January 24, 2018
1. Private equity will continue its sweep of the channel software space, creating some unicorns along the way
With blockbuster mergers on the partner-facing side like Autotask-Datto and on the vendor-facing side such as Relayware-Zift, we are seeing a new trend where point solutions across different categories are combining to create a more holistic, horizontal approach to the channel software industry. It is about time that these sectors get attention by Wall Street because 75% of world trade flows indirectly.
2. It’s do-or-die time for smaller business and value-added resellers
With dropping numbers globally, huge demographic headwinds driving retirements, insolvency numbers creeping up, and a buyers’ market for mergers-and-acquisitions activity, smaller traditional tech companies will need to transform to survive. New line-of-business buyers are making most technology decisions today and are demanding hyperspecialized business, industry, geography, sector, segment, and business application technology skills to reap the rich downstream benefits.
3. Vendors put formal shadow channel programs in motion
After watching the rise of software-as-a-service (SaaS) ecosystems, cloud infrastructure players, industry firms, professional services and management consultants, ISVs, born-in-the-cloud organizations, and startups, vendors will get serious about finding, recruiting, and incenting these powerhouses to address the new business buyer.
4. Long-tail strategies finally get chucked out the window
After years of trying, vendors now realize that the long tail of partners (the 80/20 rule) is not a ripe group of firms that will turn into gold partners with just the right magic touch. Instead, they are a casual set of companies that really focus on something else. The epiphany that many are having is that this situation is just fine. Partners that only come around once a year to do a deal may still be loyal partners, and you may enjoy 100% wallet share — they just aren’t that into you. Instead of dumping them, figure out how to manage them less expensively, and when that yearly opportunity starts to take shape, go all in for the time period required to win them. Then rinse and repeat.
5. We reach 100,000 software companies; next stop is 1 million
Queue up the Dr. Evil memes; we have grown from around 10,000 software companies 10 years ago to 100,000 in 2018. I believe that by 2028, that number will rise by another 10x to be 1 million firms. As the shadow channels look to build their own brand and IP as well as flex their hyperspecialized muscles, the code for more than 35 million different customer solutions will surface. Building workflows, algorithms, and business logic will be key profit criteria for these new firms, and spinning up a brand today can be done with pennies. Welcome to the world of 1 million potential new competitors (in the morning) and partners (in the afternoon).
6. Hardware margins continue their slide to the bottom; SaaS downstream revenue is a savior
If you carefully examine the programs traditional players such as Cisco, Dell, HP, and Lenovo are launching for 2018, you will see the movement of program investment dollars away from infrastructure and into specific opportunity areas that partners will need to get in front of. We will see downstream SaaS margin opportunities to install, implement, integrate, secure, ensure compliance, and provide continuity remain in the 40%-plus range for the right skills. The average SaaS deal today drives 4x more dollars of very sticky long-term opportunity for every dollar of recurring revenue that goes to the platform. Hint: These are not managed services; it is almost 100% project-based revenue with endless (profitable) change orders.
7. A resurgence of partner communities emerges
We have seen the amount of media properties, peer groups, and trade shows stay consistent for a number of years. After many of the mega-deals (No. 1 above) shake out, there will be room once again for like-minded, specialized partners to share best practices and find strength in numbers. Vendors who want into these niches will be happy to spend sponsorship dollars to get these critical endorsements.
8. Distributor disruption continues
If you didn’t notice in 2017, a Chinese firm bought Ingram to kick off the year, Tech Data acquired Avnet shortly after, and Synnex acquired Westcon in late summer. This will not slow down in 2018 because several niche distributors will become attractive for broadline players. And because everyone is trying to hide the decade-long decline in hardware revenues that is coming, more of these consolidations will take place. Later in 2018, we will start to learn how much value (i.e., margin) a distributor can earn by being the cloud matchmaker.