Partners React to Upstack-Lumen Deal: TSBs Will 'Get Over Hurt Feelings'
"I thought it sounded unwieldy for them to try to run business through the TSBs in the first place," one partner said.
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Many partners, when asked about the deal, said they don’t find it surprising. They said direct contracts are common with vendors and agents that have built a strong relationship.
“Upstack signed a direct agreement with Lumen. There’s nothing next-gen or digital ‘transformation-y’ about it. At least not to me. Much ado about nothing,” C3 Technology Advisors lead consultant Matthew Toth told Channel Futures.
Jay Morris, chief aggregation officer at MOReCOMM Solutions, agreed.
“The vast majority of carriers and suppliers have doubled down on TSBs, so to me this deal means nothing,” Morris said. “When any agency scales, often a direct agreement is warranted or beneficial. Always has been, always will be. Some TSBs even have to use other TSBs to fill agreement gaps. TSBs go direct the moment they have the volume to do so as well. Nothing new here, absolutely nothing, zero. Other than for some reason, both carrier and agency decided to prance down the runway together like peacocks. That is new, and short-sighted, in my humble opinion.”
Darcee Nelan, CEO of IQwired, summed up the reactions to the partnership well.
“I thought it sounded unwieldy for them to try to run business through the TSBs in the first place and assumed they would end up creating their own relationships with providers. I think for many of the TSBs that have invested significant resources in supporting Upstack from the start, the fact that Upstack has changed strategies and decided to pursue direct agreements with service providers has got to be hard for them to stomach,” she said.
Ted Schuman, chief experience officer at Avant, publicly commented on the agreement. While Avant’s peers stayed mum when asked to comment on the deal, Schuman didn’t hold back.
“It has been widely known Upstack was going to begin securing direct agreements since last October. No surprise to hear about this announcement. The word ‘diluted’ used in previous Upstack interviews is material on many levels. They’ve slightly increased their gross margin at the expense of diluting their net margin because building a professional back office can’t be done for the extra 10-15% of the gross. Learning to manage and operate a functional Lumen back office is a massive labor, huge financial undertaking and is an acquired skill that can take years to develop,” Schuman wrote on LinkedIn.
“In the interim, the Upstack partner and client experience will be diluted significantly. Lumen on the other hand gains absolutely nothing by signing Upstack. Their acquired partners have been actively selling Lumen thru [TSBs] for years. This is nothing more than share-shifting while taking revenue from top producing Lumen partners.”
Bret Hickenlooper, president of Sumo Communications, also did not express much surprise.
“In the roll-ups happening, almost all partners have direct agreements of some sort. Assuming Upstack didn’t have any direct agreements before Lumen is crazy,” Hickenlooper told Channel Futures.
“In their acquisitions, they have acquired bases that have a high volume of transactional/organic revenue in nature without much effort from the partner even. We all have those – they just keep placing orders, upgrading, buying more seats, etc. In all of this, a TSB adds no value other than holding contracts.”
Morris said the public nature of the announcement could send ripples through the industry.
“For Lumen, which has challenges in the channel anyway, what did this buy them? Other than maybe securing an obscure credibility statement, yet they will still rely on all the TSBs and subs for 99% of indirect sales. For Upstack, they still have to rely on TSBs for supplier products not scaled. Point is, any one agency alone is barely a blip on the Lumen radar, but TSBs as a whole are huge to Lumen. Will TSBs decide to push back on both of them? Will some suppliers (much larger than Lumen) push back as well? This could get ugly and for what? Egos that just had to ring a bell and be heard and noticed for something that has been happening in the channel for 30 years. Who drank whose Kool-Aid on this?”
Dave Dyson, CEO and chief strategist at Eclipse, offered his prognosis.
“None of this should be surprising. Every ‘super agency’ is going to eventually go direct with their largest 10-20 partners and use the TSBs for the rest. If a roll-up doesn’t figure out who their top revenue vendors are and sign direct, they would be leaving money on the table in the name of harmony; that is not in the playbook. Ultimately, when the super agencies have enough revenue, the TSBs will get over their hurt feelings and give them 90% pass-through on the other vendors in the portfolio, in some regards making the TSBs the boutique marketplaces for the TSBs that will have their own back offices, pricing desks, sales engineers, sales enablement apps, channel support from top vendors, MDF funds from said vendors, et al.”
