Channel Futures' 10 Mega Channel Trends for 2023
These are what we see as the trends that will shape the industry throughout the year to come.
December 19, 2022
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By Bob DeMarzo
Small business is going to be big business in 2023. With the consistent drumbeat of news of economic slowdowns, inflation and layoffs hitting corporate America, delivered by the business and mainstream media, technology suppliers of all shapes and sizes are rediscovering the long tail of the market — small businesses. There is plenty of evidence that the major players in the IT space are shifting their focus— that means dollars and resources — to address solutions that fit small business from a pricing and consumption standpoint.
Dave Seibert, founder of SMB TechFest, who has been at the center of the SMB market as a Microsoft partner and CIO, said he is seeing an uptick in technology providers and vendors that are rediscovering the small business channel. In recent months, Seibert said he has been approached by numerous suppliers, especially those in cybersecurity, who want to sharpen their focus on solutions for small business and better serve partners who have those relationships. He is predicting a strong market for channel partners who sell into the SMB sector, especially the “S” in SMB, which is typically a company that has 100 or fewer employees or seats. He also expects greater demand-generation efforts from private-equity investments in SMB vendor stack solutions to positively impact the market.
Industry researchers, including Gartner, paint an optimistic picture of the small business market, with year-over-year growth expected to be 6.7% this year and 6.2% in 2023. Keep in mind IT spending in small, midsize and SOHO (small office home office) could top $1.32 trillion in 2022, with the biggest spending sector residing in North America, totaling more than $500 billion by many estimates. Researcher Analysys Mason, which is forecasting strong growth in SMB IT spending through 2025, believes a large portion of that spending will be through MSPs and systems integrators.
A consensus from Channel Futures Partner Boards, which include a wide range of technology advisors, agents, MSPs and channel partners, confirmed that many technology suppliers and vendors are turning their attention to the SMB market as demand cools in the enterprise. But board members said many channel partners will need to sharpen their focus on the needs of SMB because of their focus on enterprise or midmarket. Board members agreed that with the right mix of demand generation and marketing strategies, partners should be able to grow sales in the SMB segment. Board members agreed that traditional agent-type partners will face the greatest challenge pivoting to the small business customer segment vs. their MSP counterparts.
“The bottom line is it should be a banner year not just next year, but the next couple of years. COVID accelerated this digital transformation, but the work MSPs did was a Band-Aid. You must now complete the digital transformation for your customers,” said Len DiCostanzo, CEO of MSP Toolkit. “You must make this permanent for the law firms, accounting firms and other customers. Make SMBs as agile as a corporate enterprise,” the leading consultant to partners and vendors added.
The universal advice is not to strip out key features from a service or product offered to enterprise customers. Small and midsize businesses need full-featured SaaS and other solutions.
“Make sure your products are similar in strength in what you sell to the enterprise, and couple that with great enablement so you don’t have to strip down the product,” DiCostanzo said.
By Craig Galbraith
As if marketplaces weren’t already red hot, look for this way of finding, buying and managing cloud-based applications to explode in 2023. So much so that research firm Canalys is predicting growth in the AWS Marketplace will make the hyperscaler a top 10 global distributor by the year 2025.
Notably, notes Canalys chief analyst Jay McBain, is the rise in cybersecurity vendors selling in cloud marketplaces. Several are reporting 600% growth year over year, and by 2025, “cloud marketplaces will grow to over US $45 billion — double our pre-pandemic forecast, representing an 86% CAGR.”
In fact, Palo Alto Networks earlier this fall told Silicon Angle that marketplaces run by Microsoft, Google Cloud and AWS will provide its biggest source of revenue growth in the years to come.
“Cloud marketplaces are making it more cost-efficient for us to distribute to our customers seamlessly and easily,” Prem Iyer, Palo Alto’s VP of ecosystems, told the website. What’s driving the marketplace surge overall? Canalys’ McBain has some ideas.
“Multiple converging trends, including new vendor business models, a changing buyer demographic, layered and deeply integrated ‘building block’ solutions, lower marketplace fees, enterprise commitments now including third-party products and services, and expanded marketplace functionality to include multiple private partner offers,” McBain told Channel Futures.
Meantime, the team at Gartner reports that enterprise customers of all sizes now buy more than half of their services from cloud marketplaces.
Furthermore, Tackle.io, a services firm that helps vendors get listed on cloud marketplaces, is itself growing quickly, at a staggering rate of nearly 8,000% from 2018-2021. A 2022 report from the company notes that marketplaces have evolved from “transaction vehicles to become a leading revenue channel for companies of all sizes and industries.”
The Tackle.io report makes some predictions of its own for 2023. The company is even more bullish on marketplaces than is Canalys, forecasting $50 billion in spending by the end of 2025. That’ll be more than triple its forecast of $15 billion – a sizable number already – for next year.
