The world is about to implode. No, I am not talking about the U.S. economy or Europe’s crushing debt load; I am talking about the financial implications for telecom agents and technology VARs. The world of telecom agents and VARs has been on a collision course, but the end result will be nothing like what most of us expected.
1. Where is the money? Cloud sales revenue streams are typically non-existent, smaller referral commissions and cannot support the existing business models financial requirements. That being said, there are some viable options from select providers that meet the business model needs.
Anyone moving from an upfront commission to an annuity stream or residual income has a mountain to climb. Companies need to either suck it up for three years and build the business by finding a way to finance it or ease into it by using a mix of upfront commissions with long term payouts.
Conclusion: As of now, quality commissions from cloud services (outside of hosted voice) are the exception, not the rule. The traditional services, both for telecom agents and VARs are rapidly seeing changes in price/commission compression or elimination.
2. Push here, get this. Pay here, get that. Apple is great, isn’t it? It produces a great product and wants to get it in the hands of as many people as possible. Back in the old VAR days, the joke was that “MACs were for people that didn’t know how to use a computer." Well, who is laughing now?
So when the iPhone launched, Apple needed to make sure that the value proposition was controlled by keeping sales distribution access closely held with Apple-owned stores. When it came time to expand distribution, Apple bypassed its reseller channel of 30+ years and went to retail powerhouse Walmart.
The iPhone went from groundbreaking new technology to commodity in a very short time. To add injury to insult, Apple did give its resellers iPads; however it was not very long until you could throw one in your shopping cart at Sam’s Club or buy one from Verizon.
Conclusion: Many technologies are moving to self-fulfillment at an accelerated rate. In addition, people just want solutions that work, are easy to use, portable and inexpensive.
3. Where is the value to the client? Telecom agents have been reluctant to learn about hosted and managed services; therefore, they have been reticent to present these options to their clients. VARs have struggled to wrap their arms around giving up technical control of client systems and data. Many have failed to transform their businesses into service provider sales representatives.
The issue in question is if either channel is still adding value in the sales cycle. When Apple leapfrogged its reseller channel in favor retail distribution, it answered that question. When Google apps went to $5 per user, per month for an application suite, it answered the question on business productivity apps. More and more technology is becoming a commodity that can be purchased for a lower cost through self-service mechanisms or alternative channels. Ask Blockbuster about trying to catch Red Box and Netflix.
Conclusion: Communications and technology representatives need to figure out their value proposition in the new technology models emerging.
4. Wrap it to go. The solution, as it has been presented by the Google, Microsoft and others is to wrap these commodity services with customization and service revenue. The trouble is that the cloud keeps moving forward. Because of centralized systems, solutions only need to be created once.
Take Broadsoft’s Salesforce.com connector as an example. Once it was released, all Broadsoft clients – not just one -- could use the connector. So instead of thousands of different development teams garnering individual customization contracts, the software needed to be written once to access the built-in Application Programming Interface (API) for both Broadsoft and Salesforce.com. Now an end user can connect two cloud providers simply and effectively. Their mission-critical Communication as a Service (CaaS) provider can be connected to their mission critical Software as a Service (SaaS) provider and make them work together. This five-star rated application is available to all Broadsoft clients for … FREE!
Conclusion: The centralization of the cloud is commoditizing applications and data storage. It is accelerating feature releases making customization projects harder to justify. Service revenue is decreasing and finding a home in limited specialized areas.
5. Is this quicksand I am standing in? We are in the midst of merger mania. It may not feel like it to everyone, but as you start to look at the Global Crossing/Level 3, Microsoft/Skype, West Corp./Smoothstone, AT&T/T-Mobile and many other recent mergers and acquisitions you get a sense that the world is getting a lot smaller. The rumor mill is churning like never before. Change is in the wind. Can you feel it?
Conclusion: Who an agent or VAR represent today may be consolidated, bought or put out to pasture tomorrow. The communication landscape will be dramatically different in 12 months, not 12 years like we would hope.
The silver lining in these dark clouds is that several companies should succeed and thrive in the changing industries. Those companies should look to:
- Present a value to the client. A quote is not value; it is what Web pages and store shelves offer. Companies need to find ways to insert themselves into the sales cycle with a value proposition the client respects and values.
- Develop a nimble workforce. Few people question that change is coming in heavy doses, but few companies are preparing their systems and workforce to take advantage of these changes.
- Cash is king. Those companies that have cash reserves or access to capital are the ones that will be able to be opportunistic. Use it wisely before inflation or taxes eat it up.
- Be watchful. Companies cannot predict what all of the changes will be, but there will be telltale signs of coming changes. Keep a watchful eye. Read. Listen. Learn.
- Act quickly. Soon, timing will be more critical to making changes. Coming late to a change will mean that you are playing catch-up on something that is quickly becoming yesterday’s news. Product life cycles are shorter. Commissions are becoming moving targets.
- Diversify revenue streams. With mergers, bankruptcies, tightening credit, threat of inflation and more, companies need to diversify their revenue sources to protect their long-term viability.
Clark Atwood is a principal and vice president for Concierge Communications, a master agent based in Tempe, Ariz., representing more than 40 communications and technology providers. As a 20-year veteran of the computer and communication industries, Atwood is an active industry speaker and member of the Channel Partners Cloud Convergence Council and has established Concierge as one of the founding members of the Cloud Services Coalition. He has previously served on technology councils, successfully completed several technical sales certifications and held sales and management positions in the telecom and computer industries.