Death Of The Traditional IT Channel · Death Of The Traditional IT Channel ... When technology...

Death Of The Traditional IT ChannelAddress New Hyperspecialized Shadow Channels To Succeed In The Age Of The Customer

by Jay McBainOctober 5, 2017

FOr B2B Marketing PrOFessiOnals

fOrreSTer.COm

key takeawaysTraditional Channels Struggle As Business Leaders Become empoweredBusiness leaders now run most new technology projects. Vendors and partners are getting shut out of opportunities due to their historic focus on the Bt buyer. these new business buyers, with dramatically different buying behaviors, will force tens of thousands of smaller channel partners out of business and drive further consolidation of midsize to large partners and distributors.

Business Buyers rely On New Influencers When making Technology Decisionstech organizations are getting shut out of the buyer’s journey, while the door is wide open for a new set of influencers that Forrester calls “shadow channels.” these new influencers include business-outcome-focused software-as-a-service (saas) ecosystem partners, industry-based professional services firms, isVs, born-in-the-cloud firms, and startups.

firms Need New Levels Of Hyperspecialization To Access LOB BuyersBusiness buyers are looking beyond generalists to highly focused experts with specific knowledge of their business problem, applicable technology stack, subindustry, segment, and geography. these five criteria define the level of specialization that new shadow channels bring to the table, blocking generalists in traditional channels.

Why read this reportshifts in technology buying trends favoring line-of-business (lOB) leaders are significantly altering the traditional it and telecommunications channel. With business buyers leading or influencing many new technology projects, vendors must extend sales and marketing beyond the tech organization and expand channel programs for nontraditional partners. B2B marketers: this report explores changing buyer dynamics, new influencers capitalizing on it, and the required hyperspecialization for indirect sales success in the months and years to come.

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table Of Contents

Traditional Channels Aren’t Delivering What New Buyers Want

Business Buyers lead Most new technology Projects

traditional Partners are ill-equipped to service new Buyers

Business Leaders Seek Hyperspecialized Shadow Channels

shadow Channels Deliver agility, Value, and innovation

new and Unexpected technology Partners are Changing the game

Business Buyers Nail The Coffin On Traditional IT Channels

recommendations

Don’t Wait To Adapt To The Changing Partner Landscape

Supplemental Material

related research Documents

B2B Buyers Mandate a new Charter For Marketing and sales

Channel Partners’ shifting Value-add — and their Digital Potential

Death Of a (B2B) salesman: two Years later

FOr B2B Marketing PrOFessiOnals

Death Of The Traditional IT ChannelAddress New Hyperspecialized Shadow Channels To Succeed In The Age Of The Customer

by Jay McBainwith Caroline robertson, alexander Bullock, and kara Hartig

October 5, 2017

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Death Of The Traditional IT Channeloctober 5, 2017

© 2017 Forrester research, inc. Unauthorized copying or distributing is a violation of copyright law. [email protected] or +1 866-367-7378

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Address New Hyperspecialized Shadow Channels To Succeed In The Age Of The Customer

traditional Channels aren’t Delivering What new Buyers Want

the majority of technology companies, on both the vendor and the partner side, have built their business models around marketing and selling to the CiO and technology organization. in the technology industry, upward of 75% of revenue comes from third-party channels.1 technology products, services, and delivery models have changed significantly in the past 35 years.2 the one constant has been the customer buying process — until now. this puts channel partners at risk for failure if they have not evolved their B2B marketing and sales processes to include lOB executives. B2B marketing professionals should know that for vendors that rely on channels to drive opportunities, this has significant downstream implications.

Business Buyers Lead most New Technology Projects

Because the underlying technology infrastructure of cloud-based services isn’t as important as the providers’ performance commitments, business buyers are both confident and capable of running technology implementation projects end-to-end and are increasingly self-reliant. Both vendors and partners must become more customer obsessed in their approach because:

› New buyers have come out of the shadows. When technology decisions started to move outside of the tech organization about 10 years ago, this was called shadow (or rogue) it. the move from on-premises to the cloud has enabled business leaders to get more involved in the technology purchase decision. Without the need to understand deep technical specifications, they can now focus directly on business objectives and outcomes. in fact, business leaders are now leading or influencing 65% of software buying decisions (see Figure 1). “there is a huge lack of communication between executives and internal it,” said kevin McDonald, executive VP and chief information security officer at alvaka networks. “even when they try to communicate, they are speaking geek to english, with the need for translators like us in between.”

