The Doyle Report: New Thinking from a Veteran Channel Strategist
Surinder Brar was back in town this week with new things to say. While you may not agree with all his views, you’ll surely benefit from them just the same.
If you’re not familiar with the name, Brar is a former Cisco thought-leader who served for several years as the company’s chief channel strategist for its worldwide sales organization. Many of the programs that put money directly into the hands of partners over the last decade have his fingerprints all over them. This includes the Value Incentive Program or “VIP” that literally paid more than $1 billion to partners over the course of several years.
After 15 years at Cisco, Brar left the company in August 2015. Though he now resides in Hawaii fulltime, he has remained at the epicenter of the channel through outspoken presentations at channel events, his intimate consultations with vendors, and his pithy blogs, several of which can be found here on The VAR Guy.
I caught up with Brar on Thursday via phone while he was in San Francisco attending the Channel Visionaries event. (Full disclosure: I’ve known Brar for a dozen years and worked with him on occasion when I was at Cisco writing about emerging market economies.)
When we spoke, he was full of imagination and ideas. Here are just some of the interesting things he had to say.
The Cloud Is the Single Most Important Technology Transition Ever for Technology Companies
Before you invest in more data centers and network infrastructure, consider what Brar told a Cisco Gold partner after the partner wondered if his company should invest money in becoming a cloud provider. “Don’t build data centers,” Brar advised.
Why the hard line? Simple economics, Brar says.
Today, he notes, Amazon Web Services (AWS) has 10 times the capacity as the next dozen hosting companies combined. This includes big names like Rackspace, SoftLayer, AT&T and more. Today, AWS is growing at a rate that will make it a $16 billion company by 2017. The company is growing so fast that it could become the fastest-growing enterprise tech company ever, according to Deutsche Bank.
If you’re thinking about additional investments in the cloud hosting technology, then be forewarned: a major consolidation looms on the horizon. Cloud providing is a business whose economics are increasingly determined by economies of scale, Brar says. If you cannot secure the cheapest real estate, the lowest energy costs or the most cost-effective security, then you will likely lose business to someone who can. If Brar had to bet who that company is today, he’d put his money on AWS.
Oh, and the Cisco partner that asked his advice on its next business move? It ditched plans to build additional data center capacity and instead invested in software development. It developed a cloud-based education app and has never looked back.
The Channel Never Misses a Market Transition
Though there’s been some pushback on the examples showcased in “The Innovator’s Dilemma,” the central idea that market incumbents are vulnerable to disruptive upstarts applies to the technology channel as much as any market, Brar believes. Unlike technology vendors, which sink vast sums into research and development, brand development and more, channel companies run more nimbly. When one profitable revenue stream begins to run dry, they are quick to switch to another. We’ve seen this played out repeatedly as channel partners have moved from desktop PCs to local area networks to Internet provisioning, telephony and more.
The transition to the cloud has taken more time than expected because it requires adopting a new business model in addition to a new set of technologies. But many channel companies are making steady progress just the same—more, in fact, than some legacy vendors. Many tech giants still haven’t figured out what business they will be in in the next few years. But partners will still cater to end customers.
“Partners are often closer to customer needs than their vendor and are the first to learn what changes the customer is going through,” Brar wrote recently in a blog. “Vendors can greatly benefit by listening to their partners because they may lose their channel franchise if they do not adjust to the market transition fast enough as the channel partner can easily replace the incumbent vendor with someone else who has a more appropriate offer for the customer, which is happening in the cloud space today.”
Channel Programs That Got You Here Will Not Get You There
Over the last few years, the difference between a traditional resell model and a cloud-based services model has become starkly clear.
“The source of partner margin is very different in the two channel models,” Brar notes. “VARs earn perhaps 70-50 percent of their margin mix in a typical transaction directly from the vendor offer itself, and the balance 30-50 percent on services that surround the offer. In the [cloud model], partners make less than 10 percent of their transaction margin mix from the cloud offer itself (mostly as a referral fee) and over 90 percent through their own surround services like architecture design, security assessments, workload migration, and other professional services.”
The difference has profound implications on the design of channel programs that help enable, qualify and reward partners, he adds. For example, traditional incentives and rewards normally provided by vendors are almost meaningless to those who do not resell. “So vendors must create new programs that focus on enabling and rewarding partner surround for this new sales motion,” Brar says. “And since partners are themselves responsible for driving their surround, they are far less dependent on the vendor’s offer rewards and more driven by their own value-add.”
If Brar is right, and I believe he is in many ways, the ramifications for partner companies will be significant. Software companies, for one, will become more important to business partners than hardware vendors. Vendor certifications will also decline in value. And brand loyalty will switch from vendor to partner.
The bottom line is this: cloud changes many things, but not who is best positioned to endure this major market transition. Survivability will come down to adaptability, much as it always has.
