Peter's View: The Channel Ecosystem

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

Peter's View: The Channel Ecosystem

I read CRAIG'S VIEW: THE NEW CHANNEL ECOSYSTEM by Craig Schlagbaum, channel chief at Comcast. My response was too long for a LinkedIn discussion.

Craig, you make the same points that I have heard since Tiffani Bova first spoke at Channel Partners in Boston -- in 2008. Six years later.

"Most traditional VARs (whose commercial model is to resell and then rebill) have a "DNA need" to bill a customer directly on their paper rather than selling on behalf of another Service Provider..." Some of that is about control; some of that is about margin. If I sell my own Hosted Exchange, I am making more margin than 10 points on $7 per user.

Also, VARs were making their living serving up MS Exchange and Small Business Server. They were the original cloud service providers. The SPs actually came into their yard to compete. Doesn't make everyone warm and fuzzy to work with someone selling the same stuff you have been living off of for less.

One thing the channel heads don't take into account is that most IT VARs aren't in it to become your sales and marketing arm. They don't want to spend their time doing paperwork for site surveys which gives the cable guys every stitch of customer data. They want to play with tech, build things, fix things - not move paper. (And why oh why are you guys still on paper and spreadsheets? The 3 of you have hundreds of billions of dollars, use an online system!!!)

"Service Providers of many types are now attending and exhibiting at IT channel industry shows in unprecedented numbers." Of course they are because the only metric they look at is numbers. And the sales of cloud stuff - like broadband - is so tiny you have to sell 3x as much of it to move the TDM needle.

The reality is that SPs like the cablecos hate the channel but it is a necessary evil on their way to world domination. When they get there they can kick the channel back to the curb.

The SPs ran to VARs because telecom agents didn't want to deal with all the paperwork for the lowest commission rates in the channel. It's an awful lot of work for a sub-$200 sale.

Why would VADs like TD and Ingram be at a partner show when they have 60K+ VARs in their own database? Diminishing returns from the current database as VARs leave their current business model to code (where the real big money is doing what they like, which isn't dealing with sales and people).

VADs have their own shows but I have a sinking feeling that attendance is down - as are sales of hardware and software. The move to cloud brokerage that the VADs are in the process of doing is similar to the one that Craig is telling the VARs to do. It is the slippery slope that Cbeyond and EarthLink just slipped on.

I think that smaller VARs can survive because they are regional (closer to their customers). The bigger VARs like DD and BB aren't out selling cloud -- they are installing for the national SPs.

On the "Digital Natives", they don't have history. So when that first vendor tanks on them (how many cloud players closed last year?) or pulls an InterNAP and stops paying, they will get jaded and re-think their position as well.

It's sad that the traditional agent has been cast aside by the channel. In all the keynotes and blogs, it's VAR/IT/MSP. That segment of the business is in a state of flux and many won't survive for numerous reasons - no love for the new business model; sell/retire/merge; ride it out; or adjust just enough. I saw it happen with the ISP business when the ILECs jumped into DSL in 2002.

A few things are hampering this move to cloud for small business: reliable broadband; privacy issues thanks to the NSA; migration expense; and when Netflix buffers at home, they have to wonder if they will be able to access their cloud apps at 3 pm on a Wed.

Yeah, this is a little snarky, but that doesn't change the message any. And I wonder why Comcast is banging the cloud drum when you aren't really in cloud.


Let me clarify.

I worked at a Novell VAR in 1996-99 before becoming an Agent in 1999. I co-founded BarCamp Tampa Bay seven years ago. I have been writing this blog since 2008. I have attended ASCII, UBM/CRN, CP, ITEXPO, and TD events. I think I have a good cross sectional view of the channel. Plus the numerous partners and channel managers that I talk to on a regular basis.

I totally understand that the IT world is becoming all about MRR (monthly recurring revenue). Avaya and Cisco might argue, but Microsoft is a titanic example.

VARs - the IT guys - they like playing with technology. A majority of them don't want to have to sell all day and talk to people. It is not their passion. Their passion is the tech.

Dimension Data is owned by NTT (Verio) and is Cisco's largest global partner. Do you think they will be selling cloud or still pushing Cisco gear globally? Much of their $5.8B in revenue comes from PS and MS - professional services and managed services (like digital hands). Another nationwide VAR, Black Box, makes most of its money on traditional VAR business like PS, digital signage, data center, hardware and managed services. Sure, they sell some network, but that isn't why they have 600+ techs nationwide.

The VAD business is changing as well. Unfortunately, the VAD business is more about logistics than sales as well. It's just a marketplace. As Josh Anderson at Acuity said, "They don't create the demand. They are their to distribute for the demand that is already there."

I have written before about Ingram and Tech Data being more of a master agent (see TDmobility) as they are just about the ordering and distribution process. Why are they showing up at shows? Probably because the vendors are paying them to advertise their cloud services brokerage. As hardware sales slow, the VADs have a runway to ramp up the distribution of cloud services -- much like Sprint does, Apptix, VAR Dynamics, etc. But at the end of the day, these folks are not selling to an end user or creating demand.

I know Craig gets offended when I talk about how cable isn't channel friendly. My cable experience has been with other cablecos (that I will not name here). But they are not happy to be selling via the channel or wholesale. It is the same feeling I used to get from the ILEC employees back in the day.

What is new is old.

You know what I see? I see channel partners selling whatever the customer wants. And right now that is a little bit of cloud, but a whole lot of not.

I have a client dumping HPBX to go back to copper and a premise PBX because their cable connection just won't handle VoIP. Another client that is building a new office is taking their two year old PBX along.

Do I think more carriers/VADs/service providers are going to VAR shows? Absolutely. Why?

One reason: executives listen to analysts who say that it is all cloud all day and VARs will bring you sales.

Well, when you need more revenue, but the revenues are dipping with pricing pressure and the MRR model, a company will need more feet on the street. As Cbeyond learned: cloud revenue is smaller than old revenue - so you need 3x as many sales to make the Street happy. You need more feet. Where you going to get them? Shows. So I don't think because TD, Ingram and IBM pop up at shows it means that they made the right move -- they made A move, dictated by analyst reports.

When I say cable is not channel friendly, I mean in my experience. (Comcast took exception to the comments as I have made them twice in the last year.) Comcast is rolling out as a commitment to make sales more friendly. It needs to get frictionless. Comcast is the largest ISP out there; it shouldn't be a paper process to get a quote for broadband.

I recognize that there are a number of business models out there. Some people like selling broadband and T1s - and will make a living at it for years to come.

I think the correlation that some analysts are making might be incorrect. The analysts would say that the data proves them right. (I don't have access to the data; I have access to the people.) I think that the correlation that this is happening might be for a simple reason: chasing revenue anyway they can. It reminds me of the HPBX space - wholesale, retail, white-label, switch partition - how would you like that HPBX delivered???

I think Strike that, I have heard some cloud providers are running to channel because they can't afford a sales team. That will end poorly for all concerned.

My perspective is just different from anyone else. I appreciate the responses I got. Thanks for reading!

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