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Channel Convergence Will Never Happen — and That’s a Good Thing
Rob Spee
This month I attended my first Channel Partners Conference and Expo held in Las Vegas. Hundreds of suppliers and thousands of partners, mostly telecom agents, gathered to talk about top trends in the communications industry. Common themes at the show included the exploding opportunities for partners in cybersecurity, internet of things and 5G, and the need for agents to gain the skills required to sell these hot technologies and more advanced data services such as SD-WAN and unified communications-as-a-service (UCaaS) now offered by communications suppliers.
But there was another theme I heard multiple times, presented with strong points of view as to whether or not it was really happening.
I’m talking about channel convergence. More specifically, the convergence of the telecom agents and managed service providers. Apparently, this is a trend that has been discussed for many years at the conference. Depending on whom I spoke with, the trend was either accelerating or barely happening. Thinking about this topic further after I got home, I concluded that this convergence will never really happen. And that’s actually a good thing for suppliers, partners and the end customers.
Resistance to change. Telecom agents, like insurance and financial agents, are paid a residual commission on the services they sell to their customers. They typically are paid the commission for the life of that customer, creating an amazing recurring revenue stream without ever having to worry about billing, first-line support or owning the assets. All that is handled by the supplier. Asking a telecom agent to act more like an MSP is like asking an insurance agent to start offering services that would require the investment in service technicians and assets and to take on the credit risk of the customer. That’s a hard sell for agents. They have no desire to change their business model. To them, it ain’t broke, so don’t try to fix it.
MSPs, on the other hand, bill and are paid directly by the customer each month for services they provide. MSPs want to own the customer relationship and see billing on their paper as proof of ownership and control of the account. Their MSP model requires investment in assets and technical skills to provide an excellent customer experience to maintain their monthly recurring revenue. Their service is often based on technologies from multiple suppliers, packaged together and billed to the customer as one monthly fee. It seems like a logical step for MSPs to add telco services to their portfolio. What an easy way to add an additional revenue stream, right? Yet most MSPs are reluctant to do this, many saying they’d lose control of the customer under the telco’s agent model.
Dilemma for agents and MSPs. As with most business software and services, the buyer of telecom services is also changing due to the impact of the cloud on buyer behavior. IT leaders used to make all the buying decisions, but that has been shifting rapidly. Business leaders can easily go online and sign up for an online conferencing solution with a credit card. Agents who have a Rolodex of IT customers need to start building relationships with the business leaders who are now buying the new cloud-hosted communication services. And they need to up their game to keep up with …
Rob,
Your assessment, having attended your first Channel Partners event is spot on! Over the past (almost) 2 decades, I have been on all sides of the channel: service provider, VAR, and agent. In my opinion, convergence is a happening, though at a glacial pace. My first recollection of “convergence” becoming a part of channel vernacular was in 2013. CompTIA even created a council, the Telecom Advisory Council, with the hopes of educating legacy IT channel partners (many of whom have since morphed from break/fix shops into MSPs) of the value of adding telecom services to their portfolio of services. At our inaugural council dinner, which matched us telecom council members with IT partners, I vividly remember one IT business owner staring blankly at me and saying, “what’s an agent?” We were, clearly, speaking different languages back then. Since that time, both sides of the aisle are versed enough in the other channel’s value and business models. But, to your point, will they embrace them to move the needle with their own business?
I also, wholeheartedly, agree that for a supplier to be successful in the “other” channel, they need to maintain different compensation and billing models. I feel that most have made this switch fairly effectively. When I was heading up the channel for a service provider, the very first question we asked was how the partner wanted to handle customer billing. That single question told us most of what we needed to know in order to successfully engage with that partner.
Thanks for your assessment of the convergence… or lack thereof in the IT/Telecom channel space. Oh… they can always “partner”, but that is a topic for another post. Cheers!
Rob:
After reading your article it seems to me that your vision doesn’t extend beyond the present, and that’s dangerous.
Your comment about Office 365 reveals that you are fairly out of touch with what’s actually going on in the channel. Office 365 has been out there for many years and today’s CSPs know not to expect much profit from sales of the subscription. On the other hand many have created robust managed service practices around it. The MSPs you describe won’t survive the next round.
If something is too good to be true, then it probably is. Telecom agents may have enjoyed the free ride you describe, but that will change, and soon. Everything else aside, economics require all players to align their incentives with actual contributions. IT shed massive commissions to salespeople over a decade ago simply because they couldn’t afford it. You think its going to continue to be different in telecom?
I think the equation is simpler. You have a telecom channel full of salespeople and an IT channel full of service delivery experts. It’s a natural marriage. It may not be happening yet, but money has an amazing way of prompting action. Wait for it.
HMC
If agents/subagents didn’t transform into MSPs in the good days (30-40 percent margins) why would they converge now (17 percent average margin)?
Research on the modern buyer is telling us that 73% of them are more comfortable acquiring technology more directly (either ecommerce or marketplace) and the opportunity to resell will decline over the next 10 years. There are currently about 23% of companies that outsource some or all of their IT, but that number has plateaued over the past few years causing price compression, industry consolidation, and M&A that is off the charts.
Both of these audiences haven’t cracked the code on the cloud opportunity yet – the downstream implementation, integration, security, compliance, continuity, hybrid and multi-cloud projects (not recurring or set up in an agent model). This is where the 75% margins are today and Microsoft is signing up 7,500 partners a month who do understand this new economics for the channel.