What Does the Crash Mean For the Channel?

What a week the first work week of August was. Let’s quickly survey the lowlights:

• The national debt crisis stressed the markets for the past month, during the tortuous negotiations in DC.  At the last minute, facing the abyss of default, President Obama signed on Tuesday, Aug. 2.
• Immediately, Wall St. exhaled a sigh of relief. When it inhaled its next breath, the markets collapsed completely. It has been a disastrous month.
• The Dow has lost 8.95% of its value in the past month. In just this past week, it has lost 5.75 percent of its value. In the last three days of the week (Aug. 3, 4 and 5), including a terrifying plunge on Thursday, Aug. 4, the Dow lost 3.56 percent, despite a modest rally on Friday, Aug. 5.
• All the gains of the year to date were wiped out during the past month. The Dow is now 1.1 percent below where it was on Jan. 1, despite many positive earnings reports throughout the first two quarters. And the market is just one piece of a bleak overall economic story.
• The truth is that the economy is in rough waters, perhaps the roughest since late 2008 or early 2009, when the world economy and our financial system teetered on the brink of catastrophe. Relief is not visible on the horizon.

What does all this – the plunge in the markets, the prolonged recession, the continued dearth of capital, the problems in Europe (Greece, Ireland, Spain, Portugal) – mean for the channel?

Channel Partners is going to be addressing the consequences of the economy for partners throughout the year. But let me give a quick, immediate reaction from my perspective:

Partners that are not focusing on selling converged solutions are more exposed than ever. SMB customers, pressed by external economic forces, increasingly will be looking for converged solutions that keep costs down while providing competitively advantageous service sets. Partners, ignore this dynamic at your own risk. Risk can be dangerous.

Partners that are not looking at diversifying their revenue sources are playing with fire. Wireless may be tough in many ways. Cable might be different than telco. UC may be complicated. And so on. But if you tether yourself to a single or simple set of capabilities, you are increasing your risk, not controlling it. Too much risk kills.

Cloud solutions will look better and better to SMBs. Cloud solutions do not require capex. In conditions like these, SMBs are going to focus on opex (and be disciplined about it) as opposed to capex. That spells cloud. Cloud solutions also allow for manageable upgrades, reducing risk for SMBs worrying about balancing longer term competitiveness with investment. If partners aren’t getting their arms around cloud solutions now, they are exposing themselves to increased risk in the marketplace. Risk kills.

The indirect sales model – already a winner for service and solution providers – is going to be even more attractive in the immediate future. Economic uncertainty, particularly continuing high levels of unemployment, stresses service and solution providers. The partner model will look even more attractive in these circumstances. Here risk will benefit partners – if they step up to the challenges of converged solutions, revenue diversification and cloud solutions. Risk managed strategically and successfully equals success in tough economic circumstances.

Channel Partners will be on top of this story for months because sadly it won’t be a 30-day wonder. These are not the times partners chose, but they are the times partners live in. Your times are our times.

Larry Lannon is group publisher of VIRGO ’s Communications Network, which includes Billing & OSS World , Channel Partners and vision2mobile .