The New Channel Myth

Peter : On Rad's Radar?
| Peter Radizeski of RAD-INFO, Inc. talking telecom, Cloud, VoIP, CLEC, and The Channel.

The New Channel Myth

The new myth about the Channel that everyone is spouting is doom and gloom. In Larry Walsh's latest, he talks about VAR's closing, vendors selling direct and other woes.

Here's some news for you: the Channel has ALWAYS competed with Direct for sales - VAR's and Agents. And we always will.

Can some of this stuff be sold via a website? Certainly. It ain't free though. A robust e-commerce website can easily cost $1 million to create and more bucks to maintain and update. It has to work on how many platforms - IE6-9, Firefox versions, Chrome, Safari and mobile? Then there is the SEO and PPC campaigns to drive traffic. Not free either.

In addition, shopping cart abandonment rate is 75%. So your PPC campaign is going to be expensive, while you figure it out and remove all the hurdles. (However, most companies never improve their website or work on the abandonment issues.)

And if it can be sold online, it can be price shopped online. So margins will be slim.

The ILEC's have tried selling small business services (and residential offerings) online. It is cheaper to get a customer to sign-up online as opposed to dialing a toll-free number. Humans cost 30x what a website does, but you can't sell complex stuff that way. Even Hosted PBX with number porting and extension-to-desktop mapping requires more than many can do with a website. 

Telarus has GeoQuote. That has already powered how many agents to sell commodity telecom services like T1, DSL and POTS for the lowest going price.

VAR's have accounts with both Ingram and Tech Data. Many have sold gear by utilizing the API's from these VAD's to add to their websites. This has been going on since before 1999! It hasn't really affected the landscape of the Channel either.

One thing that will come into play: while that commission line item on the balance sheet keeps getting larger, the cost of direct sales is just as large and expensive. As benefits increase along with the cost of commercial real estate and taxes, the indirect channel looks more and more promising.

There is always attrition. Small businesses close. M&A occurs. New VAR's and Agents open up. It' show it always was.

Will order-taking decrease? Certainly. Mainly because the price points and associated commissions will be just too low to sustain an agent's lifestyle. It happened with Linksys routers and DSL modems too.

Will there be a massive re-boot to the Channel? Doubtful. It will be a slow, pain-staking shift that most won't notice.

A CLEC called me about hiring an old telecom salesman. The guy wanted $55K base and would only accept $1800 in quota. That just doesn't pay out. A $55K salary is really $75K with office space, benefits, taxes, cell phone allowance and mileage. While if he hits quota from month 1, he will bring in $140K in revenue in that year, but that's not $140K in net income to pay that salary. Compound that times 1000 salespeople and see if that works out. Now add sales managers, regional managers, national managers and executives - it falls apart pretty quick.

That same $140K at 15% is going to cost you $21K that year from an agent. See the difference?

We've seen Cbeyond and EarthLink fire direct salespeople recently to hire sales teams that can sell clouod services. We'll see how that works.

As I have pointed out before, cloud is not about replacement services and telecom sales are all about replacement services.

VC-backed and public companies won't be able to make enough sales with just direct and online sales to move the needle enough for thier masters on Wall Street (or Silicon Valley). And it will come at an big cost.
Yet how much M&A can you do, especially when you consider that M&A usually fails at achieving any of the synergies and benefits that the CEO puported to Wall Street?

Yeah, the Channel is going to change, but what else is new?

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