The Race to the Middle?

By Khali Henderson

The industry has been talking about the convergence of IT and telecom technologies since the mid-1990s thanks to the emergence of voice over IP.  That the two technologies are converging most everyone agrees; the few dissenters would argue that IT and telecom already have “converged.” On the convergence of their respective channels, however, there is little agreement and less still on whether they are engaged in a “race to the middle” and whether one or the other will emerge as the “winner.”

Depending on who you’re talking to and most importantly where they are in the IT or telecom supply chain the perspectives may vary widely. What complicates the discussion of convergence of channels is that it is no longer only about the technology they sell but also about the domain (LAN vs. WAN) they work in and delivery model (cloud and managed services) they use. So, it’s not just IT VARs and PBX dealers fighting over control of customers’ voice and data hardware/software in the LAN. It also is about VARs and dealers competing with telecom agents for voice and data services in the WAN and, more recently, for delivery of IT and communications “as a service.”

“Regardless of where the partner begins its technology journey, there will be no letting up on the increase in partners expanding their capabilities to include these new converged solutions,” wrote Gartner analyst Tiffani Bova in a May 2012 research note, “Five Trends Impacting Traditional Channel Programs.” “Partners are focused on keeping themselves relevant as the market shifts to ‘as a service’ models and customers want more solution/outcome-based options.”

Indeed, customers may be driving channel convergence as much or more than are converging technologies, domains or service delivery models. “The more potent reality is that customers will drive the continued move toward convergence of IT and telecom attributes among channel partners in both arenas,” said Dale Tucker, director of business development for CenturyLink. “In the end they will want comprehensive IT solutions providers. Those companies that fail to adapt whether on the telecom or IT side will be marginalized if they do not evolve accordingly.”

One such converged channel partner is COLOTRAQ, which sources IT infrastructure and network services for clients. CEO Dany Bouchedid said convergence has been taking place in client organizations for at least five years. Case in point: The telecom manager is all but gone, replaced by his or her IT counterpart, in most enterprise companies. But even small and medium businesses are finding the advantages of converged technologies like VoIP. “Once the two markets are one, maintaining two sales channels to address [their] needs ceases to make sense,” Bouchedid said.

“Enterprises to SMBs want fewer technologies, products and suppliers,” said Larry Walsh, president and CEO of The 2112 Group. “Thats creating a climate of opportunistic sales and engagements. Solution providers and agents, for the first time, are being asked about hosted VoIP in the same breath as servers and PCs.”

Walsh said research from the Cloud & Technology Transformation Alliance, a joint initiative of The 2112 Group and Channel Partners, shows that both channels are missing huge opportunities and losing sales because they cannot fulfill their customers technology and communications needs.

On Your Marks

With customer accounts hanging in the balance, are IT and telecom partners engaged in a race to some middle ground where the skills and capabilities that once separated the channels become indistinguishable?

The answer may depend on how you interpret the question. Most sources agreed that there was some overlap, particularly centered on cloud-based services, but few subscribed to the idea that the disparate channels would replicate each other’s skills, especially legacy skills, on a 1:1 basis.

“It’s undeniable that we are headed to the same place,” said Jeremy Kerth, president of Wired Networks, a telecom agency that also sells IT services and solutions. That place, for Kerth, is the cloud: “The cloud is allowing … a single entity to own most of the major IT silos.”

“There is clearly some overlap happening, but I do not think we are racing to the middle,” said Jim Ward, president of iVergent Inc., an ADTRAN dealer and telecom agent. His reasoning is that not all skills sets will be duplicated, citing the example that a data VAR is unlikely to invest in learning older voice technologies.

Similarly, Nancy Ridge, vice president for master agency Telcombrokers, said the crossover knowledge on both sides of the channel has increased in the last few years, but that specialization of skills and capabilities will be important and possibly unavoidable. “There is simply too much information for any individual or organization to know and do well,” she said.

CenturyLink’s Tucker agreed. “I don’t think it’s a race to the ‘middle’ because, to me, that implies being only adequately competent at both, but excelling at neither. Rather, I foresee that there will emerge standouts coming from both the IT and telecom channels that master converged technologies in their specific practice areas.”

