The Future of Managed Services: Delivering Complex Solutions

CANALYS NORTH AMERICA FORUM — In two separate sessions at the Canalys North America Forum dedicated to discussions around channel ecosystems and high-performance MSPs, insight emerged into the future of the managed services channel and the greater technology services landscape. 

In a panel discussion titled, “The Age of the Ecosystem,” industry experts got to the heart of how teams of partners, vendors, suppliers and IT specialists are delivering complex solutions to customers today. Speakers also addressed the growing importance of the entire channel to technology buyers of all sizes along with how crucial partners are to the success of vendors and technology suppliers. Certainly, as part of a channel conference, one would expect such talk, but Canalys analysts provided data supporting the claims which were also supported by the business leaders of the organizations in attendance. Those attendees spanned some of the largest players in technology, along with numerous fast-growing innovators. 

Canalys channel analyst Jay McBain kicked off one of the panels by citing his research organization’s data that quantifies the flow of products and services through channels.

“In our industry, 73.1% is transacted by the channel and 90% is assisted by the channel. The average buyer uses seven partners along their journey,” McBain said in opening one panel discussion. But he was quick to add that channel sales to customers are changing into what he termed a team sport. Gone are the days of a single trusted advisor along with the old computer industry adage of customers “having one throat to choke.” Whether delivering complex cybersecurity software,  public cloud solutions or data analytics, customers today must rely on a wide range of providers.  

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Not included in any of the conversations is whether customers are satisfied with this scenario. But when McBain said, “No one partner can do everything,” audience members and panelists agreed. “The world is more complex whether it is multi cloud or edge," he said.

One such organization trying to help customers reduce complexity and put technology to work is Evotek, a fast-growing managed services provider that is filling the gap between the large global systems integrators in the market such as Accenture, and traditional VARs, according to founder and CEO Cesar Enciso.

“From day one, our goal was not to be beholden to the vendor partners but to really understand what our customers were trying to solve," he said. "That was our goal.” 

Enciso demonstrated how protective his organization is of its customer base, which is constantly barraged by vendor messages pushing more tech investments or upgrades.

“For a lot of our customers, we recommend not doing anything but turning on what they own,” he told an audience of influential vendors and tech leaders. 

Vendors are clearly trying to come to grips with a channel that is going through enormous change, requiring them to shift investments and support a wide range of partner models. When asked about how the channel ecosystem is evolving, Lenovo’s worldwide channel marketing leader Jeff Taylor replied, “We first need to understand partner’s different business models and what they do by studying their behavior to profile them.”  

Kaye McMillan of TD Synnex said the changes in the partner community are driving her distribution company to stop what she called “bucketizing partners in one set or another” and to focus more on how her organization can become an influencer and help partners add value. 

But a sticking point for vendors is how to compensate their channel partners for the work they are doing, whether via margins on product or services sales, or with soft dollar programs that can provide lead generation or skills enhancements. Vendor speakers on the panel agreed there are no easy answers as they recast their programs to reward influencers, partners actually doing the work or those involved in product resale. As Lenovo’s Taylor said, “it is a tricky calculus that no one has figured out yet.” 

While companies like Microsoft are developing point systems where partners can earn such things as product discounts, co-marketing or lead generation by their actions, not all vendors are moving in that direction.  Jesse Chavez, VP of worldwide partner programs for HPE, agreed that in the past, partner programs rewarded partners who sold more of a vendor’s products or increased their certification levels.

“We are now evolving the program to recognize expertise whether customer success or managed services.," said Chavez.

As McBain put it, “The truth of point systems is, there is no more money. You need to take it from resale margin. And reduce resale margin so it can be shared like peanut butter.” 

While vendors struggle to redefine their partner programs, technology suppliers must embrace some different ideas about what defines an MSP, said Canalys principal analyst Robin Ody. During one panel, Ody showed a slide of key MSP metrics that included base levels of percentages of gross margins from services, time spent supporting tickets or the cost they charge per user each month. While this does provide common ground on the makeup of an MSP, speakers agreed that many different kinds of partners provide some level of managed services to customers, which muddies the water. 

Perhaps vendors such as Okta have a leg up on the competition as they start fresh from a company selling directly to customers to one more reliant on the channel. In a surprise announcement, Bill Hustad, SVP of global partners and alliances at Okta, said his company will launch a formal MSP program in early 2024 and is now working out the details of how to reward partners, finance the program and allocate dollars to different routes to market. 

Perhaps sobering for the vendors in the audience were comments from Allan Jocson, president of Agilitec IT, and Jason Norred, CISO of Solutions II, who said they frequently review their product portfolio to determine which companies to keep or drop. While expensive to do so, both executives said they examine their vendor partners to make sure the products and solutions are the most cutting-edge they can bring to their customers.  

“Security is our entry point with customers,” Jocson said. “We are looking for best-in-class solutions across the board and shift when something better comes along,” he said.

Jocson noted that it's his organization’s neck on the line if a customer incurs an attack or security incident. 

Noored said his firm evaluates vendors on their technical merits and whether those meet the needs of its clients, along with the margin opportunity for supporting and selling a particular vendor’s goods. In addition, Solutions II looks at whether it will be competing with a vendor’s direct sales organization, the administrative support required and what he describes as profit leaks for supporting specific tech suppliers. 

It's a sobering moment for all vendors who believe their partners are loyal, when in actuality, MSPs and other channel partners are loyal to their customers' needs first. 

The Canalys North America Forum wrapped up Wednesday in Palm Desert, California. Canalys' parent company, Informa, also owns Channel Futures.