Channel partners elevate their focus to the enterprise
by Tara Seals
As network services continue to become commoditized, and cloud services begin to penetrate the upper end of the business market, channel partners are evolving their strategic models to go after the up-market segment with an unprecedented focus. While small and medium-sized businesses (SMBs) are still an important target for agents and VARs, this shift sparks a number of questions: What services are best suited for pursuing larger companies? What pressure does this place on partner business models? What other challenges are there?
As more enterprises shift their spending away from premises-based solutions and toward mobile-ready applications and cloud installations, it opens the door for channel partners to offer not only underlying connectivity, but also cloud applications that increasingly are replacing traditional IT functions. Delivered as a service, these apps allow partners to take a bigger share of wallet in larger enterprises than they ever have in the past.
And it’s a significant opportunity. Market research firm IHS Technology sizes up the market at about $70 billion in terms of enterprise spending on the cloud, which it estimates will grow to about $250 billion by 2017.
Further, 65 percent of enterprises are now using cloud technology, services and solutions as part of their IT infrastructure, according to Verizon Enterprise Solutions. In addition, IT — specifically the CIO/CTO — controls more than 80 percent of total cloud spend within the organization. The CIO/CTO personally oversees more than half (62 percent) of cloud purchases.
“The cloud…represents essentially a new way of doing business and a new way of offering services,” explained Jagdish Rebello, senior director of consumer and communication research at IHS Technology. “We live in a generation today where the world is heavily connected and, if you think back in time, this new connectivity in the cloud is driving a new way of developing new applications, services and the next-generation of platforms.”
It also makes for a much greater array of choice for enterprises, as everybody and anybody who is going to be successful in the next decade or so has a plan to attack the cloud, be they traditional enterprise IT players, or service providers looking to move past connectivity to instead offer a range of services.
“When it comes to enterprise IT and cloud computing, the discussion has decidedly shifted from ‘if’ to ‘how’ and ‘what,’” said Siki Giunta, senior vice president of cloud services for Verizon Enterprise Solutions. “Customers are now coming to us with more detailed, stringent requirements and questions about where and how to use cloud to transform their businesses and mission-critical workloads, instead of whether or not to use it.”
For channel partners standing at the intersection of all of this, taking on a consultative role is of critical value to many large businesses.
“As we move further into the cloud era, there is a
vast well of potential customers that are larger enterprises looking to embrace the channel for its ability to provide a boutique experience, and act as a technology advocate and single point of contact for all of their infrastructure needs,” said Lauren Shapiro, president at PlanetOne Communications.
Channel Partner Shifts
Given the scope of the opportunity, many master agents have begun to evolve their business to capture
more enterprise sales.
“I believe that we are all moving up-market because we all have current customer bases that we have hit home runs and large network sales that trust us,” said Denis Raue, president and CEO at Telegration Inc. “Since we have large customer bases with customers that consider us their trusted consultant in telecom, they trust us more as we prove our value as cloud consultants.”
Raue said that larger companies also tend to be more knowledgeable about cloud and network integration, so that a partner offering fiber access and increased bandwidth for a specific set of cloud applications has an important story to tell and, largely, a green-field one. In the smaller markers, agents are all too often up against in-house, current VARs that have been ensconced in the company for IT and have no interest in losing the monthly service revenues that they generate on break-fix services.
Overall, it’s certainly a market in flux, which for now has meant a largely wide open field. Rebello added, “everybody is looking at this new paradigm and trying to figure out how they can create value for their enterprise customers and essentially preserve their position. So it’s going to make for some exciting changes.”
Eyeing the opportunity, master agency PlanetOne Communications has spent the last year honing a renewed focus on going up-market and broadening its conversation to better encompass the cloud. The company has expanded its team and footprint, opening an office in Southern California.
Jonathan Hartman, who became vice president of sales for PlanetOne at the beginning of 2014, said that a key initiative for him is to help partners embrace fresh technologies to move up-market.
“We’ve talked about convergence in the telecom and IT space for years, but now we’re actually here,” Hartman noted. “There is an immense opportunity as we embrace new technologies that can help us win what was traditionally earmarked as IT money in the past – especially when it comes to cloud and managed services. But, it also means that we’re facing a more competitive environment, including serious competitors that are very focused on the SMB and midmarket telecom space, where they haven’t been before.”
