Channel Feeling Unexpectedly Optimistic About the Next Several Years

Edward Gately**Editor’s Note: Click here to watch excerpts from Carolyn April’s keynote at Cloud Partners in Boston, dubbed “Benefits and Challenges to Managed Services Adoption.”**

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Positive vibes are flowing through the IT channel as more than 60 percent of channel executives are hopeful that the channel will fare generally well in the next several years. That’s according to CompTIA’s fifth annual State of the Channel study, based on a July online survey of executives and professionals at 350 U.S. IT companies.

The optimism is spread across most channel firms, although small companies (10-99 employees) and those in business less than five years are somewhat more pessimistic.

CompTIA's Carolyn April“First off, the level of optimism for the channel’s future is higher than expected,” Carolyn April, CompTIA’s senior director of industry analysis, told Channel Partners. “I think this indicates that channel firms are feeling less apprehensive about the impact of emerging techs and models such as cloud, and perhaps more generally sound about economic factors. Secondly, we saw that the channel acknowledges it is largely hybrid in nature, with no predominant revenue stream leading notably over another. Channel firms are moving to recurring revenue, embracing cloud and newer directions, while still acknowledging that transactional things like selling hardware matter.”

When asked where they expect future business to come from, companies are counting on growth in delivering project-based offerings (56 percent of firms surveyed) and through recurring revenue streams from managed services (59 percent). Product sales garnered the lowest expectations, with 47 percent of channel firms expecting growth in the coming year.

Respondents identifying their primary business models as cloud, telecom or integrator turned out to be the most bullish on cloud computing opening new opportunities for them and stoking their optimism about the channel’s future, according to the report. More than half of firms in these three areas gave cloud the thumbs up for the channel’s days ahead.

The broader use of IT by all types of customers also contributes to the channel’s good feelings.

“They believe that customers still want a technology partner to serve as a ‘trusted advisor,’” April said. “The complexity of today’s technology and solutions, and the demand for technology expertise in specific vertical markets have the majority of channel partners feeling good about business prospects.”

Channel partners acknowledge that several factors can cause …

… their business to slow down, such as a dip in the economy, rising interest rates, and lack of credit or capital, she said.

“Skills gaps need to be addressed in order for the channel to be successful in new areas such as application development, mobility, cloud, big data and business-process automation,” April said. “That means training, hiring and taking advantage of other educational resources from vendors, distributors and trade associations.”

It’s going to be important to align with the right vendor partners to reflect new directions and business models, and those might not be the vendors they work with today, she said. The channel needs to get better at this “very important soft skill in this era of ‘as a service’ providers,” she said.

While companies cite cloud as an optimism driver due to new opportunities, they also worry that cloud computing further drives a shift away from on-premises IT deployments, which is the historical “bread-and-butter” engagement for a vast number of channel firms and one that the majority of the channel has been reluctant to let go, according to CompTIA.

Nearly eight in 10 U.S. channel firms say they have experienced some transformative activity to date, according to the study. The problem, however, is that many channel firms stop short there. They add a single cloud service to their portfolio or put some clients on a pay-as-you-go contract and deem that business transformation when that should be just the beginning, according to the study.

Changes to sales, marketing and other operational functions are crucial to a fully realized alteration, April said. Adding a single managed service, for example, is simply a first step of many to becoming a firm that sells deep into the digital-services space.

As for smaller companies, many are embracing consulting as a primary business model “and that is a smart place for them to fit, niche-wise,” April added.

“My advice to younger firms: Differentiate through vertical industry expertise and learn to market to the non-IT line of business buyer,” she said. “Marketing execs now have IT budgets of their own.”

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