The Death of the Sourcing Partner? Agents Weigh Business Models
Agents are investing in consulting, project management and managed life-cycle services to stay relevant with customers.
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ARG chief strategy officer Randy Jeter has returned to the partner side of the channel at what he says is just the right time.
More than 15 years ago, Jeter was president of Premiere Worldwide, a fast growing agency that was racking up awards from Intelisys and looking to scale. However, Jeter said he felt the limitations of the agent model at the time. He wrote in a 2009 blog that if the channel wanted to become “indispensable,” it would need to buck the stereotype that agents always sold on price. If the industry were to truly grow, agents would need to evolve into “true full-service brokers.”
But the shift wasn’t occurring as Jeter saw it. Partners simply weren’t selling advanced services.
“The biggest issue that I had fundamentally was that the space wasn’t ready, because the space was really only selling circuits,” Jeter told Channel Futures. “It wasn’t selling SD-WAN, it wasn’t selling UCaaS, it wasn’t selling cloud, and it wasn’t selling apps. It wasn’t selling any of the things that I felt like you needed in order to get into the channel and build a long-term profitable business.”
When a customer asked him where they could place $30,000 monthly recurring revenue in cloud hosted services, Jeter was stumped. There was nowhere he could source the deal. The deal helped inspire Jeter’s vision of building a managed cloud services provider. He went on to lead RapidScale, which he later sold to Cox in 2018.
“You had to have more of an array of services to source in order to scale. Hence, RapidScale was born out of a need for the channel,” Jeter said.
But Jeter said he had always planned to return to the partner space. And indeed, by the time he sold RapidScale to Cox, the agent space had evolved significantly. And that started with the types of technology that partners were sourcing for customers. The technology solutions brokerages (TSBs, formerly master agents) were forming diverse line cards of technology providers, and agents were educating themselves on how to sell them.
But Jeter saw a bigger opportunity than just selling new technology. Because just as customers are asking for different technology, they also want to buy it in a new way. That brought Jeter back to the services element.
Jeter said the customer landscape has dramatically pivoted over the last decade from primarily managing IT in-house to outsourcing it. And the agent channel could sync up with this trend.
“I always envisioned that the space would turn into a health care model like an AON or Marsh McLennan, where the carriers use the IT advisers, and the services are distributed through the advisers,” he said.
This does not necessarily mean adopting a literal MSP practice complete with remote monitoring. However, it does mean doing more within the life cycle of the technology offerings partners sell. Jeter said more and more customers are expressing a willingness to pay management fees. Moreover, Jeter said buyers are hungry for data about their technology. He said the national TSBs have traditionally owned the vendor data, but firms like ARG have developed their own SaaS offerings to house and provide such information.
“Quite frankly, a lot of IT decision makers don’t know how to make an informed decision, so they’re looking to sourcing experts now,” he said.
ARG is not the only firm positioning itself as a holistic partner. Bluewave Technology Group emerged on the scene earlier this year with $75 million in funding from Columbia Capital and a promise to offer customers more guidance across the technology life cycle.
“Vendors obviously are the ones provisioning the end solution, whatever that may be. But our clients rely on us to manage every aspect and to be the interface with the solution providers,” Bluewave chief operations officer Wayne Dietrich (pictured) told Channel Futures.
Jeter pointed instead to information technology expense management (ITEM) and information technology services management (ITSM) as markets he is eyeing. These models grow in their importance as customers move away from demand point products and tech advisers sell cross-platform solutions.
“This IT service/sourcing/management space is really about telling the customer story on the front end, managing it post-sale and incrementally increasing the client experience year-over-year through automation and innovation,” he said.
Grand View Research valued the global IT services outsourcing market at $520 billion in 2019, and Jeter said that number continues to grow. But it’s the combination of IT sourcing with project and account management that Jeter said will cause the total addressable market to skyrocket.
Just as some partners are looking to add more touch during the customer life cycle, some see the vendors doing less during the customer life cycle. MaryTom Hofer (pictured), director of operations for recently formed Kairos Data Communications, said the company started in part because of a need to center the channel ecosystem around customer pain points.
“What makes this whole thing so maddening is there don’t seem to be many conversations about this growing problem,” Hofer said. “Like the cowboy quote says, ‘If you find yourself in a hole, first thing you do is stop digging.’ Drop the shovels and start helping. Start talking. How can we make the experience better for the client?”
