Indirect Sales Channel to Gain Steam in 2019 and Beyond

While about three-quarters of world trade flows through indirect sales channels, supporting technology that emerged over the past two decades – such as CRM and marketing automation – actually targeted direct sales teams. The good news: That’s changing with evidence of increased momentum for indirect sales in 2018 and beyond.

That’s according to Jay McBain, principal analyst, global channel at Forrester, who recently shared his 2019 channel predictions in a webinar with Diane Krakora, CEO at PartnerPath.

Forrester’s Jay McBain

McBain describes three industry stages; the first two are the rise of CRM tools followed by marketing automation, both of which targeted direct sales.

“One of the big predictions that I make going forward is that channels are the third stage,” said McBain. “It’s great that we spend all our time and efforts showing up for the direct side of the organization, and now we’re sitting here in the third stage, which I believe started in 2018 and will accelerate in 2019, which is really going to drive attention to this last mile or the 75 percent that goes through channels of all types.”

However, two key realities – everything is online and cloud consumption – will impact indirect sales. The fact that everything can be found online means more that buyers are well-informed, and they can buy direct. When it comes to cloud consumption, businesses are less reliant on the IT department for purchases, and switching products is easy.

“Channels aren’t needed to educate or inform buyers, but they are needed to give advice,” said Krakora.

Line-of-business buyers, pressured to show results, are not only making purchases outside of IT, but in 30 percent of cases are blocking them from getting involved, forgoing the bureaucracy and the time factor, according to McBain.

In fact, McBain contends that IT buyers – and two-thirds, or 65 percent, of tech dollars were spent outside of traditional IT departments in 2018 – look more like consumers and will continue to do so even more in 2019 when that 65 percent figure inches toward 80 percent.

“The B2B buyers of technology are 68 percent of the time doing all of their research online without ever talking to a partner,” he said.

Here’s the good news: Partners will be able to influence these buyers.

“Buyers are telling us that they need somebody to extend their journey, now that they’re 68 percent done. They need it to be consistent and to amplify what they’ve already learned,” said McBain. What these buyers want is someone to pave that last mile to purchase.

These buyers also don’t have the time to wait in line for an IT project to get done.

“Fifty-eight percent of the time, the line of business executives are hiring channels directly because they need the software and the stack that they’re buying to be installed, implemented [and] integrated, and they need it to be secured, compliant — and they need business continuity,” he said. “They’re going to run this project themselves. There’s no single throat to choke, no single trusted adviser — it’s almost a pure gig-economy project to get this done and get it done quickly.”

On this discussion foundation, Krakora outlined six trends for 2019 that partners need to be aware of so that they can …

… shape their businesses accordingly:

Tackling these six trends, the two industry watchers offered some sage insight and advice for partners.

For example, the need for partners to develop hyperspecialized skills is being driven by the fact that not only is technology critical to how businesses of every ilk operate, but line-of-business buyers (executives) spend 51 percent of their time on technology.

“Whether you’re a marketer, sales, operations, finance, HR [and so on], whatever your day job used to be, it’s now your night job,” said McBain.

What does this mean for partners?

“Finding a generalist is not what the interest is when I go and implement a project; I want you to know my line of business,” said McBain. “I want you to be able to talk about midmarketing, top of funnel, leads and get detailed with me on how to run a project and get me more leads.”

Expect to see more individualized or unique partner business types highlighting specialization, verticalization and an understanding of sub-industries by geographies, by sector and size.

PartnerPath’s Diane Krakora

Partners should expect to see their vendor partners create and encourage individualized enablement paths and personalization for partners in order to become differentiated and unique in a particular market space, noted Krakora.

In 2018, both IBM and Microsoft introduced programs that focus on partnering with partners, or getting people in the room that haven’t previously worked together. Expect to see other vendors do the same this year.

Whether partners home in on their skill sets, markets or products, the continued growth of different types of partners will emerge. We’ve heard them referred to as shadow channels for the past 18 months or so.

If, as a partner, you’re discouraged by this, you should be if you’re not focused on transforming your own business. The shadow channel is here and growing, but so is the market revenue opportunity for integration and implementation.

“It’s really high margin, higher margin than doing tax and audit, higher margin than doing creative and concierge services — whatever you delivered in the past, you’re going to see this as a major transformation of your own business. So run, don’t walk, to getting into these services,” said McBain.

Krakora suggests that partners, in 2019 and 2020, get serious about finding, recruiting and incenting these powerhouses to get front of the new business buyer.

Solution complexity goes hand in hand with partnering and joining communities, of which there’s a growing number.

Partners can thank cloud-delivered-everything for margin pressures. Focusing on managed service providers, who saw their margins drop from 30 to 40 points about 15 years ago to 17 percent in 2018, are struggling to grow their business. As a result, there’s been market compression and consolidation, as the MSP market has reached maturity.

“MSPs have started to look for other things, such as security and becoming an MSSP as one way to start building back margin,” said McBain. “However, in the cloud world, there’s a whole set of downstream services the channel is skilled to do.”

Here, he refers to services for integration, implementation, security, compliance and …

… so on.

“Those services are between 40 and 75 percent margins,” he pointed out.

However, Krakora noted vendor-partner conflict around post-sales services.

“Services is the new space of conflict, whereas 15 years ago it was product sales,” she said.

Listening to McBain, that source of conflict is poised to get bigger as vendors bring in their own experts to solve customer problems.

“When you look at emerging technologies, such as internet of things, automation, AI — there’s the likelihood that your vendor [partner] could be there with some data scientists as part of the downstream project,” he said.

Partnering with partners, as well as vendors, means there will be a lot of people in the room, no single throat to choke, no trusted adviser in cloud deals.

“The future is doing what you do best, contributing — and you’re probably not going to be the project executive.”

As for that long tail of partners that’s been around in the channel forever, McBain suggests, they still have a role, or two or three, to play, and vendors need to figure out how to manage them less expensively and let them do what they’re doing without expecting them to transform into top tier partners. They may not be bringing in the big bucks, but they could be much needed customer influencers.

In the cloud and subscription world, it’s all about usage and renewal metrics, and life-cycle selling. Expect to see vendors bring together the partner journey and buyer journey to drive success.