The idea that the IT and telecom channels might eventually look alike also was dismissed by Clark Atwood, president of Concierge Communications. “There is more fragmentation than consolidation going on, so there are more options for successful business models, not less,” he said, adding there is no compelling reason why the channels should converge. “Call me a contrarian but the question in my mind is not, ‘Are we all converging?’, but ‘How do we adapt to a changing landscape?’ I believe the answer can be different depending on the VAR’s or agent’s individual perspective,” he said.

The race, then, may be less about competition between channels and more about competition between business models. “It’s not so much a ‘race to the middle’ as it is a sprint to become a ‘complete’ solutions provider that can address a variety of technological challenges and help companies solve real business problems,” said Cary Tengler, senior director of national partner programs for Comcast Business Class. He further noted that “the starting line” is a transactional sales model. “In the end, it will be easy to distinguish between the partner types. On the one hand, there will be successful, converged solutions providers. On the other hand, there will be the laggards and losers who didn’t leave the starting line and make the transition.”

Channel Partners explored the future of the transactional model in a five-part series published last fall and now available in the Channel Partners Resource Center as downloadable report, “A New Partner Model for New Times.” In it, we discuss how many VARs have been working to ditch the “box pusher” moniker and shore up their services revenue by adding professional, carrier, managed and/or cloud services. While transactional agents, “circuit slingers” as they are called, are paid recurring commissions, those are declining on commodity products, so agents also are looking at ways to develop their own services professional or managed for which they can bill independently of their suppliers.

Some disagreed with the notion that there was a “race” between the channels at all.

“We are all moving toward a middle point, or a point of overlapping, but [we are] not racing,” said Alan Sandler, managing partner for master agency Sandler Partners. “Any time our industry has gone through technological changes inside and outside the network we have always had more time to adapt than it seemed early on. First mover advantage is highly overrated (although it can be lucrative). We want to be part of the conversation. Customers don’t have to make the leap right away, our job is to help them time and navigate these migrations.”

While Sandler presents the glass as half full, The 2112 Group’s Walsh presents it as half empty. “There is no race, other than to the bottom,” Walsh said, explaining that with few exceptions, the average partner in either channel is not developing skills for the next era of technology independent of legacy telephony and IT. In other words, complacency and inertia reign.

The Converged Partner

So what are the characteristics of the ideal channel partner in a converged IT and telecom world?

At risk of stating the obvious, converged partners should have both sales and technical expertise in IT and telecom. “You’ve got to have both and you can’t fake it,” said Tengler.

COLOTRAQ’s Bouchedid added that ideal partners need to be able to solve complex problems on a larger scale than ever before. “That entails being able to help the customer deploy across various platforms and technologies across multiple markets worldwide,” he said.

Of the people interviewed for this article, few listed technical competencies, instead opting for more horizontal skills sets like business acumen, customer focus and adaptability. That may be because the technology is not standing still. “Most importantly, a partner has to embrace change and understand that today’s priorities are different then they were two years ago and will be different again in another 12 months,” said iVergent’s Ward.

To that end, Telcombroker’s Ridge predicts success for the partner “who stays focused on the needs of the customer and how to apply the strategies and technology that meets those needs.”

Atwood also is in the camp that favors a value-added, solutions-based approach. “Anyone that creates value in the sales cycle has a shot at being there long term,” he said. “A quote is not value. Anyone can push a button and get a quote. It is how you get to the point of getting the quote and what you do after the sales that will distinguish the channel partners of the future regardless of their origin.”

Gartner’s Bova echoes this sentiment: “The ideal partner will be one which is more focused on the usage, business outcome and business processes, which can [and] will be improved or transformed using cloud services. If they maintain a product-led sales cycle they will remain a ‘supplier’ in the eyes of their customer and not a ‘provider’ of business solutions.”

To get there, CenturyLink’s Tucker said the best partners will understand the impact of technology on the health of the business. “More and more, I believe depth of knowledge of the financial implications of technology decisions will distinguish partners from those that only master the technical attributes of telecom and/or IT,” he said.

