Channel Convergence Will Never Happen — and That's a Good Thing

By Rob Spee

Rob Spee

This month I attended my first Channel Partners Conference and Expo held in Las Vegas. Hundreds of suppliers and thousands of partners, mostly telecom agents, gathered to talk about top trends in the communications industry. Common themes at the show included the exploding opportunities for partners in cybersecurity, internet of things and 5G, and the need for agents to gain the skills required to sell these hot technologies and more advanced data services such as SD-WAN and unified communications-as-a-service (UCaaS) now offered by communications suppliers.

But there was another theme I heard multiple times, presented with strong points of view as to whether or not it was really happening.

I’m talking about channel convergence. More specifically, the convergence of the telecom agents and managed service providers. Apparently, this is a trend that has been discussed for many years at the conference. Depending on whom I spoke with, the trend was either accelerating or barely happening. Thinking about this topic further after I got home, I concluded that this convergence will never really happen. And that’s actually a good thing for suppliers, partners and the end customers.

Resistance to change. Telecom agents, like insurance and financial agents, are paid a residual commission on the services they sell to their customers. They typically are paid the commission for the life of that customer, creating an amazing recurring revenue stream without ever having to worry about billing, first-line support or owning the assets. All that is handled by the supplier. Asking a telecom agent to act more like an MSP is like asking an insurance agent to start offering services that would require the investment in service technicians and assets and to take on the credit risk of the customer. That’s a hard sell for agents. They have no desire to change their business model. To them, it ain’t broke, so don’t try to fix it.

MSPs, on the other hand, bill and are paid directly by the customer each month for services they provide. MSPs want to own the customer relationship and see billing on their paper as proof of ownership and control of the account. Their MSP model requires investment in assets and technical skills to provide an excellent customer experience to maintain their monthly recurring revenue. Their service is often based on technologies from multiple suppliers, packaged together and billed to the customer as one monthly fee. It seems like a logical step for MSPs to add telco services to their portfolio. What an easy way to add an additional revenue stream, right? Yet most MSPs are reluctant to do this, many saying they’d lose control of the customer under the telco’s agent model.

Dilemma for agents and MSPs. As with most business software and services, the buyer of telecom services is also changing due to the impact of the cloud on buyer behavior. IT leaders used to make all the buying decisions, but that has been shifting rapidly. Business leaders can easily go online and sign up for an online conferencing solution with a credit card. Agents who have a Rolodex of IT customers need to start building relationships with the business leaders who are now buying the new cloud-hosted communication services. And they need to up their game to keep up with …

… the rapid change in technology and new offerings their customers are buying today.

MSPs are faced with additional challenges beyond the shift in buyer behavior. They are losing revenue to SaaS suppliers who are displacing the technology and services they have been offering. One example given at CP Expo was Office 365. It is killing MSPs’ very lucrative managed services for on-premise Microsoft Exchange. They want to add new services to replace this lost revenue without sacrificing their customer service-focused business model.

Dilemma for telcos and ISVs. Meanwhile, telcos are moving into providing cloud services such as SD-WAN and UCaaS that have longer sales cycles and require a consultative sales approach with more technical skills than their agents have or want to obtain. So telcos and other communications suppliers are logically turning to MSPs, who are a natural fit. But they are having a hard time getting the MSPs’ attention with their agent commission model that MSPs perceive as creating a loss of control.

Ironically, SaaS suppliers and independent software vendors (ISVs) are looking to capture the attention of agents and their vast customer base but are running into the same challenge when trying to push the reseller model.

Reality — and why this is good news. As any sales manager will tell you, compensation plans drive behavior. The agent compensation model of sales commissions drives a focus on, and rewards for, selling. Agents don’t have or think they need the technical and customer experience skills, nor are they motivated to add them under their compensation plan. They’re happy to sell new technologies as long as it doesn’t disrupt their model. Conversely, the MSP compensation model of recurring revenue from the customer drives a focus on customer experience much more than on selling. They are happy to sell new technologies, too, as long as it doesn’t disrupt their model.

The reality is that both models are needed in the market to serve the customer. Some products and services don’t require hand-holding and professional services for the customer to gain full value. It makes sense for customers to receive these directly from the supplier, even though they look to their local trusted partner to help them decide which service is best for them. Other products and services require more assistance or bundling with other products to produce the business outcome desired by the customer. These customers look to their local trusted partner to provide these services.

What suppliers need to do to win. Many suppliers today have products and services that fit both scenarios mentioned above. As a result, they need multiple partner types with different skills sets and different customer relationships. And even when the suppliers’ offering only falls into one of the two scenarios, they may need both the agents and MSPs to accelerate revenue growth. That’s why suppliers should embrace the different business models of agents and MSPs. They should offer different compensation plans in their partner program to attract and motivate these partners for what they do best. To be successful, suppliers need to …

… do three things:

This is a fantastic time to be in the channel. Big challenges create big opportunities. I look forward to next year’s Channel Partners Conference and Expo, where I’m sure we’ll still be discussing the pending convergence of agents and MSPs.

Rob Spee is founder and CEO of Channel Journeys Consulting and host of the Channel Journeys podcast. Rob applies his channel expertise to help clients create and execute channel strategies to accelerate revenue growth. His global channel experience spans from building channels at start-ups to vendors and distributors such as Arrow, BMC, Carbonite and SAS. Follow Rob @ChannelJourneys on Twitter and on LinkedIn.