› Business leaders are making hardware, telco, and BT security decisions. the newly emboldened business buyer is quickly expanding beyond public cloud and saas business applications and now influencing hardware, such as hybrid and private cloud servers, networking, telecommunications, and the internet of things. With an improving understanding of data, privacy, and compliance risks, business leaders are also implementing different layers of business technology (Bt) security (see Figure 2). “For those business application decisions that originate with the CiO, business leaders are being invited to the table over 80% of the time,” said elizabeth anthony, senior VP of marketing at ViOn. “they are also getting involved much earlier than in the past.”

› Tech organizations are being shut out of technology decisions. “When it comes to deploying new technologies in an easy and frictionless way, i am not sure business buyers equate that to the traditional it consultant,” said Dina Moskowitz, CeO of saasMaX. Business leaders are excluding internal tech resources 29% of the time in spending on software.3 they are taking on the entire project, from identifying the business problem to researching potential vendors,




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choosing the vendor(s), and then managing the implementation and integration services downstream. several reasons account for this approach, including improving speed of execution and avoiding unresponsive tech organizations with their due diligence, policy, procedural requirements, and risk assessments.

› Business decision makers are demanding complete solutions. “Business buyers are looking for immediate three- to six-month rOi,” said theresa Caragol, founder and CeO of achieve Unite, which is “significantly reduced from the 18 to 36 months that their tech organization delivered in the past.” By shutting out the tech organization, business leaders are taking ownership of the entire process, looking for full-service solutions and leading wide-ranging projects to accomplish it. they are combining the budget, resources, and internal and external teams to drive project success. a large percentage of business leaders are involved in the selection of third-party agencies, Bt services, and management/business consultants (see Figure 3).

› Business leaders are turning into technology leaders. Because technology has become such a critical part of achieving departmental success, 68% of software business decision makers admit to spending more than a quarter of their time on technology-related tasks during the day.4

fIGUre 1 Business leaders significantly influence 65% Of software Buying Decisions

Business unit purchases withouttech organization involvement29%

Business oversees, but techorganization purchases20%

Business provides signi�cant input,but tech organization purchases

16%

Tech organization purchaseswithout signi�cant business input

15%

Employee purchases, but thecompany reimburses

20%

“Thinking about all of your �rm’s software spending, please estimate how it breaks down across the following types of purchasers.”

Base: 3,582 global software decision makers

Source: Forrester Data Global Business Technographics® Software Survey, 2016




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fIGUre 2 lOB Decision Makers are increasingly involved in telco, Hardware, and Bt security Choices

34% 35% 36%

BT security Hardwareinfrastructure

Telecoms

“Which of the following categories of technology decision making are you signi�cantly involved in?”

Base: 1,205 global services business decision makers

(multiple responses accepted)

Source: Forrester Data Global Business Technographics® Business And Technology Services Survey, 2016




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fIGUre 3 lOB Decision Makers are increasingly involved in third-Party services Decisions

41%46%

73%

Digitalinteractiveagencies

Third-partyBT services

Business/management

consulting

“Which of the following categories of technology decision making are you significantly involved in?”

Base: 1,205 global services business decision makers

(multiple responses accepted)

Source: Forrester Data Global Business Technographics® Business And Technology Services Survey, 2016

Traditional Partners Are Ill-equipped To Service New Buyers

as business leaders increase their involvement in technology acquisition, they leverage new sources for information, peer influence, and tools. Forrester forecasts that 1 million Us B2B salespeople will lose their jobs to self-service eCommerce by the year 2020.5 B2B buyers overwhelmingly prefer to research and buy products and services via a self-service tool, website, or mobile device. Conversely, vendors are increasing investment in field, inside, and partner sales teams, forcing buyers to interact with their salespeople as part of the purchase process. this disconnect is disrupting the traditional channel because:

› Traditional channels are out of sync with LOB buyers’ preferences. sixty-eight percent of business buyers prefer to do their own research versus engage with sales representatives to learn about products and services (see Figure 4). a majority of business buyers say that buying online is more convenient than buying from a salesperson.6 this level of self-service is changing the way technology is acquired, puts pressure on resale business models, and gives vendors with more robust sales enablement tools an advantage.




