’t support these changes, you are in trouble,” was Bibby’s sombre concluding message.