Are You Prepared for the Channel Eclipse?

By Jim Lippie 1

Three years ago two different companies told an MSP that they wanted dedicated hosted Exchange and would never use Office 365 or any other multi-tenant Exchange product. Last month, both of those companies told that same MSP that they were leaving their dedicated hosting Exchange offering and are moving to Office 365.

Every industry evolves. Companies that prepare prosper, those that don’t perish. Take the office products industry (OPI), which used to be highly fragmented with thousands of independent stationers throughout the country selling supplies to businesses. 

Disruptive forces

Then, in 1986, Staples created the office supply superstore. I joined Staples in 2006, 20 years after its inception, when it was the biggest, most profitable of the major players including Office Depot, OfficeMax and Corporate Express. In those twenty years, four companies had essentially consolidated an industry. Today, the evolution of the office products industry continues, with Amazon becoming a major threat and talk that Staples should acquire the combination of both Office Depot and Officemax.   

By now you’re asking yourself, what does any of this mean to me as a technology service provider? On the surface, not a lot, but look deeper. This is a cautionary tale. Thousands of smaller independent companies losing market share to big direct companies. Market consolidation. The evolution of the channel will continue and every MSP and VAR in the channel can learn from what happened in the office products industry.

You want to chalk office products up as on outlier. Perhaps you prefer to look at other industries, like book stores. Today, there are 50 percent less book stores in the United States than there were in 1994 with E-books accounting for 30 percent of all book sales.  Amazon has roughly 65 percent of the E-book market with Barnes & Noble and Apple making up the balance. Technology facilitates market consolidation. This is fact, not opinion.  Imagine 50 percent less MSPs 20 years from now.

The coming Channel Eclipse

I am taking about a concept called Channel Eclipse, a phenomena where large direct players are taking market share from MSPs and VARS.

It started with hosted Exchange. Remember when it was highly profitable for a service provider to install and maintain Exchange? I do! It was a gravy train. But not anymore. The gravy train has been derailed and replaced by hosted Exchange which yields tiny margins and resembles table scraps instead of a profit feast. Now, with the proliferation of hosted apps, file/ sync/share solutions and hosted servers, it’s becoming more difficult for MSPs and VARs to make good margins in other areas of their business as well.  

Prepping for the coming Eclipse

This is about survival of the fittest. The service providers who will succeed are ones who acknowledge the impending eclipse and prepare for it.  MSPs and VARs have to change the economics of their business so they can compete in the future.  Channel Eclipse won’t happen overnight, but it is happening.  Don’t make the mistake of saying it won’t happen to your business or in our industry.  This is not meant to be gloom and doom, it’s a wake-up call.  MSPs have an opportunity to take advantage of the changing market conditions, they just need to acknowledge change is at their doorstep and create a plan to reinvent themselves.

Do you believe the Channel Eclipse is possible? Yes or No? Let me know in the comments section below.

Download “The Five Tips to Stop the Eclipse” here or email [email protected] for more information on creating a plan for your business.