Bankruptcies, Power Plays and Money Pits: 6 New Canalys Channel Predictions
Canalys doesn’t sugarcoat its forecast for the channel.
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The face of IT distribution is going to change (even more) over the next three to five to 10 years.
Canalys maintains two tier distribution will still grow. But a bigger proportion of that growth is going to come from cybersecurity, cloud and software.
It also pointed to the rise of specialists like Exclusive Networks, which became a top 10 distributor in EMEA for the first time this year.
But the headline news is that the major growth will come from the rise of marketplaces.
“AWS Marketplace and other marketplaces will become critical distribution channels in the future,” said Canalys’ Alastair Edwards.
However, customers are turning to partners to help them manage that procurement model, he added.
Subscriptions, consumption-based products and as-a-service are on every vendor’s list of talking points. But the reality is that these will make up less than a third of the global IT market, said Canalys.
“Look at the $4.3 trillion that was bought by businesses and governments around the world,” said Canalys’ Jay McBain. “We get a little overhyped, a little overexcited based on all these commitments. But every analyst and every journalist that ever predicted the death of something in the last 40 years has been wrong.
“Our industry is very nuanced. We’re watching as 30% of our end customers are outsourcing some or all of their IT. We’re watching the resiliency of the telco agent recurring model. We’re watching SaaS grow at 20-30%. Hyperscalers are growing 40-50%. We’re watching with interest as Dell just reported 78% growth on Apex, in hardware. HPE GreenLake reporting three straight quarters of triple-digit growth this year, but of a very low baseline. This in total is going to make up a smaller percentage of what we do every day than we think.”
Speaking of overhyped, no company will make a profit from hardware and software in the metaverse within the next four years, said Canalys. In fact, most projects will be closed down by 2025.
“Is the metaverse the next digital frontier or is it an overhyped money pit?” asked Canalys’ Matthew Ball. “Tens of billions of dollars have already been invested. Costs and delays to Meta’s own progress is a barometer. We’re in a cost-of-living crisis. People are struggling in the real world, let alone in the virtual world.
“From a B2B, mass market point of view, we don’t envision meeting with clients within the metaverse time frame.”
2023 will be a record year for bankruptcies, said the analyst firm.
Last year was a record year for IPOs. There were more IPOs in the U.S. last year than in the three previous years combined.
But there’s a warring trend amongst these newly public companies. Most of them – 78% – had negative earnings. Of the 2,200 companies with an IPO in the past five years in the U.S., 1,700 were unprofitable.
“We haven’t seen this level of negative earnings floats since the .com bubble, and the magnitude is now much larger,” said Canalys’ Alex Smith. “The ethos of the past five years has been growth. But with economic downturn, rising interest rates and record levels of inflation, investors just can’t back this growth potential.”
Semiconductors – not software – rule the world. That was the key message from Canalys CEO Steve Brazier.
“If we don’t have semiconductors, we certainly won’t have software,” he said.
But Brazier pointed to huge changes happening in the semiconductor industry.
“Around 50% of all semiconductors are made in Taiwan, [with] Korea being the second-largest, mainly through Samsung. The world has a critical dependency on semiconductors,” he explained.
“I find it strange that Intel, which was the world’s most valuable company a few years ago, is now getting government handouts. The reason is, if something were to happen in Taiwan, the world would simply grind to a halt. I don’t want to predict what will happen politically. We all know about the tensions between China and Taiwan.
“But it wouldn’t take a war to cause a problem,” he continued. “To build semiconductors, you need energy and water. And that energy and water have to flow across the sea into Taiwan; they’re not self-sustaining on either elements. A blockade would cause catastrophic consequences. That is why Europe and the U.S. are investing.”
Brazier said it was “amazing that semiconductors rule the world and we’ve only worked what systemic risk we’ve built into our industry.”
Public cloud providers are using their power in sophisticated ways with to get competitive advantage, said Brazier.
“Why is it that Cisco and HPE can’t ship for a year in some cases? Why did we suddenly run out of those semiconductors? The answer is the public cloud companies got there first. They are the biggest procurers of semiconductors, they control the supply chain, they get first choice.”
Brazier also took aim at the link between getting a public cloud contract and the need for a minimum spend, funnelling partners though cloud marketplaces.
“To get a public cloud contract and to get the discounts, you need to commit to a minimum spend. These minimum spends are always more than the customer needs. Then they say, ‘Well, don’t worry, sir, why don’t you buy this stuff through our marketplaces?’ And we’re going to see a lot of the vendors go into these marketplaces, because you can’t access the cloud budgets without it.
“When you as a channel want to migrate someone to the public cloud, you sell your professional services. If the public cloud wants to take them direct, they provide their services for free. Because they know once they get the customer onto the cloud, they’ll make the money in the years to come. There is a huge competitive advantage from the power these companies now have in the marketplace.”
Public cloud providers are using their power in sophisticated ways with to get competitive advantage, said Brazier.
“Why is it that Cisco and HPE can’t ship for a year in some cases? Why did we suddenly run out of those semiconductors? The answer is the public cloud companies got there first. They are the biggest procurers of semiconductors, they control the supply chain, they get first choice.”
Brazier also took aim at the link between getting a public cloud contract and the need for a minimum spend, funnelling partners though cloud marketplaces.
“To get a public cloud contract and to get the discounts, you need to commit to a minimum spend. These minimum spends are always more than the customer needs. Then they say, ‘Well, don’t worry, sir, why don’t you buy this stuff through our marketplaces?’ And we’re going to see a lot of the vendors go into these marketplaces, because you can’t access the cloud budgets without it.
“When you as a channel want to migrate someone to the public cloud, you sell your professional services. If the public cloud wants to take them direct, they provide their services for free. Because they know once they get the customer onto the cloud, they’ll make the money in the years to come. There is a huge competitive advantage from the power these companies now have in the marketplace.”
CANALYS FORUM 2022 — Following a record year for initial public offerings (IPOs), did you know 2023 will be a record year for bankruptcies? Is the metaverse an opportunity or a money pit? Also, how are public cloud companies wielding their power over channel partners? And why should we all be more worried than we probably are about the semiconductor crisis? Analyst firm Canalys kicked off Canalys Forum 2022 in Barcelona this week with a series of provocative channel predictions.
See the slideshow above for a glimpse of the future for the channel in the form of predictions.
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