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› Increasing buyer self-reliance leads to less profitable channel engagement. Buyers are doing the majority of planning and research before engaging a salesperson, resulting in the placement of orders at a transactional part-number level. this challenges the traditional reseller business model where channels add value throughout the selling process and get rewarded with front- and back-end incentives, margins, and other benefits. Having order-takers between a vendor and a customer is expensive and inefficient, speeding the demise of the reseller business model. “Don’t underestimate business process professionals such as logistics providers and accountants,” said ryan Morris from Morris Management Partners. “they focus on the customer’s business challenges, the industry, and competitive context and look to add immediate value.”

› for complex solutions, buyers look for specialized, consultative assistance. new influencers such as saas ecosystem partners, industry consultants, professional services firms, and isVs get engaged early in the process and understand their customers deeply. sixty-seven percent of business buyers prefer to interact with a sales rep during a complex sale.7 “a new category of it channel partner has emerged called the digital service provider, serving business buyers with very specialized skills,” said t.C. Doyle, senior content director of channel brands at Penton.

› LOB leaders are ramping up technical staff of their own. another threat to channel partners (of all types) is the move by business leaders to increase their own capabilities by hiring technical staff such as software developers, data analysts, and digital transformation experts. this creates challenges on two fronts: 1) Business buyers will increase their use of self-service capabilities; and 2) the competition for top talent will intensify, driving up cost and scarcity in key roles.

› New competitors take less money from vendors. “Business application partners are very specialized and narrowly focused,” said Jason Bystrak, global executive director of technology partner enablement at ingram Micro Cloud. “the idea of resell may be foreign to them.” the downstream revenue from an average business application deployment can cost several times more than the software itself and come with very high margins for the service provider. Projects that involve planning, implementation, integration, security, and compliance can run for several months or years, depending on the size of project. Because of these deal economics, the vendor may not offer, or new influencers may not get enticed by, front- or back-end margins or incentive programs such as finder’s fees, market development funds, sales performance incentive funds, or bonuses. new customer influencers are happy just to be at the table with the vendor and customer, getting access to the high-margin downstream opportunity.




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fIGUre 4 Business Buyers intensify their Desire For Digital self-service

I prefer gatheringinformation online

on my own

I prefer not to interactwith a sales rep

Base: 224 US B2B buyers and sellers

*Base: 162 US B2B buyers

Source: Forrester/Internet Retailer Q1 2015 US B2B Buyer Channel Preferences Online Survey

*Source: Forrester/Internet Retailer Q1 2017 Global B2B Buy-Side Online Survey

59%53%

60%

68%

2017*2015

Business leaders seek Hyperspecialized shadow Channels

today, a successful channel program relies on knowing who’s in the room with business leaders as they are planning, researching, getting recommendations, and procuring technology products. learning about these influencers will help channel professionals build a program that will be visible, motivating, and profitable.

Shadow Channels Deliver Agility, Value, And Innovation

Complex and high-consideration purchase scenarios require a consultative approach with deep specialized skills in the customer’s business processes and objectives, subindustry, technology stack, segment, sector, and geography. Business leaders do not have the patience for generalists that are learning on the go, and they will pay more for specialty firms that have demonstrated success in the same or a similar context. “We have seen a wide variety of it influencers, ranging from electrical contractors to cabling experts and botanists, adding value in the business decision,” said Beth Vanni, research director and senior consultant at the iPeD Division of the Channel Company. Vendors need to conduct a detailed capacity and capability analysis of their current channel and determine where gaps exist on the heat map. Business leaders hire third-party agencies, technology services, and consultants because they:




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› Lack the skills required in-house. Business leaders often do not have the budget, or wherewithal, to hire top talent and have it accessible in their own department or in the tech organization.

› Need an outside perspective to drive innovation. Having a second set of eyes that can look at the business model, organization, processes, technology, and applications and then compare them to other experiences drives new thinking and best practices. “a strong consultative channel salesperson is both diagnostic, by asking probing questions, as well as prescriptive, by offering specific solutions,” said gary Morris, founder and CeO of successful Channels.

› find it faster to implement with third-party providers. in the race to accomplish objectives, business leaders often will skip the internal bureaucracy of using the internal tech organization. shadow channels may or may not adhere to the same due diligence, risk assessment, compliance, policy, procedure, and continuity requirements. “Unfortunately, regardless of potential risk, if a business buyer can roll something out in two weeks that would have normally taken a year, they will often do that,” said McDonald. “it’s just human nature.”

