This Is the State of Partners, Vendors in 2019
PartnerPath's 2019 State of Partnering Study takes a close look at cloud adoption.
June 5, 2019
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The predictions for cloud growth spur two realizations: Everything is online and cloud consumption models are here to stay.
Everything is online: The internet is the go-to place for information of all kinds. This has particular implications for the channel and vendors. For partners, it means that customers go online for information that, at one time, they sought from solution providers. The second implication is that the bulk, 73% according to Forrester, of new buyers are willing to buy directly from the vendor.
Cloud consumption models are here to stay: The subscription model has invaded the lives of consumers as well as the way businesses buy product.s In the tech marketplace, as-a-service business models abound, and this has transformed the way businesses buy. Most notably, business purchasing decisions are often made outside of the IT department.
The acceptance of cloud models forces partners to rethink how they attract, sell to and retain business customers. The bottom line is that they must align with the customer buying journey or risk losing traction in their business.
Cloud business is growing, but it isn’t as straightforward as one would like to see for vendors and partners.
For example, when vendors are asked about overall cloud sales, their numbers and the analyst predictions are in sync. However, the vendor responses about cloud growth change substantially when responses from 100% SaaS or cloud-based vendor responses are removed from the results. In the latter case, the lion’s share of vendor sales are traditional, on-premises sales.
What also is eye opening is the percentage of vendor cloud sales driven by their current partners. Only one-quarter of the vendors had more than half of their cloud revenue driven by partners. So not only are vendors not selling much cloud, partners have a small part in driving that revenue.
“The trend is going in the right direction and in approximate alignment with IDC’s prediction of about 10% CAGR. The question remains whether cloud adoption can accelerate by 2022 to surpass spending on non-cloud IT infrastructure as predicted by IDC,” write the report authors.
If the cloud market is to reach the analysts’ growth predictions by 2022, this market needs the channel.
While vendors work on how to best engage existing partners, it’s critical to point out that vendors responding to the survey note that they’re also beginning to engage with new partner types to fuel cloud sales and adoption.
That said, the percentage of solution providers indicating more than half of their revenue and profit coming from cloud has almost doubled since 2015 – unfortunately, that percentage of partners is a mere 15%. Filling the cloud growth gap are new partner types, without legacy channel businesses, an emerging sector that poses a threat to existing partners.
But these emerging partner types aren’t the biggest threat to channel partners. That distinction goes to direct vendor competition, partner respondents report. The other top two threats to solution providers are peer competition and lack of available talent.
Change is tough, and it takes years for vendors and partners to reimagine a cloud-focused business while keeping the lights on and revenue flowing in an existing business. With vendors and partners expected to conquer the cloud era together, there’s a lot of room for enlightenment on how this is achieved, as they often don’t see eye to eye. Here are some insights from this substantial section of the PartnerPath report.
Looking at metrics, here’s one example of the divide between vendors and partners: Vendors rank net-new customers as the top measure with regard to the success of their cloud partners. Partners rank MRR as the top measurement for their own cloud success. [Vendors rank MRR as the fourth measurement].
Another significant finding in this section of the report is what partners say about what’s blocking their transition to cloud, and also, vendors’ perception of what’s blocking their partners’ transitions.
Partners said the No. 1 issue when trying to grow their cloud business is competition from manufacturers/vendors offering the services directly. [This was also partners’ No. 1 concern in the 2015 research and grew about 5 percentage points over that time.]
Approximately 43% of solution provider respondents chose vendor competition as their No. 1 concern. About 13% of vendors surveyed said that conflict delivering services was an obstacle to partner growth. Vendors attributed trouble finding the right sales/technical talent as the No. 1 (about 52%) challenge for partners.
Are partners’ concerns about vendor competition realistic? PartnerPath thinks so.
“Knowing that less than 50% of the vendors’ cloud business is being driven by partners, this lack of influence in driving sales also holds true across the vendor’s overall business. A measly one-third of the vendor respondents indicate that more than 50% of their overall revenues are driven by partners. Most of the vendors surveyed have upwards of 50% of their sales transacted though partners, but when we change the question to percentage of revenues driven by partners, the median response falls to the 26-50% range.”
SaaS tops the list of the cloud solutions partners report that they’re selling, followed by UCaaS, DRaaS, SECaaS, and IaaS, rounding out the top five. Gartner cloud service market size predictions by 2021 put SaaS at $117.1 billion, IaaS at $83.5 billion, cloud business process services (BPaaS) at $58.4 billion, PaaS at $27.3 billion, and cloud management and security services at $15.1 billion.
