ScanSource Revolutionizes Channel Distribution with Acquisition of Intelisys—Now What?

For the last 48 hours, the channel has been buzzing about IT distributor ScanSource’s acquisition of master agent Intelisys, which promises to usher in a new era in channel distribution. ScanSource CEO Mike Baur told The VAR Guy’s sister site, MSPmentor, that the purpose of the deal was to provide a way for VARs to transition into a recurring revenue stream—something they’ve been trying to do for many years. Journalists and industry experts have called the move “bold,” “a watershed moment” and “one of the biggest announcements in the Services Provider Channel to date in recent times.” While the acquisition can indeed be called all of those things, there’s another, quieter sentiment echoing through the channel: Finally.

When I was stuck in the airport during a five-hour flight delay returning from ChannelCon last week, I found myself sitting in a bar with several VARs and MSPs, talking about the state of the channel over extra-large pours of beer (for them) and cabernet (for me). They had a lot of positive, excited feedback about the trends and opportunities presented at the conference, but also expressed frustration at what could be classified as a lot of talk and little real action from leaders in the channel community.

Everyone keeps telling VARs they need to move into a recurring revenue business model as if it’s something they haven’t heard a thousand times before. For years, industry experts have been preaching the salvation of service models to traditional VARs watching their shrinking margins with dread. “I get it,” one gentleman told me. “And I’m on board. Now, how are you going to help me do that?”

To be fair, many vendors and distributors have built support for VARs making that transition into their channel programs, but it’s an afterthought and not a primary focus. What ScanSource has done with this acquisition is to say—okay, fine…to boldly say—that they aren’t hedging their bets, and they’re doubling down on recurring revenue to the tune of an $83.6 million initial buyout.

For resellers, this moment has been a long time coming. For Baur, it’s been a concrete goal since at least October of last year. As he told MSPmentor, that’s when he put a team together with the sole purpose of figuring out how ScanSource could develop a recurring revenue services strategy for partners.

Telecom and cloud is a $150 million market in the U.S., and ScanSource partners could only claim a small sliver of that before the acquisition, mostly in the realm of selling and maintaining devices. And as resellers are fully aware, there’s just no way to maintain long-term profitability without also selling and servicing connectivity solutions for those devices.

So now that ScanSource bought Intelisys, it should be super-easy for resellers to turn their business models on end and start selling solutions, right? We can pull VARs back from the ledge, they can flip a switch and tomorrow add “MSP” to their shingle. Crisis averted.

Well, with deepest apologies to the friends I left behind at the Hollywood-Ft. Lauderdale airport bar last week, probably not.

It’s no doubt a big first step toward finally integrating the IT and telco channels. Both ScanSource and Intelisys partners will be exposed to a much broader array of solutions and technology, all presented in a single window that makes it easier to place orders. The two companies will provide training, sales and marketing enablement and all the other tools that come along with a new channel program.

More pertinent, Intelisys has a channel initiative called the Advance Commissions Program that helps its partners avoid at least a little of that shell shock on a practical level. It pays resellers a certain amount of a recurring revenue deal up front to help them avoid the pain of five or six months of no cash flow while the deal is installed, billed and commissioned, and Baur says ScanSource will put the weight of its big balance sheet to the same purpose.

But while some could describe the potential of the acquisition as revolutionary, the immediate future is unlikely to change drastically. Paradigm shifts take time, and for an industry used to measuring success in top line revenue, it will be difficult not to panic when that number begins to fall. Baur described the challenge well to MSPmentor, saying “that $152 billion of telecom revenue doesn’t translate into revenue for us. We’re going to be getting a commission that we’ll share with our channel on that business. So it’s a much smaller top-line impact but a significant margin impact.”

Even the language needs to change; ScanSource stopped referring to itself as a “distributor” last year when Baur formed that recurring revenue strategy task force. Today, the company identifies as a “technology solutions provider.”

Maybe by this time next year, more such market consolidation will have taken place, Baur’s new terminology will have become the norm and my barside chats with VARs after ChannelCon will have moved on from “how do I make this switch?” to “okay—what next?”

If so, I’ll drink to that.