Partners Face Wake-Up Call as Hardware Sales Flatline

CANALYS CHANNELS FORUM EMEA — With hardware sales flatlining, partners have no choice: They must turn to software and services. But this will also require a massive change in partner leadership and culture.

That’s according to Steve Brazier, co-founder of Canapii and former CEO of channel analyst Canalys, Channel Futures' sister company. He was speaking at the Canalys Channels Forum EMEA Wednesday in Berlin, Germany.

“For 30 years or more, the channel has actually been easy to run. You thought you were all business leaders and geniuses for the success you had,” Brazier told partners.

“Unfortunately, we’re calling a turning point today. The hardware industry is no longer growing — whether that’s printers or PCs or servers or storage or Wi-Fi or routing or all our major categories. Running a flat business is OK, but they’re all essentially flat. It’s a very long time since we saw a major new hardware category emerge. Some of the things we thought would drive our business forward – whether that was the Metaverse, 3-D printing, IoT – have not really become material businesses for us," he added.

Canapii's Steve Brazier at Canalys Channels Forum EMEA 2024, Berlin, Oct. 9.

“Your hardware is not growing and unfortunately unlikely to grow over the next three years, unless we build a new miracle category. Software and services are where you need to focus,” said Brazier.

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However, he added: “It’s easy to say; it’s hard to do.”

Services 'Extremely Difficult' for Partners

Brazier acknowledged that partners have been urged to embrace software and services for years. But they may not realise how difficult it is, he added.

“The services world is extremely difficult, because it encompasses so many things: managed services, professional services, digital services, into the ESG range of services. It’s a very complex subject. The software industry is not easy either, as many of you know, and the arrival of marketplaces [is] distorting natural market behavior, but also to driving standardization of purchasing. Standardization of RFPs is disruptive to what’s going on in software.”

Brazier said partners’ success in the services space is reliant on want to the quality of their individual leadership.

“Many people fail to make the transition,” he said. “If you run a hardware-led business, your primary job is to manage the sales force, to manage the sales pipeline, to rotate your sales force every two years through the accounts and look at renewals, etc.

“If you want to be a professional services company, you need a totally different culture. The sales pipeline is no longer central to your business," noted Brazier. "You can’t centrally manage and control professional services business. Your No. 1 job every day is to keep your talent on board with your company. They are artists, not factory workers. You need to empower down the organization so that teams and departments can make the decisions.

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“So leaders, do you have the growth mindset to take on a cultural change inside your company? Are you prepared to pay these artists more than you earn yourself? Because you will find yourself in those situations, just like football managers employing football stars who earn more for themselves. It’s easy to say, it’s hard to do," said Brazier.

Software and Services: 'Some of You Won’t Make It'

However, there are choices for partners to profit from software and services. These include acquiring services companies, or building a separate services businesses, which can solve some of the cultural issues.

“It’s an extremely tricky challenge to make. Some of you will make it; some of you won’t make it. So, over the next three years, we’d expect to see some partners pulling out of hardware,” said Brazier. “But of course, that also creates an opportunity, because those who stay laser-focused on hardware will continue to gain market share as [fewer] people participate in that marketplace, which is another very valid position to take.”

Westcoast CRO Phil Bell participates in a discussion at Canalys Channels Forum EMEA 2024, Berlin, Oct. 9.

Nevertheless, Westcoast CRO Phil Bell said hardware still comprises a lot of the distributor’s business.

“No one talks to us about moving boxes anymore. They’re talking to us about wrapping those boxes,” he said. “I think Steve’s message should be through the hardware with the wrap.”