Traditional Consumer-Focused Channels Are Heading Toward Extinction

I was recently invited to speak at the three-day Distree Asia Pacific event on technology and business model disruptions and their impact on tech distribution, where I spoke with tech vendors, consumer electronics (CE) giants, tech distributors, retailers, and e-tailers from across Asia Pacific. We discussed various topics, including the channel scenario for the coming two to five years. Based on these inputs and my understanding, I believe that the traditional IT channel, including consumer-focused distributors, will soon disappear unless its current business model changes. Here’s why:

  • Direct market resellers (DMRs) and e-tailers are taking the flab out of the traditional channel. Although a large number of consumers still prefer to shop offline, increasing consumer confidence and further adoption of online payments in Asia Pacific mean that more and more DMRs will establish their presence on the Web, targeting consumers with low-cost products. eCommerce sites like Lazada are trying to build an Amazon-like model for Southeast Asia. The entry of nontraditional players such as government-owned Indian Railways,which recently launched its own eCommerce retail marketplace in India selling electronics and IT products, is also disrupting the traditional channel ecosystem.
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Microsoft's Selective Partner Resale Strategy For Surface: Short-term Benefits, Longer-term Challenges

Microsoft (MSFT) recently announced plans to sell Surface tablets to enterprise customers, including educational institutions, through a two-tier partner program called Microsoft Devices Program (MDP). The program authorizes distributors to sell Surface to a newly designated group of device-authorized large account resellers (LARs). Per the announcement, in the US, Surface will be resold through three authorized distributors (Ingram Micro Inc., SYNNEX Corporation, and Tech Data Corporation) and 10 high volume LARs. MDP is likely to be expanded to select partners in 28 other countries by the end of September 2013. As part of the initial go-to-market model, Microsoft is not including its solution providers in the program.  

Based on recent media reports, Microsoft’s US partners -- solution providers in particular -- have expressed dissatisfaction with Microsoft’s selective approach towards partnering for Surface. Solution providers feel Microsoft is ignoring the opportunity to deliver “wrap-around services” around Surface, which they could have delivered.

I believe that in the near term, Microsoft is correct in limiting access; but, in the longer term, it will need to open up to other partners, including solution providers that can help Microsoft deliver Surface-based solutions as a means to ensure differentiation in the tablet market and drive margins. Microsoft needs to follow some key guidelines as part of Surface’s go-to-market strategy if it wants to stand above the crowd:

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Cisco Sets A Positive Course For Partners - Notes From Boston

I attended my fifth Cisco Worldwide Partner Summit in Boston the first week of June. As always, the first day’s keynote presentation by John Chambers was impressive and covered market transitions, opportunities, future big bets, and how Cisco can work better with its partners. John also stressed the need for partners to embrace change and move to a new business model.

Building on this presentation, Cisco made three key announcements at its partner summit, which I’m highlighting below because I believe they are especially important for partners that operate in Asia Pacific (AP) markets:   

  • Cisco has committed to doubling its investment in the mid-market space globally from US$75 million to US$150 million in FY2014: Typically perceived as a large enterprise-focused company by partners and mid-sized businesses alike, Cisco’s announcement that it would double its investment in demand generation activities, building its mid-market portfolio through new products (e.g., the  low-cost router developed in India) and through acquisitions (e.g., Meraki), and  incentivizing sales people is very timely.  With a large mid-sized business population in Asia Pacific, proactive efforts toward creating a mid-market brand will help establish Cisco more firmly in the space.
  • Cisco dCloud, a cloud-based demonstration service for partners, is now available:  One of the major challenges for AP-based partners is their inability to invest in costly demo equipment or visit vendor demo solution centers. The availability of Cisco dCloud will not only help partners increase their chances of winning a deal, but also potentially help them reduce the sales cycle, making it a profitable deal.
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Huawei’s Enterprise Channel Strategy is Making Progress

I was encouraged to see that Huawei had a proper track session on its channel strategy during its 10th Global analyst summit in Shenzhen.  The track is another sign that the company’s enterprise division is maturing and taking the right steps to expand its activities in China as well as globally.

In 2012, Huawei recruited 1,289 distributors, VAPs, and tier 2 channel partners to reach around 3,789 worldwide, which represents growth of 52% in China, Europe, and 26 other key countries globally.  Huawei’s enterprise share of channel sales was around 55% (excludes Operator resale) of its total revenue in 2012, a 32% revenue growth through channels from 2011. Huawei is also starting to build its services and software ecosystems with 700 authorized service partners and 200 ISVs. 