As a result, partners need to strategically use the combination of their portfolio offerings and their own consultative differentiators to win – or keep – business in midsize and larger accounts, which are still largely untapped when it comes to transitioning from on-premises IT.
“Right now there’s roughly an 80/20 split between IT and telecom spend in up-market accounts. We’re going into these accounts hip to hip with our partners to capture both of those budgets, and to vertically grow revenue inside the enterprise within various business units,” Hartman said. “This approach means more revenue, and a more sustainable model, because accounts become stickier when you’re consulting on that much of a company’s critical infrastructure.”
An Educational Challenge
Along with the greater opportunities, of course, come challenges. Larger companies have many of the same requirements as the smaller ones do, although the size of the sales and the shift in uptake for cloud services and a range of applications have meant that the communications decisions that these companies face are that much more complex. And that in turn places greater pressure on channel partners to evolve their internal organizations to be knowledgeable in a whole new set of technologies.
“Again, as the IT world transforms, companies need to tap independent trusted advisors who have been able to quickly gain experience and knowledge of the new marketplace,” explained Greg Praske, co-founder and CEO at master agency ARG. “No longer can a company just engage an AT&T team or a Verizon team and feel they’ve selected best-in-breed providers for their services. For larger companies, the bandwidth requirements are even greater. Fiber is still heavily influenced by address, and carrier direct sales staff simply can’t compete in many locations.”
Compounding the requirements for this group is the fact that larger companies typically have specialized or specific needs: a call center app with workforce optimization, a Web collaboration tool with no app download to get through government firewalls, a data center requirement in South Africa, a hosted voice platform that can re-use their Cisco phones, Amazon Web Services (AWS) connectivity, and so on. Thus, management becomes a key piece of the conversation for enterprises.
“The 24/7 vendor management and escalations will wear down any company no matter how large,” Praske said. “ARG delivers real value to taking that off our clients’ plate.”
But, as much of an opportunity as it is, there are significant challenge for channel partners looking to transform their businesses for this new reality. For one, the vendor management entailed alone requires significant resources.
“On the front end, it takes a lot of diligence, probing, expertise and a strong network of industry relationships to assess the functionality and support behind the various products,” Praske said. “The marketing materials have proven unreliable. The claims made by provider personnel are unreliable. So, if you’re going to help your clients make good, strong decisions, you have to be prepared to make considerable investments in talent and then continue to invest to keep them current and motivated.”
The best-prepared partners will have a plan in place to tackle this dynamic environment. “Everything is on demand, self-service, and almost on a rental basis as opposed to capital expenses,” said IHS Technology’s Rebello. “So it represents a different way of thinking. It allows enterprises to look at new ways of offering services and interacting with their supply chain. But it also provides tremendous challenges because the cloud is not necessarily going to make things easy.”
SMBs Still Offer Opportunity
Despite the upper-market focus, the classic SMB market continues to offer opportunity, and for many of the reasons that the enterprise market does. Also, the communications requirements in this segment are shifting toward increasing complexity as the IT world transforms more toward the cloud.
“ARG is still very active in the SMB market,” said Greg Praske, co-founder and CEO at master agency ARG. “For us, we define that as organizations with 25-250 employees. In our area, that is going to be mostly white collar employees with higher use of telecom and IT services.”
Ironically, even as communications use has increased, most of these companies have cut back their IT staff — a group of personnel that now includes both telecom and IT, as telecom is becoming more and more an app in an IT environment. And the remaining staff is faced with an educational challenge, opening the door for agents and other partners to capture a value-added opportunity.
“The decisions that are being made are new and thus rely more on gathering knowledge than on experience in making the same decision previously,” Praske said.
ARG, for instance, has been deliberately building out its team to help organizations make better decisions more efficiently, and then has brought a value-add in the form of overseeing the implementation and ongoing support of the given solution, to maximize the impact on customer businesses.
“Most effective solutions involve multiple providers and a range of services, which are best managed using our software that has been designed specifically to support those solutions,” Praske explained. “SMBs today frequently require fiber access terminating to PSTNs, IP networks, data centers, hosted voice providers and cloud providers. Couple that with managing mobility and collaboration services for a physically dispersed workforce.”
He added, “A truly independent agent with the right engineering resources and product specialists for today’s environment can deliver a service that no single service provider can address.”