› realize cost savings. getting the right skills at the right time and only paying for expertise when required can lower the cost of implementing and integrating new technology. Price is the largest factor in hiring third-party firms, and excessive cost is also the biggest cause of dissatisfaction. “We are seeing the emergence of what we call the ‘strategic service provider’ — a solution provider that gets in early and focuses on services over products and recurring revenue over project revenue, with a meaningful amount of engagements focused on business process and outcomes,” said Vanni.

› Can leverage ecosystems of partners and business relationships. including specialized third-party firms can benefit a project by introducing past experience and relationships for the desired business outcome. Building a robust peer network is critical for a business leader to achieve success. “a strong vendor channel rep will go beyond basic relationship management with the partner and deeply understand the landscape for the solution, including complementary solutions,” said gary Morris.

› Get more effective organization and coordination. Most digital transformation and business application projects are cross-function, and a third-party firm can bring in critical project management expertise. Firms can minimize internal bureaucracy and politics among stakeholders when subject matter experts are driving a project.

New And Unexpected Technology Partners Are Changing The Game

in addition to internet research, business leaders are building peer networks of like-minded professionals who consult, install, implement, integrate, and service new technologies. the following five shadow channels didn’t spawn from the traditional it, managed services, telco, print, or pro audiovisual worlds. these new shadow channels are:




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› SaaS consultants and implementation partners entering through the back door. thousands of new partner companies have surfaced to add value around saas platforms. these lOB experts understand cloud-driven best practices and have gone deep with very few vendors. examples of ecosystem players include salesforce in sales, Marketo in marketing, netsuite in finance, and Workday in Hr. Unlike traditional channel partners, many of these ecosystem partners are pure-plays with only one vendor and have developed deep integration skills in multiple back-end systems.

› Industry-based professional services firms broadening to offer BT. in an effort to expand their own businesses and put a full-service suite in front of the customer, many ancillary service or consulting companies supporting nearly every industry are becoming technology companies. accounting, legal, and marketing firms are examples of industry-specific professional services firms that are quickly transitioning to software and Bt services companies. By the year 2020, more than 80% of accounting and marketing firms will be indistinguishable from traditional it channel partners. legal is slightly lower at 55% but still heading in the same direction.8

› ISVs providing additional specialization. thousands of software companies have been built inside large saas ecosystems. they add value to business leaders as they take generic platforms and customize them to their subindustry, segment, or geography. some of these companies are unicorns — valued at more than $1 billion in the market — and focus on adding tools, customized workflows, and specialized industry solutions. in many cases, they focus on recurring software revenue and provide services for free.

› Born-in-the-cloud companies becoming niche in delivering integration services. With a business model tuned to project-based revenue, these firms add value to business leaders by providing back-end integrations, security, backup, disaster recovery, compliance, and a host of other critical services to make a complete solution. they don’t tend to participate in standard vendor channel programs and prefer incentives that don’t require them to resell or accept customer payments.

› Startups looking to disrupt traditional industries. the B2B startup community has found business leaders to be receptive to hypertargeted products that focus on specific business problems. these business leaders tend to be less risk-averse than tech organizations and willing to test products that are specialized around their business objectives. these B2B startups have a massive funding and support structure including angel networks, venture capitalists, and private equity firms.

Business Buyers nail the Coffin On traditional it Channels

the change in the customer buying journey is a serious paradigm shift for the channel. Vendors must look at their product fit among the different lOBs and understand what the shadow channels are in each scenario. risky would be assuming that current partners will make a smooth transition to this influencer role because of:




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› A weakness in sales and marketing. technicians who lack the sales and marketing skills to expand beyond the tech organization run most small to medium-size channel partner businesses — even at customers they have served for years. asking these partners to expand their footprint tenfold into each of the lOBs across all current customers and prospects is improbable. “Partners should be rated on a five-point scale by vendors,” said Heather Margolis, founder and CeO of Channel Maven. “investments such as enablement, through-channel marketing, training, workshops, and events should only be offered to 3s and above.”

› A lack of sophistication. the channel has worked on becoming more specialized for more than 10 years, with inconsistent results. technical skills combined with industry and geographic knowledge don’t provide customer value unless they come with repeatable experience around specific business outcomes by department or business function. the generalist skills that have driven success in the past are the polar opposite of what business leaders are looking for today. “the most successful partners today are the ones that are evolving higher to specialize in a vertical industry, function, segment, technology, geography, or some combination thereof,” said Doyle.

