Bumpy ride

The ups and downs of the IT channel in 2015

‘Tumultuous' might be the word that best sums up 2015, but - miraculously - the UK channel is poised to emerge from the year with only bumps and bruises, battle hardened for 2016

Operating in the IT supply market this year must have felt a bit like being walloped repeatedly over the head with a mallet.

The rising ubiquity of as-a-service models and the decline in traditional projects business - bash; volatile exchange rates and flatlining PC sales - bash; radical upheaval to the IT buying cycle - bash; the impending furore over where European firms' data can be stored - bash.

Although cybersecurity soared, some emerging technologies tipped for global domination such as wearables fell flat.

But as we explore in our Top VARs 2015 preview, despite these obstacles it has been a solid year for the UK IT channel, with the top 100 players in our market growing revenues 5.5 per cent to ￡11.08bn over their 2014 counterparts.

And can any year in which two of the industry's flag-bearers - Softcat and Kelway - complete a blistering IPO and trade sale, respectively, be judged as anything but a resounding success?

Softcat's £472m debut on the London Stock Exchange last month was the first reseller IPO of its scale since Computacenter floated in 1998 and chief executive Martin Hellawell said it had been a positive year for the channel as a whole.

"I think it has been a real good year for the industry and a particularly good year for the channel," Hellawell (pictured right, opening the London Stock Exchange with Softcat colleagues) told CRN.

"The channel has been growing faster than the overall IT market. More and more IT business is going through the channel, rather than direct. And a couple of real leaders in the channel historically have shown strong performances, particularly Microsoft, which has come back in as a real leader of the industry. Satya Nadella has done a great job of clarifying where Microsoft - and its partners - are going, and the HP separation, which was presented as a risk for the whole channel, just went incredibly well; they didn't blink."

What doesn't kill you makes you stronger

But still, 2015 was a bumpy year for the industry as the market watchers repeatedly slashed IT growth forecasts on the back of the appreciating dollar.

Gartner's latest forecast is that the global IT market will shrink 4.9 per cent this year in dollar terms. The strength of the US currency also forced countless vendors to hoist their local UK and European prices this year, further stunting demand on this side of the pond.

After being written off as a dying form factor in 2013, the PC market rose like Lazarus in 2014 but fell back into ill health this year. Gartner and IDC figures suggests global PC shipments fell by between eight and 12 per cent annually in both Q2 and Q3, with tablets not faring any better.

To make matters worse, the channel was saddled with a mountain of unsold stock in the first half of 2015, denting the success of Windows 10 following its July debut. According to Context, European distributors sold just 150 machines running the OS in its launch week.

However, despite its slow start, Windows 10 will become the most widely installed version of Windows ever, with 50 per cent of enterprises set to have started Windows 10 deployments by January 2017, Gartner went on to predict.

Despite shipping an estimated seven million units since its April launch, the Apple Watch - and wider wearables market - was deemed the flop of the year by many.

Jay McBain, chief executive of ChannelEyes, said the timepiece's lack of traction played a part in his biggest tech disappointment of 2015.

"The biggest let-down was the Internet of Things (IoT)," he said. "The Apple Watch had huge buzz coming into the year and people were thinking it was going to be the trigger to the long-awaited IoT revolution in the channel."

Security in numbers

Just as in previous years, IT security - a market set to rocket 4.7 per cent this year according to Gartner - proved an exception to the rule. Cybersecurity continued to zoom up the boardroom agenda, TalkTalk CEO Dido Harding became a household name, and the Dark Web made it onto Oxford Dictionaries' Word of the Year shortlist.

Distributed denial of services (DDoS) attacks went mainstream, with CRN revealing in October that a string of e-tailer websites - among them Aria, Novatech and Scan - were taken down in Bitcoin-based ransomware attacks.

This set the scene for a rash of consolidation in the security channel, as generic IT services providers and global players rushed to beef up their cybersecurity skills through acquisition. In March, Accumuli sold up to NCC Group in a deal valuing the Splunk and CyberArk partner at ￡55m. Pentura was bought by InteliSecure in October, and Sysec, Intellect Security and Imerja were all also snapped up.

Former Accumuli chief executive Gavin Lyons (pictured), who recently left NCC Group to join private equity firm MXC Capital, said he was not surprised by the drive to acquire niche security skills.

"You only have to look at the headlines this year, which have detailed the impact of security breaches to both company values and individual identities," he told CRN.