“The thought-provoking data is that more solution providers indicated that they are selling disaster recovery and security as a service than the well-hyped infrastructure as a service and platform as a service. Gartner predicts the fastest-growing segment of the market is cloud system infrastructure services,” write the report authors.
Another head-scratching find in the survey is the perceived role of the partner in cloud sales.
Partners know where the money in the cloud era — it’s in managed services. In the survey, partners ranked average gross profit margin across these solutions as follows: managed services, post-sales services, cloud resale, agent/influence/referral fee, traditional software & hardware resale (tied), and pre-sales services.
In the 2015 survey, vendors agreed (barely) and ranked managed services as the top role they expect their partners to play in their cloud offerings. Not anymore. In 2019, vendors ranked resale as the top role they expect partners to play in this area — followed by managed services, offering post-sale services, pre-sale services, and customer success management, rounding out the top five.
The vendor-partner experience is about investment and opportunity to create ROI.
Looking at the key partner program elements from the perspective of the vendor and the partner [see pix], the solution provider list of wants prioritizes technical training and access to technical resources — in the field or support teams, elements to boost customer satisfaction. The vendor offers to its cloud partner prioritize sales, with four of the top five responses being sales-focused.
“Even in cloud models, the solution providers prioritize understanding how the technology solves customer problems and getting help when they need it,” said the report authors.
Enablement is a win-win for partners and vendors — and in cloud sales, enablement is getting a makeover.
“The vendor community has shifted from enablement being viewed as an endgame, where a partner is enabled when they can accurately sell and successfully implement products to an ongoing activity. Yay! It’s been a long time coming! Enablement no longer means ‘just’ technical skills and certifications. Long gone are the days when a partner hits a threshold and you say, ‘Voila! They are enabled!’ (if you ever could),” write report authors.
Next-gen channels are emerging and, at the same time, traditional partners report they identify with 2.8 business classification labels representing their own business transition that focuses more on services than selling.
“The IT industry is starting to segment the partner ecosystem by business model – what the partner does with the customer (resell, refer, integrate, service, develop, [and so on]) instead of by these labels. Think about classifying partners with a verb (action), instead of a noun (label),” suggests the report authors.
Additionally, in the Fostering the Ecosystem section of the report, more partners acknowledge increased partner-to-partner relationships in the era of cloud. Forty percent of the solution-provider respondents have built relationships with five other solution providers, and 30% report having built relationships with more than 10 other partners.
Their view on the future of this trend? Sixty-four percent indicated that it’s increasing.
Next-gen channels are emerging and, at the same time, traditional partners report they identify with 2.8 business classification labels representing their own business transition that focuses more on services than selling.
“The IT industry is starting to segment the partner ecosystem by business model – what the partner does with the customer (resell, refer, integrate, service, develop, [and so on]) instead of by these labels. Think about classifying partners with a verb (action), instead of a noun (label),” suggests the report authors.
Additionally, in the Fostering the Ecosystem section of the report, more partners acknowledge increased partner-to-partner relationships in the era of cloud. Forty percent of the solution-provider respondents have built relationships with five other solution providers, and 30% report having built relationships with more than 10 other partners.
Their view on the future of this trend? Sixty-four percent indicated that it’s increasing.
PartnerPath’s 2019 State of Partnering Study contains a treasure trove of valuable information for channel partners as cloud growth in the market and in their businesses takes shape. This version of the annual State of Partnering report focuses on driving cloud adoption.
This isn’t the first time that PartnerPath has conducted research on the cloud. Back in 2015, after eight years of industry chatter about IT moving to a cloud consumption model, the company conducted its first research on how vendors and solution providers were coping with the transition.
The 2019 State of Partnering report evaluates the progress of the transition to cloud, and, more importantly, the adoption of cloud business models in the channel ecosystem. The good news: Four years after conducting its initial research on the cloud, there has been an acceptance of cloud business models — and it’s growing.
Research from both Gartner and IDC not only reinforces the fact that public and private cloud solution spending are growing, but the two research firms expect aggressive growth by 2021. In fact, IDC predicts that spending on cloud infrastructure will surpass spending on non-cloud IT infrastructure by 2022.
While there’s a positive trajectory for cloud spending, the cloud consumption model has taken a top-to-bottom hit on how both vendors and partners do business. The transition to cloud is in full swing, and here we provide a glimpse into the 2019 State of Partner Study and some of its findings. The study included more than 100 vendor respondents and responses from 200 solution providers. Note that PartnerPath bundles multiple partner types into a single entity more generally called “solution provider.”
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