› No will to change. technology channels have shown a high degree of resiliency in the past 35 years. transforming with new technologies and upgrading business models has allowed these companies to survive. However, because many of these firms started in the 1980s or 1990s, the average owner/principal is reaching retirement age, and 40% of partner owners are looking to exit by the year 2024.9 “We believe that about half the channel is aware of these shifts, but only about 20% are doing something about it,” said ryan Morris.

› millennials who don’t buy or build traditional channel firms. For the first time since the inception of the channel in the early 1980s, entrepreneurs starting new partner firms are not replacing the ones who are retiring, consolidating, going bankrupt, or leaving the industry. Millennials will make up 75% of the technology workforce by 2024, and because of the digital transformation happening in every industry, they are working in technology roles in nontraditional places such as lOBs and shadow channels.10

recommendations

Don’t Wait to adapt to the Changing Partner landscape

Channel programs in the age of the customer must include new partner types, enhanced B2B marketing, and more robust self-service options. to succeed with business buyers and get on the radar screen of the shadow channels, tomorrow’s successful vendors will couple a new B2B marketing approach with an expanded channel partner network. B2B marketers must reposition their products, content, and messaging around business outcomes and:




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› Predict which traditional partners are going to survive. rank current partners on hyperspecialized skills such us subindustry, lOB, segment, sector, geography, and corresponding technology acumen. You can then compare the resulting capability analysis with their capacity to deliver revenue in the form of a partner heat map.

› recruit new shadow channels to augment current partner programs. to influence the influencers, you must understand the communities in which shadow channels participate. knowing what they read, where they go, and who they follow is important in building your visibility and recruitment plan.

› revise B2B marketing plans to reach beyond the tech organization. raising visibility with business leaders and providing air cover for these new shadow channels is critical to improving your consideration rate. Develop collateral that is customer and partner obsessed and focuses on a specific business problem by subindustry, lOB, technology, segment, and geography.

› Deliver new self-service tools for business leaders and shadow channels. aim to reduce the friction in the buying journey. gain immediate competitive advantage by becoming more transparent in process and deploying external web and mobile tools to aid in the entire buying journey of customers and their influencers.




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supplemental Material

Survey methodology

the Forrester Data global Business technographics® software survey, 2016, was fielded in august and september 2016. this online survey included 3,582 respondents in australia, Brazil, Canada, China, France, germany, india, new Zealand, the Uk, and the Us from companies with two or more employees.

the Forrester Data global Business technographics Business and technology services survey, 2016, was fielded between June and august 2016. this online survey included 2,810 respondents in australia, Brazil, Canada, China, France, germany, india, new Zealand, the Uk, and the Us from companies with 500 or more employees.

Forrester Data Business technographics ensures that the final survey population contains only those with significant involvement in the planning, funding, and purchasing of business and technology products and services. research now fielded these surveys on behalf of Forrester. survey respondent incentives include points redeemable for gift certificates.

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Please note that the brand questions included in this survey should not be used to measure market share. the purpose of Forrester Data Business technographics brand questions is to show usage of a brand by a specific target audience at one point in time.

Companies Interviewed for This report

We would like to thank the individuals from the following companies who generously gave their time during the research for this report.

achieve Unite

alvaka networks

the Channel Company

Channel Maven

ingram

Morris Management Partners

Penton

saasMaX

successful Channels

ViOn

endnotes1 source: “World trade statistical review 2016,” World trade Organization (https://www.wto.org/english/res_e/statis_e/

wts2016_e/wts16_toc_e.htm).

2 Many channel leaders attribute the start of the it channel to the announcement of the iBM PC in 1981 and the corresponding resale and services channel that grew shortly after.

3 software decision makers say that 29% of software spending is on purchases that business units make without the technology group’s involvement. source: Forrester Data global Business technographics software survey, 2016.

see the Forrester report “Pricing strategies For software-as-a-service.”

4 source: Forrester Data global Business technographics software survey, 2016.

5 see the Forrester report “Death Of a (B2B) salesman: two Years later.”

6 source: Forrester/internet retailer Q1 2015 Us B2B Buyer Channel Preferences Online survey.

7 source: Forrester/internet retailer Q1 2015 Us B2B Buyer Channel Preferences Online survey.

8 source: “it Opportunities in the Professional services Vertical,” Comptia, november 2015 (https://www.comptia.org/resources/it-opportunities-in-the-professional-services-vertical).

9 source: todd thibodeaux, “state of the industry and keynote,” ChannelCon, July 2015.

10 source: todd thibodeaux, “state of the industry and keynote,” ChannelCon, July 2015.



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