Channel Futures' 2023 TA (Agent) Outlook: MDF Gets a Shake-Up
Vendors are rethinking their MDF in the face of partner consolidation and the recession. And there's more.
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MaryTom Hofer, director of operations at Kairos Data Communications, predicted that more technology advisors will obtain the training required to perform professional services on behalf of their UCaaS and CCaaS vendor partners.
That stems in part from the money partners can save their clients.
“Some of these suppliers are charging between $5k-$15k for what they call ‘professional services’ on deals that are less than 100 seats, and some aren’t very complex solutions,” Hofer told Channel Futures.
Not only can partners save customers money on implementation; they can do a much better job.
“If agents actually looked at what these implementation packages include – or rather, what they don’t include – they’d be shocked. ‘Guided implementation’ sounds fancy and helpful, but most of the time that just means the customers get a link to 600 videos and are expected to build the platform themselves,” she said.
Project management in the vendor space is steadily declining, Hofer said. Partners would do well to bridge that gap.
“Why not get educated and do it for your customer and provide a better experience?” she said.
For David Goodwin, managing partner and co-founder at Advanced Technology Consulting (ATC), it makes sense for vendors to financially incentivize partners that offer more professional services. ATC handles implementations for all UCaaS deals and offers tier I and II support replete with ticketing and metrics. Goodwin said suppliers see the value in these partner services. But if they see the value, why not reward that value?
“I think over time, vendors are going to pay people like us more than the agents who just bring business, flip it over the fence and don’t really do anything,” Goodwin said. “How do you justify paying them the same amount as you pay us?”
On the other hand, some suppliers may end up filling the services gap through their own resources and winning customers as a result. Hofer also noted that agents may benefit from testing our newer, smaller providers that can offer responsive, U.S.-based support. Michael Agri, president at North Atlantic Consultants, said customer support will be a deciding factor for the still-growing UCaaS market.
“The UCaaS provider that offers agents the easiest and quickest ways to implement and manage clients will win the channel,” Agri told Channel Futures.
The elite group of partners that invested in contact center sourcing have reaped the benefits. But they will see those commissions shrinking in 2023 due to multiple factors.
On one hand, this isn’t a particularly cheery prediction to make. On the other hand, it’s not really a prediction, because agents are already seeing it. Partners have reported that one of the largest CCaaS providers recently announced a decrease in its commission rate.
Unified communication propelled agents through the beginning of COVID-19, and contact center helped them reach the next level. Partners increased their mindshare with clients by selling a complex, customer experience-focused technology like CCaaS. For many partners, CCaaS has allowed them to position themselves as business advisors to their customers, offering insights on how they can make their own clients happier. And of course, the commissions rocked.
Make no mistake; CCaaS remains a lucrative technology for partners. But in many respects the market is imitating the movement of the UCaaS market.
Partners reported a shrinking of UCaaS commissions in 2022 as the market experienced commodification. Players in the saturated vendor community lowered prices with the aim of taking market share. Thankfully, that came with juicy up-front spiffs for UCaaS, but the permanence of that trend is another question. Although UCaaS still has a long way to go in terms of market penetration, it is no longer the grassfed cash cow it was in 2020 and 2021.
And many partners believe CCaaS will evolve in a similar way. For some, it’s already playing out. One can credit the commodification that’s coming from more and more UCaaS providers positioning themselves as CCaaS providers. And one could also blame the economic downturn that’s putting pressure on vendors to save margin.
In any case, CCaaS remains a delicious opportunity for partners to grow their business and help their customers. But level-setting expectations could well help technology advisors plan for 2023.
Claudia Adrien touched on the topic of UC/CC price compression in her recent roundtable with cloud communications leaders.
Partners, expecially those who have run agencies for multiple decades, tend to agree that vendors behave with them in a more friendly way than ever.
However, the economic downturn will test that friendliness.
“It’s about to get wild,” one partner told Channel Futures.
The channel conflict partners have seen varies in its forms. In some cases, it’s the result of a rogue direct sales rep attempting to renew deals behind the partner’s back. In other cases, it’s program-wide changes to cut commissions or give the supplier an out. For example, one cloud communications provider tightened the deadline for partners to close a deal to 60 days before potentially losing out on compensation.
Idris Odutoye, technology advisor at ATA Trusted Advisors, said it remains to be seen how certain providers will modify their existing bonus spiff programs.