Lucas Salvage, Kairos’ chief revenue officer, has told Channel Futures that three-quarters of vendors disappoint on deployments. And Hofer said she sees the problem getting worse. She argues that partners and suppliers need to engage in an uncomfortable conversation about the problem.
“In the short amount of time I’ve been in the channel, supplier support has been on a steady decline,” she said.
She said customers are making more frequent and complex requests for support, many of which require the vendor’s insights. Hofer said Kairos has taken it upon itself to go that extra mile when the vendor won’t. And that effort, she said, has given the firm more value.
“The deficiencies that were found within supplier support had our clients turning to us, the trusted adviser, to help solve those challenges, because they just weren’t getting anything from the supplier,” she said.
Dietrich said he has seen an increased customer need for Bluewave to function as an interface for support issues.
“We are the conduit from the provider to the client. And I think more and more, there’s an expectation from the client to do more of the heavy lifting,” he said.
Not all partners agree that vendor support is decreasing. But if it is decreasing, partners must evaluate their long-term operations model. Will they charge for project management and customer support? Will they add more staff? Will they turn to TSBs for extra support? And what do vendors expect of agents, and vice versa?
“It becomes the question of, where does the supplier believe that our support, our implementation and our expertise starts and ends versus where do we think it does,” Salvage (pictured) said.
Salvage said that if vendors expect agents to own more of the technology life cycle, they’ll need to provide agents with more insights and back-end tools that they themselves possess. Especially if vendors are communicating less and less with partners about product updates and other pertinent information.
“Those are problems that need to be solved or talked about before we can go carte blanche and say, ‘We’re just going to own it end-to-end,’ because there’s a lot of visibility that I don’t have today,’” Salvage said.
David Wright said churn is one of the biggest enemies to agent growth. His firm ensures that account managers serve as “shepherds” of the technology Disruptive implements.
“This is a dedicated representative who’s literally in their ticketing system, fighting fires, finding ways to improve their environment and updating stakeholders like a full-time employee. And the beauty of that is, as time passes and there is an executive leadership change or turmoil within the account, that service makes us that much more sticky, because we’ve become an integral part of their operation,” he said.
Disruptive charges project management implementation fees for enterprises, although Wright mentioned that one of its competitive advantages is the discounts it can put forth on these fees compared to that of the larger consulting shops.
David Wright (pictured) said he founded Disruptive Innovations in 2018 as a “consultative sales organization.” That meant providing audits and assessments of customers’ technology environments, addressing current challenges and aligning more closely with the business goals of the organization.
The company in its initial 18 months was providing solution engineering resources, RFP management and implementation project management. Those offerings served Disruptive well, but Wright said the time came to expand.
The firm has launched several consulting modules, starting with an IT strategy module. Others include private equity due diligence and customer experience optimization.
The modules stemmed in part from encountering customers that needed help aligning their IT mission with their organizational structure, Wright said. It also stemmed from the competition Disruptive was facing.
“Especially in the midmarket enterprise arena, we were encountering more and more large consulting firms that were working with companies on cloud strategy and IT strategy. In order to level up as an organization, we felt we had to augment what we were doing when it came to our initial offering,” Wright told Channel Futures.
JS Group CEO Janet Schijns (pictured) said partners like Wright have moved from the procurement level to the strategic level.
“I think that’s where some of the smaller agents struggle. They’re at the procurement level. It’s the procurement guy saying, ‘Hey, give me 100 circuits. Upgrade me from 200 Mbps to 400 Mbps. These are procurement discussions, and whoever does it the cheapest wins,” Schijns said.
Disruptive has by no means done away with technology sourcing. Wright said the consulting modules lead customers into a technology road map.
“Not only are we going to give them that road map of how to get from point A to point B, we’re going to stick with them. We’re going to design that solution, we’re going to negotiate with them, and we’re going to implement it, because implementing these technology solutions is where the rubber meets the road, and we have the bumps and bruises of doing this hundreds of times over the course of my career,” he said. “At this stage of the game, we can employ time-tested risk-mitigation strategies and careful OCM levers to help clients avoid the same pitfalls we’ve encountered over the years.”
