Disruption of channels in a connected world is hardly rare. Travel agents were double-punched with online booking systems and e-tickets (eliminating the need for their specialized printers). Bookstores that survived the superstores are losing the battle to online retailers. The Internet initially offered communications VARs opportunity, but then came the squeeze from out-of-state dealers, centralized deployments, and cloud providers.
The cloud represents the biggest threat to the traditional channel, and at the most risk are VARs that service small and medium businesses.
VARs exist primarily for two reasons: complexity and logistics. Channels thrive on complexity. If we had the know-how (and time) to do things ourselves, we would. At home, it’s the reason we call professionals such as plumbers and electricians – because plumbing and electrical matters are complex. We avoid calling plumbers and electricians if we can.
The other big justification for the reseller channel to exist is logistics. Although manufacturers give up to 70 percent of total system revenue to their channel of VARs and distributors, it’s still cheaper than servicing direct. The local resellers is (are) far better suited to find prospects and then propose, install, and service them than a national entity. It is no more viable for UCC manufacturers to sell directly than for Campbells to open canned soup stores in every city.
These reasons have provided impeccable logic and have “rung” true for the past 50 or so years. However, cloud-delivered services attack these assumptions and raise into question the very justification for the channel to exist at all. Cloud services thrive on simplicity. This gets masked in terms such as consumerization and self-service, but the fact is end users are increasingly demanding simple solutions that they can install and manage themselves. Complexity is the new evil – the cause of out-of-control budgets, wasted productivity, and inefficient processes.
Many providers of cloud services have found their services to be so simple that they can conduct the business relationship remotely. For the first time it is now viable to sell and deliver business communications directly. Simplicity diminishes the relative value that VARs add in the initial sale and with ongoing services. This creates a significant challenge for vendors with robust channels.
A solid channel takes years to develop, it has always been considered a strong asset that is hard for competitors to replicate. The natural instinct is to protect and foster these channels, but new entrants are marketing directly to end users. It is difficult for direct and indirect channels to co-exist in highly competitive environments.
It’s a bit like the copper wires that connect every home and business. Those lines were a jewel of the first world – years went into the creation of this infrastructure. At one time these networks were so valuable that courts and regulators ensured fair use and prevented price gouging. Today, carriers want nothing to do with these copper telephone network anchors. These wires are no longer assets, but liabilities that the carriers want to shed.
The cloud is a bigger threat to resellers that target SMB-sized accounts. Larger enterprises tend to work with system integrators (SIs) that hide complexity with powerful multi-vendor solutions. The cloud presents an opportunity for large SIs to create customized hosted services, examples include ArrowS3 Synaps3 (powered by Genband) and Dimension Data Cloud Services for Cisco (powered by Cisco HCS). Cloud services could strengthen the value SIs add for their larger customers and vertical segments.
The cloud will not kill the channel, but it will reduce its size. The future channel will be a network of service oriented (rather than product oriented) specialists. The proposition of value-add will evolve significantly over the next five years.