For Eric Ludwig, Rise Technology Advisors co-founder, other factors are driving the conflict in addition to the recession. That includes broader margin pressure and M&A, Ludwig said.
But in many technological areas, vendors still see specialized partners as their key route to market.
“We are seeing growing participation from partners optimizing contact center services, as well as unique security services such as identity and segmentation,” Ludwig said.
Engaging with agent partners typically requires suppliers to get onto a TSD line card. Although signing an agreement with a TSD doesn’t automatically equate to a sponsorship package, many vendors spend money with the TSDs as a way to generate brand awareness. These market development funds (MDF) often tie into events where vendors get the opportunity to meet with and pitch their story to the TSDs’ subagents. For many vendor channel leaders, it’s a key way to stay relavent in the partner community and develop relationships.
But many channel leaders, speaking on background with Channel Futures, say more and more sponsorship proposals are coming in from TSDs and in many cases the prices are rising. Furthermore, they indicate that they are analyzing the value that comes with sponsoring all of the major TSDs, considering that the TSDs tend to have overlapping partner bases.
And all of these discussions are occuring in the context of a recession. Vendors are engaged in cost-cutting more than any other level of the channel. The constant stream of layoffs at suppliers, including in the UCaaS space, is evidence enough that these companies are under pressure from their shareholders to pad margins.
And you can be that market development funds receive that scrutinity. 8×8, whose sales and marketing expenses totaled $80 million in the last quarter vowed to decrease investments in that area (as its 10% workforce reduction indicated). The $80 million number does not refer specifically to MDF, but it speaks to the sharpened focus vendors will place on ROI.
Keep in mind, “rethinking” distributor MDF doesn’t mean ending it entirely. One partner suggested it might mean moving down one sponsorship tier, with total spending with the TSDs returning to 2019-2020 levels.
But on the other hand, more vendors are examining ways to get closer to the end customer with MDF. In increasing cases, that means directly funding a partner for an event that prospective clients will attend.
Vendor seminent toward MDF differs on a case by case basis as well as in terms of technology type, so it may be better to keep this prediction broad. But make no mistake; the landscape is shifting with regard to market development funds in the channel.
The cybersecurity opportunity is massive for technology advisors, and few events would pour fuel on the fire like the entrance of a high-profile company like Okta into a TSD’s line card.
The struggle for agents to corner the cybersecurity market is twofold. First, they must develop the knowledge and personnel required to function as expert advisors for their customers. For many small partners, TSD solutions engineers have proven invaluable as resources for prospective customers.
Second and perhaps more troubling is offering a full portfolio of cybersecurity services. Currently agents can sell providers of secure access service edge (like Cato Networks), managed detection and response (like eSentire), content delivery network (like Akamai), MFA (like Traitware) and cyber intelligence (like Darktrace), but many key household names are lacking. The technology advisor channel prides itself on its vendor-agnosticism, but that can’t be possible with limited suppliers.
Crowd Strike, Arctic Wolf, Palo Alto Networks and the subject of this prediction: Okta.
At last check, the identity and access management (IAM) provider was working with about 1,200 partners, mainly consisting of systems integrators, distributors and resellers. However, Bill Hustad, Okta’s senior vice president of partners and alliances, told told Channel Futures that a “broader partner ecosystem” will allow the vendor to expand globally.
“We need to identify in-demand market motions, magnify those and relentlessly execute. I’m constantly thinking about how we expand and leverage an ecosystem based on the values brought by opportunities at hand. We can explore places where we are not doing business currently,” he said at the time.
Channel Futures reached out to Okta to hear the company’s thoughts on the agent model. Hustad told us that the company has “nothing planned” for entering the market. He did make mention of the company’s general appreciation of indirect routes to market.
“We feel distribution can play a broader role in SMB in driving customer business outcomes. Creating more aligned partner/customer relationships supports growth in our rateable business model,” Hustad told Channel Futures.
Is it a wild and baseless conjecture that Okta will sign an agreement with a tech services distributor and formally pursue the agent market? It absolutely is wild and perhaps unlikely given Okta’s official statement. However, the TSDs know that the one to bring these vendors on will be rewarded by the partner community and their customers. You can bet they’re knocking hard on the door.
Nicole Steele, director of global channel marketing and enablement at Aryaka Networks, said the overall channel has gained traction with larger customers.
“The channel overall has moved upmarket. Deals and opportunities are becoming more complex with enterprise customers in the networking and connectivity space. The vast majority of larger customers are going to an IT advisor who has channel relationships in place with dozens of technology providers,” Steele told Channel Futures.