Schijns proposed that the term “solutions orchestrator” might apply to the “super-agents” that have emerged onto the scene. These firms are vowing to provide more services and are building back office and software platforms required for those services. Moreover, many of these firms are signing direct contracts with suppliers.
Schijns said it is reminiscent of how systems integrators evolved from VARs when the MSP model “decimated” the legacy VAR model. While she said she doesn’t see these super-agencies diving into DevOps as systems integrators do, she said they will similarly evolve to provide value in managing the services and support layer.
And smaller agents, she said, also have an chance to capitalize on this opportunity.
“Are you going to integrate yourself into your customers’ businesses as a services channel? Or are you going to keep trying to sell telco? That’s not going to work. Because telcos are going to go marketplace for small orders,” she said. “Those smaller agencies will have to evolve, or frankly, perish. The Dodo bird, the VAR and the small agent are all going to be in the same category in a decade.”
Schijns said many small agencies will survive. But survival, she said, will come from bringing new specialization.
“They’ll either have a vertical expertise, or will have a market expertise,” she said. “They’ll just have a reason for being other than, ‘I can get you your carrier services.’”
Rad-Info’s Peter Radizeski said the agent model has proven itself. He pointed to how hardware vendors like NEC and Cisco have pivoted to accommodate a broker model. But agents still have their work cut out for them.
“It will just be harder to make a living as average invoice prices on UCaaS and network are declining. So agents have to grab more wallet share,” Radizeski said.
He said he is working to keep pace with next-generation technology and keep customers centered.
“If the partner listens to her customers, the path may be right in front of them. My whole 20-plus-year career in telecom has been listening to customers and trying to guess where the puck was going – and helping my customers get ahead of the puck. I will keep doing that, while also trying to stay abreast of technology. That is getting harder as so many layers are emerging: AI, quantum, edge, low code, cybersecurity and so much more,” he said.
Rad-Info’s Peter Radizeski said the agent model has proven itself. He pointed to how hardware vendors like NEC and Cisco have pivoted to accommodate a broker model. But agents still have their work cut out for them.
“It will just be harder to make a living as average invoice prices on UCaaS and network are declining. So agents have to grab more wallet share,” Radizeski said.
He said he is working to keep pace with next-generation technology and keep customers centered.
“If the partner listens to her customers, the path may be right in front of them. My whole 20-plus-year career in telecom has been listening to customers and trying to guess where the puck was going – and helping my customers get ahead of the puck. I will keep doing that, while also trying to stay abreast of technology. That is getting harder as so many layers are emerging: AI, quantum, edge, low code, cybersecurity and so much more,” he said.
Technology advisory firms large and small are seeking to move beyond procurement and into more strategic roles with their customers.
The traditional telecom broker channel is basking in the glow of its success. Private equity is flowing into the space. Well-known IT vendors such as Cisco are accommodating a commission-based model for the first time. Subagents are doing battle with the largest consulting firms in the world for enterprise customers — and they’re winning.
But many agents tell Channel Futures that now is not the time for the industry to rest on its laurels. The commissions agents used to build books of business are shrinking. Even UCaaS commissions, which helped lift partners through the COVID-19 pandemic, are dropping. Agencies are scrambling to build practices and teams around profitable technologies like contact center and cybersecurity, but not all of them possess the necessary resources and expertise. Vendors, by many accounts, continue to perform poorly on customer support, forcing partners to make operational investments. Some agents even report that channel conflict is worsening.
Marketplaces
All the while, the gradual rise of marketplaces that give customers direct access to technology puts the role of brokers role into question. Even if marketplaces don’t reach the adoption levels analysts have heralded, the question must still be asked: Will partners survive if they don’t move beyond the procurement level?
For many partners, the answer is no.
“There’s so much information available to the average CIO nowadays that just being a sourcing partner is dying,” said David Wright, CEO of New York-based Disruptive Innovations.
Agents are embracing a myriad of new business models that they believe will retain and expand their customer base. New private equity-backed players and organically grown heavyweights are making major investments in SaaS platforms, back office support and services. At the same time, smaller firms are evolving their practices to provide more business value to their customers and make their relationships stickier.
“No one-size-fits-all here,” said Peter Radizeski, president of Rad-Info. “Some will add expertise in IT. Some partners will offer managed services. [Others] will verticalize. And some will ride it out as is.”
These are their stories.
Scroll through the images above to read about how agents are evolving for the future.
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