Network, UCaaS Revenues Stay Strong for Partners as Security Picks Up

Price compression in the connectivity and cloud communication sectors doesn't appear to be hampering channel partners who sell the technologies.

Channel Futures' Q1 Market Outlook survey found that nearly one-half (48%) of partners reported a year-over-year increase in revenue for WAN/connectivity products in their portfolio, and 38% reported an increase in UCaaS revenue. At the same time, 46% of partners said their cybersecurity revenue grew from Q1 2023 to Q1 2024.

When it came to significant increases in revenue (10% or more), UCaaS was the most commonly cited (22%), followed by cybersecurity (19%), cloud infrastructure (15%) and WAN/connectivity.

Q. How did your revenue in Q1 2024 compare with Q1 2023 in the following areas? (size: 58)

Partners were far less likely to report a decrease in revenue across all categories. However, the largest number of partners reporting a decrease were in UCaaS. Ten percent of tech advisors reported a moderate decrease, and 3% reported a significant decrease.

No partners reported a decrease in revenue for contact center as a service (CCaaS) and customer experience (CX) offerings.

Twenty-seven percent of respondents said they didn't offer colocation and data center, making it the least popular of technologies on the list. But 16% of partners reported an increase in related revenue.

Related:Customer Inertia Top Among Tech Advisor Challenges

UCaaS Revenue and Bookings

Channel Futures is paying close attention to per-seat price compression in the UCaaS market, as Microsoft Teams' UC dominance puts pressure on UCaaS vendors.

Respondents' answers show that roughly the same amount of partners reported an overall increase in UCaaS revenue and UCaaS bookings. But interestingly, while 29% of partners reported a moderate bookings increase, just 16% reported a moderate revenue increase. And while 22% of partners said their UCaaS revenue increased, merely 10% reported a significant bookings increase.

Brent Wilford, Avant's senior director of CX and unified communications, said that Microsoft Teams and UCaaS have become "default choices" for business communications, despite a shift to more transactional sales.

Avant's Brent Wilford

“While average seat prices have come down in recent years, revenues are going up because UCaaS is now mature and established as the dominant business communications tool. Without a natural competitor to UC, it will continue to grow as more and more companies of all sizes move from legacy on-premises systems into the cloud," Wilford told Channel Futures. "And those already in the cloud will either renew or switch vendors similar to how individuals switch cellphone companies at the end of their contract. Fewer and fewer companies are finding on-premises necessary for their business communications, and all mobile deployments are becoming stronger, but don't offer true like-for-like with UCaaS today."

Related:Tech Advisor Revenue Pacing Ahead of 2024 Projections

C4 Communications president Colombo DiSalvatore III said the Connecticut-based technology advisor company added its first sales person almost three years ago. That seller has been seeing a lot of success in UCaaS, closing more deals and moving upmarket, DiSalvatore said.

Future of Connectivity Sales

C4 has built a symbiotic relationship between connectivity and UCaaS in its portfolio. DiSalvatore said C4 is helping small and midsize businesses invest in UCaaS by saving money on the network.

"Probably 75% of the time we're pulling through the internet service – sometimes with SD-WAN – as part of the UCaaS," he said. "We typically are writing down the customer's cost, getting them cheaper, faster internet connections and helping them use those savings to pay for UCaaS."

Connectivity – namely wireline-based internet – has gotten a bad rap recently, with publicly traded telcos reporting constant business wireline revenue declines.

Yet the Q1 survey paints a more optimistic picture, with only 5% of partners reporting a revenue decrease.

Related:Partners Share How They're Using Tech Services Distributors

C4 broadly defines its connectivity practice as dedicated internet access (DIA) and software-defined wide area networking (SD-WAN).

And although DiSalvatore said he does observe falling costs, they haven't impacted C4's business for now.

"We're selling a gig circuit for $500. There actually are a few fiber providers that are getting into below $500," he said. "One hand, the price compression is helping us acquire business. On the other hand, it does make me nervous about future revenue durability of connectivity pricing."

Partners Eye More Security Margin

Many partners indicated that their cybersecurity practices have grown. About one in five (19%) reported a significant revenue increase, and 27% reported a moderate increase.

Technology advisors and the technology services distributors supporting them have made a sharp pivot into adopting cybersecurity services over the last three years.

ATC president and chief technology officer Nick Enger said selling cybersecurity products requires a steeper learning curve than some partners may be used to. Enger said ATC's cybersecurity success comes after "two to three years of education and 12=18 months of committed focus."

ATC's Nick Enger

"The buyer of cybersecurity is typically more knowledgeable, and the tools are more sophisticated. In order to get to the more holistic solution for a client, you must be able to understand the client’s current cybersecurity posture wholly. Develop a strategy to maximize their existing investments in security but also develop a platform solution for them to build upon if/when the time is right."

Enger noted that technology advisors (agents) building cybersecurity practices also need to navigate the vendor landscape. He said these security vendors need to become more "agent-friendly."

"Historically, cybersecurity products have been predominately built for the VAR space. We have seen a number of the vendors lean into the agent community over the past 24 months, but we still have a long way to go. As more options become available to agents, the more revenue the agent community will pull through," he said.

We may also see more divergence between security revenue and security bookings as more point solutions become available for partners to sell, Enger said. And these solutions will come at a lower cost.

Stephen Semmelroth, Avant's senior director of security, said many businesses are chasing these point solutions as "noise" in the cybersecurity space proliferates.

"It's tempting for trusted advisors to focus on point solutions because they are easy to book," Semmelroth told Channel Futures. "However, we rarely see point solutions meet the trusted advisor's revenue goals. Generally, platform solutions are better for the client and have the revenue incentives that drive trusted advisors away from low-revenue point solutions."

See other findings from Channel Futures' Q1 2024 partner survey: