Channel Partners Europe: IDC Reveals Top Channel Trends
IDC’s Stuart Wilson breaks down where we should focus in the new partner ecosystem.
![IDC's Stuart Wilson at Channel Partners Europe 2022 IDC's Stuart Wilson at Channel Partners Europe 2022](https://eu-images.contentstack.com/v3/assets/blt10e444bce2d36aa8/blt03e748a388d9ea30/6524247f6868b482113c7d5c/Stuart-Wilson-IDC-at-Channel-Partners-Europe.jpg?width=700&auto=webp&quality=80&disable=upscale)
“What we saw with COVID-19 was unprecedented,” said IDC’s Stuart Wilson at Channel Partners Europe. “If we go back to the financial crisis in 2008-2009, we see that when GDP dropped, European IT spend dropped even more.”
However, he noted with COVID there was a “decoupling of technology spending from the overall economic situation.” While describing this as “fantastic news for all of us in the technology industry,” he issued a word of caution.
COVID was “the calm before the storm,” he said, with more challenges awaiting MSPs.
“Now, we’re looking at resiliency, not just through the lens of COVID,” he explained. “We’re thinking about the geopolitical situation. We’re thinking about inflation. We’re thinking about supply chain. We’re thinking about exchange rates. There’s a whole range of other factors to consider, and it may well be that because technology spending was so robust in the last couple of years, we’ve been insulated from some of the potential impact on our business. Whereas now, moving forward, it’s much more important to be aware of all these issues, and think about, ‘how do we build a resilient business model?’”
Wilson acknowledged the important shift to recurring revenues for partners. However, he noted that if MSPs are focused on revenue, they also need to be focused on the customer life cycle.
“How are [customers] using that technology that service? What is your focus on the yield and retention?” he asked MSPs in attendance. “Because if you’re not keeping up with the newer retention rates, then that recurring revenue is actually a very weak revenue stream.”
IDC says that by 2025, total worldwide spend on cloud and cloud-related services will exceed $1.3 trillion. As such, partners must consider how their business models are aligning to that trend in terms of customer spending.
“If you’re not following the customer in how they’re changing, you’re almost shrinking the total addressable market you can target as a business,” said Wilson.
However, in this environment, vendors want their partner bases to evolve, too.
“They’re looking at their existing partner bases to see which partners are actually mapping onto these trends. We see a lot of legacy vendors that have a traditional existing partner base. And there are some partners that are not transformed. [They] don’t necessarily have the appetite or the capability to transform their business. Yet they’re still responsible for significant revenue for that vendor. And that’s a difficult relationship. Because the vendor knows that partner needs to move on.”
While the partner may know they need to evolve, they don’t want to or they can’t, said Wilson.
“They can’t justify the investment. They’re scared to do it. [Or] ‘I don’t want to risk what I’ve built by investing to move on to the next business model,'” he said.
This creates huge challenges, said Wilson.
Customers today are looking for solutions that are outcome-focused.
“If you can articulate business outcomes and a clear return on investment, you’re in a strong position,” said Wilson.
However, the move toward a consumption model across both software and hardware presents challenges for some partners.
“It re-works a lot of the financial metrics we’ve grown up with. If you’re a partner, switching from one financial model to a different [one] is a huge leap to take.”
Nevertheless, Wilson noted there has also been more focus on time to value from a solution over the past few years.
“Customers didn’t have time to go for a really long, complex tendering RFP process, feeding into their four-year transformation plan. They were saying, ‘I’ve got this promise and can you fix it? How quickly can you fix it? How does your solution fix it? How does it integrate everything in the organization?’ This is a real change in the world. It opened up an opportunity for partners that could provide the small specific niche solutions that deliver that rapid return to the customer.”
There is no “going back to normal.” Digital-first organizations are on the rise – IDC research shows four out of five firms surveyed are already executing a digital-first strategy. This is something partners will have to get used to, said Wilson.
“These changes have happened. They’re going to persist. If anything, the change that’s happening is going to accelerate.
