Battle for the new channel

The channel has changed; are players keeping up? 

Jay McBain, principal analyst, channel partnerships and alliances at Forrester, is a good person to speak to if you want to understand the market forces shaping the channel.

In sum, he’s seeing a profound shift in how buyers acquire products and services, and how companies are responding to this by retooling their go-to-market strategies.

He also appears to have done his research, speaking to almost 500 companies in 2019 alone, and has an encyclopaedic knowledge of how the industry is changing. He reels off statistics and survey results down to the decimal point.

Speaking to The Margin from his home in southern Florida, he says indirect sales are growing, but just at a slower rate than direct sales. This is the first time this has happened in decades.

He says there are a couple of key reasons for this, among them the rise of the hyperscalers.

In 2019, “Microsoft reported 67% growth of Azure. AWS announced 54% growth of the AWS platform, Google is in the 50% range, Salesforce is in the 30% range. And now, there’s Workday, Marketo…they’re growing at an order of magnitude faster than the technology they’re replacing. The shift to cloud is also a shift to less transactional resell value.”

Laying out the traditional channel landscape, he says globally, there are about 600 000 companies such as VARs, resellers, and managed service providers. There are also millions of others, as companies in every industry incorporate technology into their business models. An example is accounting firms, of which a least 80% now provide technical services, as do digital agencies.


“Everyone is flooding into this (tech) world. In South Africa, there are probably 20 000 channel companies, from one person, all the way up to the very large.”

These companies, he says, have spent the last four decades talking to the IT department, and while this approach may have worked in the past, it’s now changing. For example, at present, 65% of cloud decisions happen outside of the IT department.

The invisible deal

McBain uses the example of a customer looking to acquire cloud services, from, say, Oracle, which is just one of a number of companies with big cloud ambitions.

He says a customer will, on average, speak to five different people to help them on their cloud journey, and in two-thirds of cases, will select a vendor without ever speaking to a salesperson.

“Oracle may have lost a deal before it ever knows there is a deal, and that’s different to the past.”

This will persuade companies of the importance of this ‘influencer channel’, he says, which is composed of, among others, affinity partners, advocates, ambassadors, digital influencers, and super connectors.

“They need to make sure that Oracle is part of that early conversation, so that when it gets time for vendor selection, and when it gets time to do battle, they’re in the game.

“Companies are spending all their time, money and effort on this traditional channel, which doesn’t happen to be the same people who are getting to those customers early, and often.”

McBain says in his conversations with executives from the world’s largest technology companies, such as Oracle, SAP, IBM, Dell, HP, and others, they estimate that 80% of the channel is still stuck in the old ways of doing IT-related services and procurement, and are effectively ignoring these new opportunities.

He mentions Salesforce, and its Dreamforce conference, which attracts 171 000 people, as well as 10 million more dialling in. “It’s this wonderful ecosystem of partners that are getting rich.”

He says most of those at Dreamforce wouldn’t be recognised as part of the traditional channel, or part of the 600 000 companies mentioned earlier.

“These are new channels for technology that don’t rely on resell. Salesforce is acquiring 250 000 new partners in the next four years, and it shut down its resell programme. How is Oracle going to tap into these 250 000 partners?”

As for AWS, McBain says it’s doubled the size of its channel every year, for the last four years.

“Three years ago, they were 15 000, they went to 30 000, to 60 000 and right now, they’re at a 120 000 partners. Next year, they’ll be at 240 000. By the end of probably five years, AWS is going to have one million partners.”

AWS also recognises that while it’s trying to win the business of the roughly 175 000 ISVs in the market, they crucially also see them as potential partners, ‘because they’re going to be in there with the client talking about AWS, early and often, as they’re building up their stack’.

Showing their mettle

Are partner programmes, particular the tiered ‘metal’ ones, keeping pace with this change?