Overall, three key things that stood out to me about Huawei’s partner programs are:  

  • A more structured and well-defined partner program: The partner program has evolved considerably since last year and Huawei is working towards mapping its key accounts and streamlining the account management process.  Through the segregation of 5000+ named accounts (key accounts based on deal size) and defining the customer engagement model for high value accounts, Huawei can bring about the clearer channel architecture that will be required to build an open and successful channel ecosystem.
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CHANNEL PARTNERS ARE EMBRACING THE CLOUD IN A BIG WAY – BUT STILL NEED HELP

Channel partners are bullish about their growth prospects. In fact, in a recently conducted Forrester survey in North America (NA) and Europe, 59% of channel partners expect to grow by more than 10% in each of the next two years. However, partners will need help and handholding as they aim for greater sophistication and higher growth targets, especially around cloud based services. Forrester research indicates that three-quarters of channel partners in NA and Europe now sell cloud-based solutions (up dramatically from two years ago). These solutions now make up 26% of their overall revenue, a percentage they expect to increase in coming years.

In my recent report, Seeding the Cloud Channel, I highlight three key areas where the partners will need support from both their tech vendors and their distributors:   

  • Diagnostic tools and services to assess current maturity and set a transformation road map. Partners will first have to collaborate with their principal vendors to gauge the fitness of their organizations for an annuity-based business model — and whether they can sustain that model in long run. Vendors need to create assessment tools to evaluate their partners' business model transformation potential. For example, Cisco Systems built its OnPlus ROI Tool expressly for partners to model the myriad business model options and scenario decisions they face. This will not only help partners identify their pertinent strengths and weaknesses, but will also help them plan their future growth strategy.
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Vendor Channel Leaders And Their Challenges In Asia Pacific

Last week, Forrester hosted a channel roundtable in Singapore on the evaluation of channel models in Asia Pacific. The goal was to create a common platform for tech vendor senior channel executives and Forrester analysts to discuss key changes faced by the channel leaders and how best to adapt to them. The briefing was attended by 26 senior channel executives representing 21 tech vendors.

All of the channel leaders agreed with a Forrester report which indicated that channel models are under great pressure due to the growth of mobility and the devices that power it, as-a-service computing models, and the decreasing influence of IT departments on overall tech spending. As they cope with these changes, the key challenges they identified during the interactive roundtable were:

  • Identifying and engaging with those channel partners that can adjust to market shifts. This emerged as a major challenge, not only for some of the new cloud-based service providers but also for traditional tech vendors venturing into new solution areas. A shortage of skilled channel professionals within Asia Pacific exacerbates this challenge. Several also identified the challenge of high turnover within their channel base and the frustration of investing in the skills of a partner executive and having him shift to a competitor’s channel.
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Brocade Partnering Directions in 2012

Brocade held its Asia Pacific (AP) Partners Summit 2012 last week in the capital of China’s Yunnan Province, Kunming.  For a company which has been the subject of perennial takeover rumors, I was interested to know if it had anything new to convey to its partners.  I was also looking forward to meeting Regan McGrath, Brocade’s newly appointed VP for Global Channel Sales and Marketing and Charlie Foo, Brocade’sVP for the Asia Pacific region.  

Brocade emphasized three key target areas for innovation and investment:

  • Ethernet Fabric: Brocade’s 2nd generation Ethernet fabric technology is aimed at organizations driving virtualization and cloud-related consolidation initiatives.
  • Campus Network: Part of its Effortless Network vision, Brocade’s recently announced HyperEdge technology targets innovation in the campus LAN market.
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Tech Distributors Versus Telcos: Competing When They Should Be Collaborating

While working on my recently published report, The Cloud-Driven Evolution Of Asian Tech Distributors, the tech vendors and distributors I interviewed drew parallels between telcos and tech distributors, both of which sell cloud-based solutions. However, during further discussion, the friction and competitiveness between the two quickly became apparent. So why should they compete when they can exploit each other’s resources and pursue joint go-to-market initiatives? By partnering, each can focus on doing what it does best to meet customer needs.

Telcos’ reach, ready infrastructure and existing customer bases provide a solid cloud foundation:

  • Back-end infrastructure. Telcos’ robust network and data center infrastructure is critical to setting up and delivering cloud-based services swiftly and without massive additional investment. Moreover, their businesses are well-suited to annuity models.
  • An existing base of enterprise customers. Although telcos aren’t considered a strategic enterprise provider in most instances, their access to a large base of qualified enterprise accounts and existing relationships potentially provides a very good foundation for cloud solution sales.
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