"Building a successful security practice is extremely hard because it requires people who have rare skills and capability, an infrastructure that is secure and adheres to best practice, but most importantly a reputation of trust and delivery. These cannot be built overnight, hence why companies are looking to buy these capabilities and experience rather than build them from the ground up."

Vendor bender

Consolidation also occurred apace at a vendor level, led by the biggest deal in tech history in the shape of Dell and EMC's $67bn (￡45bn) union.

Vendors are no longer "staying in lane" as they did in the client-server era, meaning a new era of co-opetition has begun in the IT industry, EMC chief executive Joe Tucci (pictured) mused following the deal.

"If you look at Oracle... they have moved up to the apps; they moved over to hardware and software design together," he said, during a Q3 conference call.

"We have moved into converged infrastructure. Cisco has moved into servers and storage, so it's a different world out here now. And basically to play in it, you also have to do co-opetition... We'll partner here; we're going to compete here. So long as you understand and you're honest and open, those things can work very well."

Cycle proficiency

Resellers found in 2015 they were having not only to negotiate shifting alliances among their vendor suppliers, but also shifting buying patterns among their customers, as end users increasingly favoured engaging earlier in the sales cycle.

Several traditional UK IT channel telemarketing agencies, including Xact and SCi Group, hit the wall amid claims that long-established email and cold-calling techniques were beginning to fall on deaf ears. In March, a Microsoft executive declared that traditional marketing approaches were "no longer working".

It is now all about influencing buyers at the start of the cycle, said Alisha Dattani, chief executive of technology marketing agency FMXA.

"The days of IT managers sat there at their desk, waiting for a cold call through a switchboard, are gone," she said.

"Why not write a blog that targets someone on LinkedIn and connect to them through social media? A phone call might come into play but really we are talking about an integrated approach."

Getting in with the in cloud

Undoubtedly the biggest disrupter in the channel was cloud, as more IT spending shifted away from the on-premise systems resellers have traditionally sold and serviced towards third-party datacentres.

This was embodied by the meteoric rise of Amazon Web Services (AWS), which owns almost a third of a cloud infrastructure services market now worth more than $6bn a quarter and growing at over 50 per cent annually, according to Synergy Research Group.

At Microsoft's Worldwide Partner Conference in March, the vendor's channel chief Phil Sorgen urged partners to encourage cloud sales through juicy commission structures.

"The world is changing and you have to change with it and chart your own course," he said. "Part of charting your own course is being deliberate about where you want to go. You will not get there if you don't give your people incentives and establish your KPIs. If your sellers are not aligned to your future, your business and your transformation are at risk. Transformation is hard - nobody said it wasn't."

In August, SoftwareONE cited the need to pursue cloud and services as a key rationale behind an ownership change that saw investment firm KKR take a 25 per cent stake in the software licensing reseller.

"The software industry is changing, and together with KKR, we see a unique opportunity to capitalise on those changes and continue to increase the value we bring to our customers, in particular in the areas of cloud and value-added services," SoftwareONE chief executive Patrick Winter said at the time.

Harbour master

However, the global cloud giants didn't have it all their own way in 2015 as the invalidation of the Safe Harbour framework in October tipped the balance towards local players with UK datacentres.

With data sovereignty issues rising up the agenda, it was little surprise that AWS and Microsoft announced plans in November to launch UK datacentres.

Lawrence Jones, chief executive of UKFast, said the Safe Harbour removal will have far-reaching implications for resellers as well as end users.

"When reselling, you might be leaving yourself open to legal issues if you don't also perform the right due diligence on your partners' supply chains," Jones (pictured) said. "Where is their cloud based? Is any part of it sitting in a datacentre outside the EEA [European Economic Area]? What are the legal controls like in that country? These are going to be important questions to ask as data protection legislation gets tighter and tighter between now and 2017."

With all the changes to reseller sales models and the rise of as-a-service business models, 2015 had an apocalyptic feel to it, with some even arguing it is time the term "channel" is ditched.

In November, NetApp's UK boss Elliot Howard told CRN that the phrase no longer reflects how the vendor works with partners.

"I don't even like the word ‘channel' anymore because I think it's a phrase of the past," he said. "Our partners have always been key to our strategy. [But] I think the [word] channel, for me, conjures up a picture of a pipeline - you've got [a vendor] on one end and the customer on the other and the channel is something you move a product through. I think those days are gone.

"The customer is left, right and centre to everything we do and our partners wrap themselves around the customer. Our job is to reference and articulate our value through our distributors and partners."

After all the carnage this year, we only hope 2016 proves to be a smoother, sedate affair.