Steele said Aryaka’s pipeline is 10 times larger than it was a year ago. She attributed that part to rising demand for cloud-based and security-focused offerings.
“We’re seeing more opportunities in SASE and SD-WAN, especially over the past two years since the pandemic began and cloud-based networks with comprehensive security solutions in place are a requirement and no longer just an option,” she said.
But moving up-market doesn’t come at the expense of SMB. Channel Futures wrote in its latest Mega Channel Trends that suppliers are more and more looking to smaller businesses as they navigate macroeconomic factors. And many partners, especially MSPs, see SMB as a safe haven. Many agents sell to SMBs, and some plan to expand that base. Others feel that marketplaces will replace their procurement services for smaller customers.
There also remains the question of where a company is focusing its overall go-to-market strategy and where it is focusing its channel strategy. In the case of VMware, its purchaser Broadcom plans to focus its direct sales force on its largest 600 accounts and leave the smaller customers to partners. But trends are a bit more murky in the telco space. Agents report that the ILECs are no longer as likely to lock enterprise accounts from partners. Moreover, one carrier recently significantly cut its enterprise sales team. Although that may mean the vendor is eyeing SMBs for its direct team, the enterprise door may be as open as it ever was for the channel.
This prediction reflects the aspirations of suppliers and agents – that the increased resources at the national tech services distributors will lead to better customer acquisition.
With leading TSDs coming together (i.e. Avant-PlanetOne, Telarus-TCG/TelAdvocate) the field of companies that call themselves national providers has narrowed. The remaining players are known entities to vendors and partners alike. So to is the cliehce (and no doubt oversimplified) caricatured approach to building a subagent base: wining and dining, extra commission points or “I know a guy there. ”
For many agents, the winning formula going forward is actual lead generation.
Consider what Eclipse CEO Dave Dyson said earlier this year. He argued that TSDs need to focus on helping partners acquire new customers, rather than wrestling each other for the same agent base.
“I have to differentiate my tiny little company versus the large service providers of the world. And it’s really hard to get in those doors. So the TSDs are going to have to start figuring out how to help us crack those doors,” Dyson told Channel Futures.
Chris Jones leads AT&T’s Alliance Channel and ACC Business programs, which have invested heavily in the technology advisor space in recent years. Jones said TSD consolidation is fundamentally changing the way these companies relate to their subagents.
“I think in the channel world before this consolidation started, the distributors were fighting for mindshare with partners. As the number of distributors are consolidating, they will need to approach the partner community in a different way, focusing on bringing value,” Jones told Channel Futures.
Jones uses bull-riding as a metaphor.
“When a rodeo rider rides a bull, they’re holding on for eight seconds– they go where the bull goes. They aren’t trying to control the bull, just trying to stay on top of the bull. The partner had the customer relationship, the distributor and supplier were trying to win the sale,” he said.
But now the partner’s customer relationship is no longer a post facto item to be claimed by the TSDs and vendors. Those parties will demonstrate that they can actually help the partner win the sale.
“Our goal is to provide measurable value to the partner community– one way is with leads where we see growth potential with a customer and the opportunity to expand the partner’s customer base,” Jones said. “Rather than trying to hold on to the bull for eight seconds, we hope to have the chance to help influence where the bull is going– by guiding and supporting the opportunity for the partner with customers.”
But if TSDs prove indepensible for agents in customer acquisition, it follows that more agents will fully align their brands with their chosen TSD.
Agents in many areas credit the TSDs for their help in customer acquisition. Many partners say they lean heavily on their distributor’s sales engineers when it comes to more complex technologies like CCaaS and cybersecurity. For understaffed agencies, the TSDs can help them look large enough to potential enterprise customers. In other cases, they need the back office support.
Telarus CEO Adam Edwards and Telarus senior vice president of strategic partners Dan Piryigi told Channel Futures that more partners are indicating their interest in leveraging the Telarus brand.
“And that’s how we see them now pitching to their customers. ‘By the way, I have this whole bench of resources called Telarus, and I bring them to bear, and that is part of my value to you,’” Edwards said earlier this year.
In some cases, a subagent might only align with the TSD on a customer-by-customer basis. But on the extreme opposite end, they may align as a result of an acquisition. The latter trend is, of course, nothing new, with AppSmart’s Invest program bringing many agencies into exclusive distribution agreements and Telarus purchasing long-time partner TelAdvocate.