“What we’ve also seen is that customers increasingly want flexible purchasing. We asked them, ‘What is most relevant to your organisation in terms of the pricing model?’ It was interesting to see how strong subscription based models are.”
But there are still some traditional motions that are important to customers, like perpetual licences.
“This goes back to understanding the customer and appreciating that every customer is different. It’s talking to the customer and saying, ‘How do you want to buy?’ And then putting yourself in a position to deliver it.”
The customer now has a lot more power than they did previously, said the analyst.
There is an increasing focus on services within partners’ businesses.
“Some of the very advanced partners are fully focused on services, on developing and creating their own [intellectual property]. They don’t care about the reseller [model] anymore. There’s not much more to do that resell. So if that’s going through someone else, they actually don’t care,” said Wilson.
“We’re seeing the transaction chain [becoming] almost separate from the services chain.”
This is leading to partners working with one another to fulfil the customer’s requirements.
“Sometimes a solution for a customer can involve three or four partners working together to provide different things to that customer. So being a partner is about being much more open to how you’re going to work with our partners, how you’re going to collaborate. [Also], how you’re going to respond to these changing customer needs.”
On the growth of partner-to-partner relationships, Wilson said firms should ask if they really need to try to do everything for the customer.
“Or should you be focusing on what you’re very good at and working with other partners where necessary? Bringing them into the equation to help deal with that customer. We are seeing growth in terms of developing areas of specialization, either vertical or horizontal. Again, this feeds into this idea of ‘don’t try and do everything to try and be really good at what you do,'” said Wilson.
He added that a partner focused on a specific horizontal or vertical should ensure they are promoting that.
“What’s also happened is the ability to promote and surface that expertise has changed in the last few years. The visibility that you have on various marketplaces, what you do in terms of partner deployment collaboration within the vendor’s ecosystem, to surface your specialized skills, has become more important.
“We’ve seen examples of this all the time. We’ve seen partners in Croatia, by being on the Atlassian Marketplace, suddenly they’ve got a range of customers in Australia and New Zealand. If you’ve got expertise, think about, ‘How can we surface that expertise within the wider partner ecosystem?’ And let other partners that need that expertise work with [you] as well. That’s the concept behind the ecosystem business model. You’re not just thinking about the customer relationship. You’re thinking about your relationships within the ecosystem, with other ISVs with other partners with multiple vendors as well.”
Warnings of the death of distribution are greatly exaggerated, said Wilson.
“The death of distribution is always overexaggerated; it has never happened. If you look at the amount of private equity has gone into distribution recently as well.
“They’re investing huge sums in their marketplaces, services, their aggregation capabilities as well. They are one of the only players that can deliver a multicloud, hybrid cloud proposition in a way that the cloud platforms can’t as they’re tied to a single underlying cloud platform.”
But distribution faces challenges as well as distributors create and enable these new digital value chains.
“They’re also undermining some of their traditional business models with some of their traditional resellers,” said Wilson.
Warnings of the death of distribution are greatly exaggerated, said Wilson.
“The death of distribution is always overexaggerated; it has never happened. If you look at the amount of private equity has gone into distribution recently as well.
“They’re investing huge sums in their marketplaces, services, their aggregation capabilities as well. They are one of the only players that can deliver a multicloud, hybrid cloud proposition in a way that the cloud platforms can’t as they’re tied to a single underlying cloud platform.”
But distribution faces challenges as well as distributors create and enable these new digital value chains.
“They’re also undermining some of their traditional business models with some of their traditional resellers,” said Wilson.
In a rapidly evolving partner ecosystem, it is important to have a handle on the latest channel trends. Here, IDC’s Stuart Wilson gives us a rundown of emerging developments in the channel and what we can expect in the future.
Speaking at Channel Partners Europe in London last week, Wilson focused on digital transformation, customer demand and partner business models.
Here you can find out why COVID-19 was just “the calm before the storm.” Also, how the cloud is causing problems between vendors and partners; plus, why it’s not just about recurring revenue for partners. Furthermore, how the customer has more power now than ever before and why we’re going to see more collaboration between partners — among other developments.
See the slideshow above for the latest channel trends from IDC.
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