McBain says the tiering model is based on volume, revenue and growth of the reseller business. While these programmes are still ubiquitous, he sees them levelling off. Part of the problem is that some partners will just not progress up the tiers, despite what the vendor does.

JAY MCBAIN, Forrester JAY MCBAIN, Forrester

“Every company has all kinds of partners that sit at the bottom of the pyramid. They call these their long-tail partners. And they don’t know what to do with them. For 40 years, they haven’t known.”

Now, “companies are beginning to figure it out. They’re just not transactional partners…that’s not what they do, it’s not in their business model to resell your stuff. “They might be implementers, they might be security firms, they might be compliance or continuity firms, they could be all kinds of things, but there are dozens of business models, and we were trying to jam everybody into gold/silver/bronze resellers. We didn’t understand why they didn’t rise up the pyramid, and so we shut them off, we punished them…now we understand this move to an ecosystem and that’s very important today, especially in the cloud.”

He says the first part of the customer journey will now be undertaken digitally, ‘before they even speak to somebody’.

This means there’s a channel that won’t be the ones to collect money from the customer, but will play an important role in influencing the customer to buy the product.

It’s also well known that almost every company in the technology industry is moving to a subscription model, which means the individual transaction is less important.

Put another way: “Now you need to re-earn that customer’s trust every 30 days, forever.”

McBain says there also needs to be someone accompanying the customer on their journey with the technology to make sure they’re not only continuing to use the products, but increasing its adoption and integration.

“They’re making my product very sticky with that customer, so that it can never be taken out.”


So it seems the traditional channel is failing?

“Like I said, 80% of our current channel – 80% of 20 000 companies in South Africa – are not leveraging AWS, and don’t have a piece of that 54% growth year-over-year. They’re struggling. A quarter of them are losing money, a quarter of them are breaking even, at best, while all these other channels are flooding in, making 75% margins wrapped around AWS, and Salesforce, and all the others. That’s the critical part of the transformation we’re going through now.”

He also says that of the 20 000 local firms, he expects about 40% will close shop in the next four years.

“Many of them started their companies in either the ‘80s or ‘90s, coming out of college or high school, and the average age is probably 58 years old in that demographic. Their kids don’t want the business, they don’t want to fix PCs or run cables or update printers. They’re into this new world, and they’re doing these cloud integrations. If you look at Millenials, and Generation Z behind them, they’re very much part of these new channels that aren’t interested in resell and traditional infrastructure.”

Emerging technologies

I ask what uptake he’s seeing of emerging technologies. Have RPA and IoT, as examples, come of age, or are we at the beginning of the wave of adoption?

McBain says he certainly sees growth in these areas, but some markets, such as the United States, are further along the journey than many others. These early adopters, he says, were now becoming the ‘early majority’.

He says a recent global research project run by Accenture asked CEOs and boards where they thought their company would be in the near future, and 76% replied that their business model would be unrecogniseable in five years.

He says this is a time of transformation, as can be seen in the massive uptake (he says RPA grew by 5 614% globally last year) of new technologies.


“That level of automation and AI is the ticket to how you deliver digital transformation.”


He says IoT can enable any company, in any industry, to become a technology company.

A forklift, for example, equipped with an IoT sensor will be able to supply a wealth of data, such as the weight of its load, or the distance it’s travelled.

“There’s a thousand data points per second, which then gets sent to a builder, a construction company and an architect. And guess who the newest partner of AWS is? It’s this forklift company that is a now a tech company.”

He says transformation is on the agenda in boardrooms in most companies, and it’s now being examined with more urgency.

“Every company in every industry could be out of business within five years.

“What does blockchain mean to our industry? What does IoT mean, what does 5G mean, what does AI and automation mean? We know that 47% of jobs can be replaced today based on technology that’s now shipping. What does this all mean? I need some really smart people in the room to start thinking with me about how to become a survivor and thrive in this new world.

“Emerging tech is no longer emerging. It’s here.” 

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