Moreover, Tackle.io suggests there will be significant growth in line-of-business buying through marketplaces in 2023, another trend we at Channel Futures have been following for a few years now.
Channel Impact
While some have expressed concern that marketplaces could be a threat to the traditional channel partner, we at Channel Futures believe therein lies more opportunity than peril. Though marketplaces can help the customer bypass the partner, the consultative expertise and relationships that channel partners have will remain critical in the end-to-end purchasing process.
As Chris Hill, regional vice president, cloud and strategic alliances at Barracuda, told our Christine Horton earlier this year, marketplaces “create intuitive, attractive, user-friendly experiences for [partners]’ customers who confidently self-service and source their Christmas shopping via Amazon and want to emulate that experience for business procurement. That’s whether they be SMBs, enterprise, or somewhere in between. Those that cater to this shift will keep customers coming back for more. [They] will carve themselves a space in what promises to be a fundamental pillar of the channel in the coming years.”
In addition, Kirk Horton, VP, channels and partners at Netacea, the cybersecurity firm, said the growing appetite for cloud marketplaces makes for a critical addition to a partner’s portfolio.
“They provide a one-stop shop for customers’ solution needs,” said Horton. “They enable new technologies and use cases for a variety of builds across all models, from applications to security solutions. This is a new and exciting opportunity for service providers. It’s imperative that security providers partner with these marketplaces to easily enable the use of their technology across a widely distributed customer base around the world.”
By Kelly Teal
Cloud computing in 2023 will be defined by a single trend: organizations actively controlling costs and optimizing their environments.
The free-for-all that was executives’ approaches to cloud computing spending since COVID-19 has come to an end. Indeed, 2023 will mark the year that the organizations channel partners serve will actively seek to make the most of their cloud infrastructure and services. Yes, financial executives will push for cuts in expenses. But leaders involved in cloud computing will rely on informed guidance and metrics to not just rein in that spending, but to optimize it. After all, cutting to the bone rarely brings about desired improvements in employee productivity, efficiency or loyalty — all critical components of a global workforce impacted by the Great Resignation and ongoing Quiet Quit.
This trend, forced by seemingly endless, negative economic factors, will give the channel a boon. Managed service providers, system integrators, consultants, agents and other finance-savvy channel partners will find themselves integral to helping customers make the most of their cloud environments in 2023 and beyond.
How Did We Get Here?
In 2022, a recession loomed and more than 143,000 layoffs had swept the tech industry by the beginning of December — all prompted by COVID-19 and ensuing pandemic fallout. As inflation remained at historic highs and supply chain shortages continued, hurting businesses and consumers across the board, CFOs, CIOs, heads of procurement and line-of-business leaders all began to understand something important: that their unfettered outlay on cloud infrastructure and services had gone from helpful to burdensome. Too many resources lay unused or underused, yet the cloud-consumption meter still ticked away. Too many employees had engaged in shadow IT, purchasing unauthorized cloud applications to help them do their jobs. As a result, executives have realized they have been footing the bill for duplicate cloud applications and products.
Recall that the pandemic spurred sudden migrations to cloud so organizations could support employees working from home or other remote locations amid global lockdowns. Cloud computing was essential to keeping business afloat. However, mass, often unmonitored deployments, led to overspending and overprovisioning. This has represented a critical development. Cloud costs a lot more than the industry, keen to jump-start recurring revenue as the tech sector moved from hardware to software, originally led people to believe.
Many channel experts saw that writing on the wall and started stepping in to help customers reel in cloud expenses. Those efforts, though, likely will take time to show in terms of lower costs because many cloud providers put clients on contracts, typically lasting three years. A number of cloud deals signed in 2020 will reach expiration in 2023. This will give cloud managed service providers, consultants, integrators and other channel partners a chance to really shine. They have the opportunity to step in and help organizations stem the cloud computing tide. Cloud will remain indispensable. But it doesn’t have to cost a fortune.
How Channel Partners Will Win
As such, cloud channel experts may recommend customers rely on one of the many cloud expense and optimization management platforms available. These act far more effectively than manual spreadsheet tracking, especially when multiple SaaS and UCaaS apps, and test and storage buckets, are in play. Often, there are dozens or hundreds of these assets within an organization; maintaining and tracking them requires insights and capabilities Excel and Google Sheets do not have.
On top of that, organizations lose internal experts and institutional knowledge when they shed staff. As such, more businesses will turn to their channel partners to oversee their cloud costs and optimization. Knowledgable MSPs, consultants and other partners will work alongside the heads of clients’ IT, finance and procurement to figure out where cloud cuts make sense and where beefing up cloud resources makes even more sense. The trend toward thoughtful cloud computing outlay will take serious root in 2023 and continue into the foreseeable future.