Toth said the extra points that come from a direct agreement might look attractive to investors.
He also questioned the possibility of TSBs severing their relationships with and vendors that choose to take this route.
“I highly doubt that TSBs will let their Lumen revenue go just because Upstack signed a direct agreement,” he told Channel Futures. “I can ’t imagine that Lumen would be happy to move that revenue over either.”
Allan Jaffe is the vice president of technology at Top Speed Data Communications.
“I don’t see how Upstack scales as a direct seller,” he told Channel Futures. “Part of the TSB value proposition is scale. Part is access to many providers.”
Kathleen Waters is the CEO of Creekview Group. She made a bold prediction.
“I believe the end game for Upstack is to become a marketplace similar to the AppSmart model, thus creating this race to zero and eliminating the partners.”
Elliott Baretz, senior director of partner management, advisor services at AppSmart, stressed the relationship between the company’s marketplace and its technology advisory partners.
“The concept of a marketplace represents significant innovation within the channel. There are clear benefits for today’s IT buyer in leveraging the efficiencies and critical mass of a platform such as AppSmart,” Baretz told Channel Futures. “But our business model is not singular. Any marketplace depends on the services and trusted relationships that are delivered by today’s partner ecosystem. Every day we work with innovative solution providers that are eager to bring us to the table. As time goes by, our goal is to enable and empower as many of these partnerships as possible to drive a thriving marketplace that delivers best-in-class technology solutions to companies across industries and around the world.”
Jolene Langford, president of Athenium Technology Group, offered nuance on the marketplace trend.
“Once upon a time I worked for a little startup marketplace. I was employee number 26, and we all had big dreams and high hopes. Fast forward, and they are now one of the largest marketplaces in the world. All it took was to land one global client and then the snowball effect happened where one Fortune 500 after the next started buying into this new way of procuring services,” she told Channel Futures.
“The marketplace isn’t the end-all way companies buy, but it’s enough of a preview teaser for people to get some legs under their thinking before calling to speak with the real consultants. And who will they call? The people with the marketplace. Most of enterprise clients didn’t buy from the marketplace, but it’s the tool that invited them in to have further dialogue.
“I’m certainly not alarmed by the Upstacks and AppSmarts, but I do think they should be viewed as a credible threat. Maybe not right this moment, but down the line.”
Hickenlooper pushed back on the notion that marketplaces could someday become the dominant vehicle for enterprise technology purchasing.
“The customer facing portal idea for buying technology makes me laugh. Building Best Buy online shopping for IT solutions assumes what we all sell is a commodity,” he told Channel Futures.
He pointed to the “inglorious rise and fall” of the bandwidth trading business Enron launched in 1999. You can read more about that endeavor from the very mouth of the person who claims credit for it.
“This time in this space is crazy. I’m loving the ride! The advisor/agent/partner community will long outlast the grandiose plans of some. It will always be a relationship business,” Hickenlooper said.
Partners differed on whether they thought Upstack landed in the same category as AppSmart as companies that want to offer a client-facing marketplace.
Moreover, Toth said Upstack currently lacks the resources to build such a system.
“AppSmart has more money than they do and an actual background in building marketplaces and is still struggling to get it off the ground,” he said.
Building the customer “portal to end all portals” would require major cash and massive buy-in from vendors, Toth said.
“Upstack would need to be bigger than currently constituted by at least a factor of three before they even think about doing this. I think their investors won’t pony up the cash for anything more than a series of acquisitions along with some nice-looking tools like Pathfinder,” he said.
Mark Venuto is the chief operating officer at US Network, which was one of the first companies to join the AppSmart Invest program. His firm has also been trying out the AppSmart marketplace.
While he said he does not expect marketplaces to be the “end all be all,” they certainly will carry weight.
