When a managed services-focused tomorrow comes, will the channel be ready?

Is the channel transforming itself in time for tomorrow?

Channel companies must step up to the plate and take their transformation from box-shifting middlemen more seriously, according to industry players.

Sean O’Connell, UK marketing director at IT automation software provider Kaseya, said resellers have become very keen in recent years on identifying with terms such as solution provider but their practices are often not matching up.

Many are still relying on a core of product sales, and merely wrapping a few services around the hardware or software, he claimed.

“We want the channel to take managed services seriously,” said O’Connell. “The message we are trying to get across to people, especially in these economic times, is that you have to start thinking about how services can be massive.”

O’Connell agreed that many resellers are adding value via services. However, he maintained, channel firms could realign their businesses more dramatically for even better results.

Solutions in services
Other observers appear to have reached similar conclusions.

Tiffani Bova, a research vice president at Gartner specialising in indirect channels, hinted that the channel globally, including in the UK, was sometimes paying lip service to the notion of solutions provision when the favoured business models had not really altered.

Bova’s research classifies resellers as either resellers, VARs, solution providers or managed services providers, along a scale gradually increasing in complexity and integration.

At the solutions or managed services level, a far greater degree of consultancy should be apparent, focusing directly on customer needs, and little or no emphasis on selling product.

“The channel is mostly at the VAR level. But if you ask them, they will say they are business solutions providers,” said Bova.

While the UK and Europe are more advanced along the continuum than the US, due to diverse emerging markets within the region, this difference between appearance and reality must be addressed, she suggested.

Product margins will continue to erode and end-user businesses are increasingly demanding a single point of contact for IT provision. These things must force change in the channel.

What’s more, end-user firms are already struggling with the complexity of their IT environment. They do not know and do not want to know about the individual, specific elements that comprise their infrastructure, and they do not really care which vendor’s product they are using ­ as long as it works.

The channel must work hard in the next few years to address these customer demands, or risk being seen as a hindrance rather than a help to businesses.

This should similarly ­ eventually ­ result in improved profits and a more indispensable role for the channel fostered by long-term, complex, multi-level relationships between end user and reseller.

One of the biggest obstacles to this channel transformation, according to Bova, is vendors themselves. Vendor incentive and channel reward programmes are almost invariably linked to product sales, in some form or other.

“[Vendors] need to figure out how to reward VARs for selling Software as a Service (SaaS),” said Bova. “Currently, [resellers] are rewarded for licensing. So vendors are actually holding companies back from developing themselves towards solutions provision.”

Legacy of trouble
Emerging markets in the Asia-Pacific region have a jump on Europe in this area because they are not so held back by decades of legacy ways of thinking about IT or businesses crammed full of legacy or even obsolete technology.

“They may be adopting IT for the first time, and they often want the best way, so they tend more often to go for services. In more mature markets, they have legacy holding them back,” said Bova.

A successful sales team at this end will not ever talk vendors and speeds or feeds, but will focus directly and clearly on customer needs, said Bova, and salespeople require appropriate training.

Some of those channel players that have already moved towards managed services provision are reportedly seeing strong results. And then there is the annuity income and resultant stability of revenue stream it promises.

In April, Computacenter announced that its customer Parity has agreed to an early extension on its five-year £5m managed services contract because Parity was so pleased with the initial 50 per cent reduction in IT support costs.

Andy Griffin, IT support chief at Parity, said it was about relationships.

“Computacenter’s understanding of our firm and IT infrastructure helped us collaboratively develop a service model that would enable us to achieve this,” he said.

Computacenter grew services revenues 10 per cent in 2008 to £498m and is accelerating its transition to higher-margin services and solution sales.

In its preliminary results announcement, Computacenter chief executive Mike Norris said: “We can, and do, help businesses reduce costs and become more competitive, which makes managed services more compelling.”

Gartner reveals growth pockets
>> www.channelweb.co.uk/2242743