By Claudia Adrien
It’s not a new prediction that consolidation is a trend in the UCaaS landscape. However, the pandemic propelled greater adoption of unified communications as a service, making continued consolidation in this field our projection for 2023.
Although UCaaS has changed our lives on a personal level, much attention is placed on how employers use video conferencing, business calling and other services. That in mind, UCaaS providers must also develop an environment where more complete offerings tackle and adapt to the needs of specific customers.
In fact, many customers are asking for more than just basic UCaaS tools from providers, putting into question the survival of standalone providers. Artificial intelligence, real-time reporting, 5G mobility and API-based integrations are now services that customers expect from vendors.
But how do they offer all these solutions?
“Through the mergers and acquisitions of various companies, UCaaS vendors are able to create more comprehensive ecosystems for communication and collaboration,” writes Scott Aldridge, director at Primetel, on LinkedIn. “While extensive research and development may be able to achieve the same results in some cases, many vendors simply don’t have the budget, time or specific expertise to develop new innovations from scratch.”
For example, the acquisition of Vonage by Ericsson should help with the development of new 5G initiatives. And Dialpad’s acquisition of Koopid “brings native conversational experiences further into the Dialpad ecosystem, allowing for more meaningful omnichannel digital engagements,” Aldridge writes.
Jon Arnold, principal of J Arnold & Associates, said paying attention to how much UCaaS firms spend on R&D is a strong indication of company health in the coming year.
“I think the good ones probably spend maybe 10% or more in this area,” he said. “If you see that number starting to tail off, that’s a pretty bad sign.”
What’s another poor indicator of health?
“I would much rather see a profitable company that isn’t growing very much than one that keeps growing and adding customers but is not sustainable,” Arnold said.
Looking ahead, he suggests that if a company’s annual growth rate is 20%, it’s a signal that the markets won’t turn on the firm.
However, growth still requires innovation. Yet, the UCaaS arena is analogous to the iPhone. There are only so many iterations one can make.
“So last year, a UCaaS offering might have supported 10 languages and this year they support 20,” he said. “It’s more of the same and it’s not creating anything radically new. It’s becoming very commodified.”
Arnold did suggest that the race to adopt CCaaS solutions is different from UCaaS as it is solving and innovating for a customer service problem.
In 2023, expect to see more UCaaS companies consolidate to adopt CCaaS solutions, modernizing the contact center space and helping the bottom line.
By Allison Francis
MSPs and customers alike, it seems, will likely continue to pursue digital transformation and IT modernization initiatives in 2023, despite a less than optimal economic outlook. The steps may be a bit more carefully planned, but the overall goal and highest priority will always remain increasing the customer experience and ultimately fueling revenue.
PwC’s third quarter Pulse survey of 657 U.S. executives uncovered that 81% believe a recession will occur in the next six months. However, in the same vein, 82% of the business leaders (CFOs, COOs and CIOs) expressed confidence in their ability to stay on track with their transformation initiatives. Calculatedly, of course, but marching forward nonetheless.
This trend, clouded somewhat by the aforementioned negative economic factors, will help the channel not only survive, but thrive. Digitalization is vital for businesses vying for an edge and visibility in a hypercompetitive market. Therefore, managed service providers, system integrators and consultants will find themselves integral to helping customers make the most of their digital presence in 2023.
Economic Reality
Whatever economic reality we’re facing into will indeed not halt spend next year, but it will likely temper it.
This means, simply, that leaders won’t make huge gambles. Forge ahead, yes, but the creative, exploratory ideas may be stored in the vault for the time being. What organizations will need are ideas that will more than likely yield payback. Now is not the time to make bets.
For many years, the as-a-service model has been on a static incline, and the next year will be no exception. While customers look for cost reductions, technology will still be needed. The unfortunate reality is that cash may become less fluid, which will cause old-school tactics such as capex projects (like hardware and software upgrades) to not be available option for some businesses. Instead, businesses will likely work to shift toward driving down operational expenditures such as optimizing XaaS-style contracts and concentrating on projects that deliver the highest business value.
The best part is that customers are stating “technology is not where we plan to cut, technology is where we plan to invest to help navigate the recession.”
The MSP Angle
This may be one of the best times to be a managed service provider. Customers are more interested in technology solutions and more open to innovation and emerging tech than ever before. The recent world events proved that technology was necessary to keep money flowing, and now, many are looking to make technology solutions a primary in their businesses. Again, this will also give them a competitive advantage to reduce friction in the buying experience as well as service delivery. Technology providers capitalizing on this trend will continue to win the wallet share of business with innovation and collaboration coupled with secure solutions.