“Yes, most folks indeed want service and don’t want to wait on any sales individual to provide them with multiple quotes. I believe most individuals’ views are they simply don’t want to wait on sales. They want what they want fast with no hassle,” he said.
“I agree that building a truly workable, desirable marketplace will cost a ton of money, but let’s keep it real; it has always been about the relationship with the customer. Regardless of the size of the account, it comes down to [something] simple: People buy from people they know and trust, plain and simple.”
Toth cautioned members of the channel that the people building marketplaces might be following the trends correctly.
“We’re using our 40-60-year-old thinking hats. The new generation of decision makers will be different,” he said. “When you have an entire generation that is used to buying everything online, why would it stop here? Are we that special?”
He pointed to Carvana, which customers are using to buy cars out of a vending machine. In the case of Carvana customers, Toth said a streamlined purchasing process trumps the need for a test ride.
“They want convenience and immediacy. And they hate salespeople. If it’s commoditizeable, it’ll be bought in a marketplace at some point. No question. The stuff that we think is even mildly strategic could go that way too. It’s not all doom and gloom, but we all need to focus on what truly makes us different, because the rest of the stuff is going to be sold by ‘Micro-AppSmart-azon.’”
Peter Radizeski is the president of Rad-Info.
“No idea what is ‘next-gen’ about this partnership with Lumen,” he wrote on LinkedIn. “Looking at it from Lumen’s point of view, their revenue is declining at a steady rate of 7%. They would give anyone an agreement if they even sold a POTS line at this point. Any company that took [private equity] money will do what needs to be done – Bluewave included – to find a percentage here or there for the owners.”
Curt Allen, who recently joined Bluewave Technology Group as a strategic adviser, offered a statement on behalf of the Columbia Capital-backed channel partner.
He echoed CEO Seth Penland’s comments that Bluewave plans to run most of its vendor relationships through TSBs.
“We believe that the TSBs provide a very valuable service managing providers. Our thought is that to replicate their decades of acquired expertise would be nearly impossible. We are focusing our time, energy and investments on building the best customer-facing advisory in the space. We have no plans to dissintermediate our TSB partners and will continue to develop even deeper partnerships,” Allen said.
Randy Jeter is the chief strategy officer at ARG.
“This is simply called industry maturity. Both sides need to keep maturing and building,” he wrote on LinkedIn. “For one to say it lacks relevance is false. It is relevant, and in the future you simply have two options as an entrepreneur, and the providers see it. This is a win for the industry!”
Randy Jeter is the chief strategy officer at ARG.
“This is simply called industry maturity. Both sides need to keep maturing and building,” he wrote on LinkedIn. “For one to say it lacks relevance is false. It is relevant, and in the future you simply have two options as an entrepreneur, and the providers see it. This is a win for the industry!”
The partnership between Upstack and Lumen has the entire channel talking.
The companies last week announced a direct partnership in a move that directly challenges the technology solutions brokerage (TSB) community that has historically mediated the relationship between Lumen and Upstack’s various subsidiaries. While most TSBs declined to comment publicly on the deal, sources in conversations with Channel Futures registered their frustration.
The announcement of the Lumen deal comes a little more than a year after Upstack CEO Christopher Trapp vowed that he wanted to build the most successful direct selling agency in the world, leveraging funds from Berkshire Partners and other private equity investors. That plan entailed relationships with TSBs.
“We’re going to continue leveraging those [TSBs] going forward,” Trapp told Channel Futures last April.
Both Upstack and Lumen addressed their new deal in statements to Channel Futures.
“Each of our partners is valued and important to our channel,” said Dave Young, Lumen’s senior VP of strategic sales. “With more resources and investments focused on the indirect channel than ever before, Lumen is committed to providing an exceptional experience and helping both current and new partners grow with us.”
“We appreciate all the conversation and interest the Lumen/Upstack partnership announcement has generated and look forward to keeping our network of partners and peers up to date as our partnership grows,” Upstack said.
Various channel partners, including members of the Channel Futures agent advisory board, weighed in on the partnership. In the slideshow above, they also discuss the marketplaces trend and the future of technology purchasing.
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