Shadow Channels Threaten Traditional Partner Businesses

**Editor’s Note: Jay McBain will lead a session at the Channel Futures Forum Preconference, Sept. 25, part of Channel Partners Evolution in Austin, Texas. Register now.**

It used to be enough for channel partners to know that they got a seat at the table to work with a customer on some important IT project. Well, it looks like that’s not the case anymore if you’re not being invited into the right room.

Say what?

Forrester’s Jay McBain

Business leaders are inviting five new types of technology influencers into the room – call them shadow channels – to do critical IT work. So says Jay McBain, Forrester principal analyst, global channels, who recently spoke at Rackspace Solve in NYC. The five new types of technology influencers are: SaaS ecosystem consultants; industry-based professional services firms, such as accounting, legal and marketing firms,; ISVs; born-in-the-cloud firms, and startups — those companies trying to get into the room by disrupting traditional markets by providing business leaders with a competitive edge.

“I think that everyone who’s a player in this industry, whether you’re a distributor, a vendor, or a partner, have a stake in this new game. And vectorization, as I call it, is the new hyper-verticalization, where just knowing something about HIPAA and IT for health care, for example, isn’t enough anymore,” he shared with us.

Taking a step back, what’s driving the requirement for very deep, or hyper-verticalized expertise is how customers make technology decisions, or what’s more commonly referred to as the customer journey.

According to Forrester, 65 percent of software IT buying decisions are being made by business leaders outside of IT, and 29% percent are made by a line of business (LoB) executive without IT — and that figure is rising quickly.

And not only are these business leaders not involving IT in their decision making, they’re also using their own budgets for IT purchases.

The good news is that these business leaders are looking for complete solutions, meaning that 58 percent are hiring channel or third-party IT services, building alliances.

So who are these business leaders/IT purchasers and what drives them?

“We know that business leaders make decisions a little bit differently. They focus on business objectives and they focus on solving their problems. Without the need to understand deep technical specifications, they can focus directly on their business objectives and business outcomes,” McBain said.

These businesses decision makers are also building and running the projects and they’re taking responsibility for making sure that these technologies are integrated and secure end-to-end.

That’s a big change from how traditional partners are used to doing business.

So, what’s making the shadow channel successful? The answer is hyper-specialization or vectorization. It’s about a partner understanding the sub-industries of a particular vertical, the lines of business in the vertical, the nuances of that vertical in all the geographies in the U.S. and potentially internationally, and are able to prove experience in a particular vertical segment, and understands the technologies that work.

“I want someone that’s done it in my situation. I would love that I’m not your guinea pig — you’ve done this before so you know what works and what doesn’t and you’ve done the pain and suffering on someone else’s dime,” explained McBain.

This hyper-verticalized expertise requires a partner to take a good look at their business to understand what they’re good at and who they need to partner or align with, and what capabilities they need to build. Partners also need to look at the various vectors and identify successes.

Ultimately, hyper-verticalized partners will overtake the generalists, McBain contends.

There’s an opportunity for traditional partners in this new hyper-verticalized channel, but not without commitment to making significant changes, most notably to sales and marketing, developing hyper-specialized skills around business outcomes, and having the will to change.