Moneyball 2.0: The Indirect Sales Channel

Change has the ability to create chaos, and chaos is challenging. Change is inherently difficult because we, as humans, naturally seek structure and consistency; yet, sometimes change is thrust upon us, and at other times, we bring it on ourselves. Change isn’t always bad, and sometimes, "new beginnings are often disguised as painful endings," Lao Tzu, the Chinese philosopher once said. As I sat down a few weeks ago to watch the World Series-winning Texas Rangers at the start of the Major League Baseball season, I couldn't help but think of how some of the changes in MLB reflect those in the telecom industry. 

In the early 1970s, two players decided to push against the establishment of Major League Baseball. Up to that point, there was a clause in every baseball player's contract called the "Reserve Clause." The standard MLB contract itself bound players to "their" team indefinitely. Once a player's contract expired, it allowed the teams to renew the contract for one year at a time, indefinitely, preventing players from negotiating with other teams.     

It was the year 1975 and, in an effort to challenge the Reserve Clause, Andy Messersmith and Dave McNally refused to sign their new Reserve Clause contracts. They argued that without signing their contracts they should be able to negotiate with any team at the end of that year and ultimately, this disagreement between the players and the league went to arbitration. On Dec. 23, 1975, the arbitrator made a call and the "Seitz decision" was final. Major League Baseball was forever changed. On this day, the Reserve Clause was nullified by the arbitrator, Peter Seitz, and free agency was born.  

In 1976, the first re-entry draft was held where teams could begin to bid on free agents. Free agency dramatically changed the landscape of the MLB as it shifted power toward the players. This gave them more control over their careers and they began to earn more money based on their abilities and market demand.  

Moneyball: Free Agency and Telecom

1984 was another iconic year for free agency. This time it wasn’t baseball; it was free agency in the telecom world. A landmark antitrust lawsuit, often called the "The Divestiture of the Bell Systems," required the Bell operating companies (i.e. AT&T) to break up into seven operating companies. The divestiture was aimed at promoting competition and ending AT&T's monopoly in the long-distance and telecom business. The Telecom Act of 1984 allowed several competitors to come into the market with the likes of MCI, Sprint and WorldCom. These companies were recognized as significant players in the telecom space by the mid to late 1990s. The evolution of the telecom industry and the desire for competition in the marketplace continued, and by the year 1994, industry leaders Rick Dellar and Rick Sheldon left their corporate jobs selling long distance for Cable and Wireless and Dial Net, and began their own free agency journey, effectively starting what we know as the channel when they formed Intelisys. 

[Editor's Note: MicroCorp, PlanetOne and TBI, then known as master agents, were founded in the late 80's and early 90's prior to Intelisys' inception.]

Over time, telecom "free agency," or the indirect channel, has evolved to be recognized for its essential role in the market. We don't just offer solutions to our clients — we provide ongoing support and assistance throughout the technology life cycle. Dellar emphasized this during a discussion with Steve Farmiloe on the Top Gun Show, highlighting that the true advantage of the indirect channel is the ability of free agents to truly comprehend what customers need − devise tailored solutions − and competitively secure contracts from various providers to ensure the most effective solution and pricing for their clients. As this market segment evolved, the standard for supplier participation quickly got negotiated by the players into "evergreen" commission models, performance incentive funds (SPIFs), and market development funds (MDF). 

Lets get back to baseball for just a minute. The rise of baseball millionaires rose dramatically after the introduction of free agency. In 1979, Nolan Ryan was the first baseball player ever to sign a $1 million contract. He was drafted by the Houston Astros and was offered a four-year, $4.5 million deal. The millionaire club rapidly expanded in the '80s but by the '90s it just became the norm, even outside of free agency. Baseball shocked the world in December 2000 when the New York Yankees announced that they signed Alex Rodriguez to a 10-year, $252 million contract. At the time, it was the single largest contract in the history of the sport. Roughly 24 years later, that agreement is now the 18th most lucrative contract in baseball history, with Shohei Ohtani’s 10-year, $700 million deal being the biggest.

Much like baseball, the telecom channel is one of the fastest-growing industries, making more self-made millionaires than almost any other. Although those statistics don’t exist, the rise of our industry grabbed the attention of Wall Street with the acquisition of Intelisys by Scansource in 2016 and continued investments from private-equity institutions like Columbia Capital, Pamlico Capital, Midcap Financial, Berkshire Partners and Charles Bank. They saw an undervalued industry, growing fast with a lot of money changing hands. With their investments, they began to test the waters so they could learn more about the opportunity within this industry.   

The 2002 Oakland Athletics saw an undervalued industry as well. Their story was made famous by Michael Lewis in his best-selling book "Moneyball," but the real heroes of the story are Paul DePodesta and Billy Beane.  As the value of baseball players rose based on metrics such as home runs, RBIs and stolen bases, Beanr and DePodesta saw there was true value in looking at statistics that no one saw or understood.  Using stats like on-base percentage, slugging percentage, walks and runs created, a team with a combined salary of $40 million was able to compete with a team of $125 million, ultimately changing the course of history and the way baseball leaders/managers look at players statistics today.  

This should make us begin to question, are there biased statistics and activities that the channel values today that will be proven wrong in the near future? Have we, as an evolving industry, plunged down a rabbit hole of statistics and numbers that are leading us in a direction that ultimately opens us up to vulnerability? What are the numbers and activities we should be watching to find the real value of our industry and players?  Will the equivalent of the Oakland A's come into − or rise up from − our industry and be able to compete on one-third of the salary cap (channel expenses) because they are measuring what really matters?