Avant president Drew Lydecker predicted that UCaaS and CCaaS – staples of the channel – will continue to see strong adoption. However, he pointed to overshadowed areas of technology.
For example, cybersecurity gets all the attention, but what about disaster recovery?
“Businesses will also look more to DRaaS, something that has traditionally been a big miss in IT, but will become more prevalent,” Lydecker told Channel Futures.
Lydcker added that customers need technological help in sustainability. Businesses are facing pressure from regulation and their own customers to build sustainable practices. And vendors, including Cisco, are doing more to incentivize partners to meet that demand.
“There will be greater emphasis placed on the disposal of hardware and the protection of data as traditional hardware solutions are increasingly displaced by as-a-service,” Lydecker said.
Avant president Drew Lydecker predicted that UCaaS and CCaaS – staples of the channel – will continue to see strong adoption. However, he pointed to overshadowed areas of technology.
For example, cybersecurity gets all the attention, but what about disaster recovery?
“Businesses will also look more to DRaaS, something that has traditionally been a big miss in IT, but will become more prevalent,” Lydecker told Channel Futures.
Lydcker added that customers need technological help in sustainability. Businesses are facing pressure from regulation and their own customers to build sustainable practices. And vendors, including Cisco, are doing more to incentivize partners to meet that demand.
“There will be greater emphasis placed on the disposal of hardware and the protection of data as traditional hardware solutions are increasingly displaced by as-a-service,” Lydecker said.
The relationship between technology advisor (agent) firms, technology service distributors and suppliers is changing as the channel moves into 2023.
What an exciting time it is to be running an agency. The technology advisor/broker model, in which partners source technology services for their customers and earn monthly recurring commissions, has proven itself a rewarding venture for entrepreneurs. But the best partners know how to adapt to change, and change is most certainly afoot.
We’ll name the elephant in the room: a recession, whose very mention is causing the world’s largest tech companies to trim their workforces in anticipation of a worst-case scenario.
“I expect more layoffs, stock market volatility, and interest rate increases,” said Michael Agri, president at North Atlantic Consultants. “Some providers may not survive, and M&A activity could increase.”
Channel Impact
And these harsh economic conditions are trickling down into the enterprise IT and telecom world, with many partners anticipating vendors to change their policies around commissions and market development funds (MDF). Vendors and tech services distributors (TSDs) are facing more pressure from partners to add value to partners, and the reverse is true.
For Agri and many of his partner peers, there’s hope for agents.
“Technology advisors are very lucky because recessions bring opportunities to increase efficiencies and reduce costs,” he said.
At the same time, partners need to work hard to keep up with this digital age. Ryan Rowland, partner at Adaptiv Advisors, pointed to the maturation and ubiquity of A.I.
“The A.I. powered interaction, writing, imaging and video tools that are widely available today, for free, are the stuff of sci-fi, “Rowland told Channel Futures. “… You’re seeing it in your LinkedIn feed, in art, in politics, in nearly all aspects of life. I believe we are in the midst of the next industrial revolution, and we’re all going to have to do some learning, unlearning and relearning over the next couple of decades to stay relevant.”
Among the partners and individuals from vendors and TSDs sharing their predictions for 2023 were:
Ryan Rowland, Adaptiv Advisors
Eric Ludwig, Rise Technology Advisors
David Goodwin, ATC
Nicole Steele, Aryaka
Idris Odutoye, ATA Trusted Advisors
Michael Agri, North Atlantic Consultants
Drew Lydecker, Avant Communications
MaryTom Hofer, Kairos Data Communications
Dave Dyson, Eclipse Telecom
Chris Jones, AT&T
Bill Hustad, Okta
Adam Edwards, Telarus
Dan Pirigyi, Telarus
Scroll through the nine slides above to see the outlook on the upcoming year for the technology advisor channel.
Adaptiv Advisors’ Ryan Rowland
Rise Technology’s Eric Ludwig
ATC’s David Goodwin
Aryaka’s Nicole Steele
ATA Trusted Advisors’ Idris Odutoye
North Atlantic Consultants’ Michael Agri
Avant Communications’ Drew Lydecker
Kairos Data Communications’ MaryTom Hofer
Eclipse Telecom’s Dave Dyson
AT&T’s Chris Jones
Okta’s Bill Hustad
Telarus’ Adam Edwards
Telarus’ Dan Pirigy
Want to contact the author directly about this story? Have ideas for a follow-up article? Email James Anderson or connect with him on LinkedIn. |
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