ShoreTel Talks Channels Changing Compensation, Customer Conversations

ShoreTel, a mover and shaker in the UC and business phone systems sector, experienced a bit of a crazy year as it ramped up focus on the cloud side of its business and fielded rival Mitel’s multiple, unsolicited acquisition attempts. Now ShoreTel has its sights trained on 2015. As such, CMO Mark Roberts took some time with Channel Partners last week to discuss what VARs, MSPs and agents can expect to see from the company, and within the industry overall.

Since buying M5 Networks in early 2012, ShoreTel has made no secret of its intent to lead with cloud sales among its indirect and direct sales teams. The company was founded in the premises world, but its M5 purchase signaled a shift to emphasize cloud services in a metamorphosis that tracks that of its VARs and MSPs; many of those partners are used to upfront compensation but are being pushed toward relying on recurring revenue. Roberts said the shift to the latter will continue.

“We’re seeing a distinct trend in our channels, people looking for the way forward,” Roberts said. “A typical product sale is all front-end loaded. …but now, it’s easy to start a new, cloud-focused business.”

There is, though, an inherent problem: Cloud puts IT partners “sharply in the hole,” Roberts said, even though “the long tail is more profitable.”

That’s because legacy IT partners can’t make an immediate switch from operating off of giant chunks of upfront money to smaller monthly installments.  

“It’s tough to do cloud if you’ve been in product sales for a period of time,” he added.

The solution to that problem is for suppliers to create tiered channel programs that let partners make gradual advancements into cloud, Roberts said. ShoreTel recently followed its own advice and did just that, rewarding VARs and MSPs based on their level of participation.

“We’ve seen pretty good takeup of that, so we see that as a distinct trend,” said Roberts.

Thing is, the approach is not novel, at least not in the IT world – that’s the method equipment vendors have followed for years. However, a tiered channel program that pays based on how much responsibility and oversight the partner assumes does stand out in the cloud and services field.

Still, more evolution will be required to meet customers’ changing needs. More clients will expect a combination of premise and cloud platforms to solve their technology problems, rather than one or the other, Roberts said. And that observation does not boil down to one man’s opinion – earlier this month, research firm IDC said that more than 65 percent of enterprise IT organizations will commit to hybrid cloud technologies in the coming year.

“Digitization and transformation to virtualized, on-demand provider-based services are driving very rapid internal IT change,” Robert Mahowald, program vice president for IDC’s SaaS and cloud software group, said in a press release. “IT buyers are shifting steadily toward cloud-also and cloud-first strategies, and nearly all are reconsidering their IT best practices to embrace hybrid cloud construction and operations, secure data management, end-to-end governance, updated IT skills, and improved multi-vendor sourcing.”

Roberts agreed.

“[Clients] don’t think about, ‘I want to own hardware here and use cloud here’,” he said. “As a channel, we have to adapt.”

One of the key adaptations will come in recognizing that buyers no longer hail from the IT department. Instead, they work in divisions including finance, human resources and marketing. Consulting firm Bain & Co. said in a July 2014 report that almost one-third of technology purchasing power has moved to executives outside of IT.

“This has less to do with IT budgets being reallocated to the line of business than with non-IT business leaders transferring investments from labor and traditional services to new technology tools and technology-enabled services,” the report reads.

To be sure, it’s a shift the channel has been discussing for some time, and one that promises to grow more prominent in 2015.

“The days of knowing who your target persona was within a company, because it was always the IT guy – I think those days are gone,” Roberts said.

That means partners have to be able to speak their customers’ language, not use the jargon they let fly with fellow IT junkies. Rather, VARs and MSPs must talk in layman’s terms about how the technology they’re offering impacts different functions within the customer’s company. Channel partners who integrate a CRM app into a communications platform, for example, “will be the ones that make the difference,” because they understand how a company uses and accesses its programs, Roberts said.

Meantime, as compensation methods and customer conversations change, it’s likely that the face of the industry will alter as well, due to more M&A among vendors. For their part, ShoreTel VARs and MSPs averted the uncertainty that can come with such transactions when ShoreTel this year rejected two takeover bids from Mitel, the first worth $8.10 per share, the second, $8.50. Neither offer reflected ShoreTel’s value or prospects, ShoreTel said in its rebuttals.

For now, ShoreTel remains on its own. Roberts would not go into detail about the Mitel events, or say whether ShoreTel is interested in joining forces with another company. However, he did say it seems reasonable to think that M&A will hit a high point in the coming year, especially in a certain sector.

“Look at how highly fragmented the cloud communications marketplace is right now,” Roberts said. “If anything, I think I would be looking toward that as where we’ll start to see some significant consolidation over period of time. …We’re watching it with interest, too.”

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