In the end, it may be “philosophical” rather than “functional” characteristics that determine the success of partners in the future, said The 2112 Group’s Larry Walsh. “Greater risk tolerance, independent IP development, investments in custom products, emphasis on sales and marketing these traits are whats going to make the difference in the future,” he said.

Who Will Win?

Will the IT or the telecom channel be more likely to be successful in the converged IT and telecom space? That’s the $64,000 question. The answers to which are as varied as the respondents. In our informal poll, there were votes casts for each, both, neither and other.

Telecom agents, in general, need to beef up their technical capabilities to include sales engineering. VARs and dealers, in general, need to develop their services orientation and adapt to an annuity revenue stream. Both, it turns out, may need better understanding of the customers’ business and financial environments.

Telecom agents have a tactical advantage with selling monthly services and knowing how a services business is built and operates, said Mike Saxby, chief strategy officer for master agency Telecom Brokerage Inc. The IT VARs are slow to grow the services model and remain focused on selling gear, primarily because much of the incentives are aligned accordingly, he added.

However, more people even telecom-focused people gave the advantage to VARs. Many said IT partners have a head start by virtue of their size both as a channel and as individual companies. IT has well-supported channels and the corresponding numbers hundreds of thousands of VARs vs. tens of thousands of agents. A corollary is that VARs are significantly bigger companies than are telecom agents. “The largest IT partners post annual revenues in the billions of dollars … By comparison, even the largest telecom [agent] comes nowhere near that revenue,” said Tengler.

But it’s not just size; the IT channel can do more of the work. “Where the IT channel has the advantage is in the actual IT services associated with implementing integrating and managing a customer’s cloud services,” said Gartner’s Bova.

Those assumptions don’t sit well with everyone. “To make a blanket statement that one has a leg up would disparage someone that is fully capable of making the transition from the other side,” said Atwood, who while now a telecom agent has been an IT VAR in the past. “VARs have been the trusted resource, VARs have the technical ability to work through complex sales; telecom agents have the annuity stream business model. It’s anyone’s game anyone that has the will, determination and skills to survive serious change.”

Agent Kerth reminds that this is not either channel’s first brush with transformation and transition. “We are survivors and I think the good ones will all persevere in some form or fashion,” he said. “The transactional and lifestyle businesses will likely be the most negatively impacted and run the risk of dying if they don’t change.”

“Players on either side have the potential to do well, so in my view, the better businesspeople hold the advantages,” said Sandler, describing people who are better at sales and marketing, acquiring and disseminating knowledge and marshaling their assets. “Those who adapt and are better business managers will outperform the field regardless of whether their roots are anchored in the IT side or the telecom side of the landscape.”

Is either channel really prepared to go the distance? “Neither channel has the skills for the next era of technology, and neither side is investing in evolution,” said The 2112 Group’s Walsh. “Yes, we can point to examples of companies transforming their business models to extend their capacities, but these examples represent a fraction of a fraction of the combined IT and telephony channel population. The prospects for disintermediation over the next three years is exceedingly high for the average solution provider in either channel.”

Indeed, while the cloud has emerged as the sandbox where all channels can play, it also has potential to disintermediate all channels as many providers well-heeled and startup go direct to customers, particularly with self-service models.

“Some large ones like Amazon, Google, Microsoft might not yet rely on the channel in a meaningful manner that would allow for true partnering,” said Sandler. “Separately, the growth and valuations on the ‘free providers’ (e.g., Dropbox, Box.com, Evernote, etc.) set an environment where they don’t feel they need a channel and they don’t yet compensate for business.”

Add to the mix traditional IT and telecom hardware/software vendors as well as telephone companies that are investing in cloud and managed services delivery some with and some without indirect sales as a vital go-to-market strategy. 

“This product/service evolution is … causing all IT entities to collapse into the same space, which means our competition has increased to proportions that we never could have imagined,” said Kerth.

In the end, the greatest competition may not be between channel partners but among all players throughout the IT and telecom supply chains.

FOR MORE INFORMATION

Hear more discussion on “The Race to the Middle” in the Keynote Roundtable featuring IT and telecom channel partners at the Channel Partners Conference & Expo, Sept. 12-14, in Orlando.