Channels are under pressure as never before. They have been subject to compressing product margins over the years; first on hardware, then software and now – pressure from  a business model  perspective in adjusting from transactional payment to recurring revenue driven by the SaaS (software as a service). Forward thinking resellers have been migrating their business model over the years to address these changing economics by concentrating on the Value Added part of the VAR model. Those that haven’t been mindful of the changes are heading for distress.

The convergence of technology embraced by the acronym SMAC, meaning social, mobile, analytics, and cloud adds to the challenge.  These technologies are fundamentally changing business applications and their consumption.  Again pressing VARs to keep pace with the change but also opening new opportunities with platforms for innovation to differentiate themselves.

Here we examine some of the challenges and opportunities:

Trends and Transformation

Supplier to Full Services Solution Provider – As margins and product revenue dwindle, VARs have had to become more than a supplier of technology. Customers expect a complete solution to solve business problems. It’s all too easy to purchase all the components of a technology solution from the web, shopping around for best price.  But a solution is more than a pile of parts. VARs that have positioned themselves as solution providers integrate all the components of an on-premise solution or, in the case of SaaS solutions, they provide services that enable the customer to implement the application successfully.  The emergence of Web APIs also provides VARs with some programming savvy to build software and cloud integrations to link best of breed solutions together. Furthermore they can innovate and customize to extend vendor solutions to better meet customer requirements and create differentiation around their solution.

Transactions to Recurring Revenue – There are great advantages to a recurring revenue business model once you make the transition, but the transition is painful as revenue up front gets stretched out over years.  One of the advantages of the recurring revenue model is that much of the pipeline uncertainty is removed from the business as each new sale builds on the aggregate of all past sales.  It is necessary to maintain customer loyalty to prevent attrition and sustain the business, but when wasn’t  customer satisfaction always important. Businesses need to be well funded during this transition and the longer they wait – the harder that transition becomes.  It can also be very rough on the sales organization which have been traditionally compensated upon the transaction.  Vendors and VARs have been experimenting with various incentive models that frontload more of the compensation at the beginning of the customer contract. This is a significant investment, it is expensive to pay for revenue not yet recognized and the sales teams will always prefer the Big Bucks upfront.

Technology Experts to Trusted Advisors – In the role of solution provider, VARs have become technology experts, gaining credentials through certifications and specializations from multiple vendors.  However selling SaaS solutions require VARs to go even further.  Depending on the SaaS solution they support, they often need to sell to a different customer other than the IT shop. Often  the buyer is in a functional department such as Sales, Marketing, or HR.  The VAR’s role becomes that of a trusted advisor in guiding clients to understand what compuing models best fit their needs and which application will deliver more business impact. Here is also the need to help customers understand the impact of SMAC. How social and mobile computing may keep them more in touch with their customers and employees.  How big data analytics may help them spot trends and opportunties in their businesses and how to quickly meet those unmet and and heretofore unrecognized needs.

Consolidation to Comfortable in the Cloud – Over the past ten years, there have been fewer new VARs entering the market and many consolidations as the market matures.  This trend is driven by the need for surviving VARs to offer more complete capabilities and gain economies of scale. Those that survive and thrive will be those that make the necessary adaptations, refine their business model, adde more value to their customer engagements and ultimately become comfortable in the cloud.

In Part 2 of this series of Changing the Channel, we will focus more on how channel partner managers can help VARs retune their value propositions to thrive in the cloud.

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