Traditional resellers warned over rise of 'shadow channel'
ChannelEyes CEO Jay McBain writes open letter to CompTIA arguing that youthful SaaS suppliers selling to line-of-business executives represent the future of the industry
The traditional IT channel is in danger of being usurped by an emerging "shadow channel" of software-as-a-service (SaaS) suppliers that bypass IT departments and instead sell to line-of-business (LOB) executives.
That's the warning of channel commentator Jay McBain, who this week wrote an open letter to trade association CompTIA following its ChannelCon 2016 event.
The shadow channel - spawned by the rise of so-called "shadow IT" - predominantly comprises born-in-the-cloud millennials who have built businesses within the partner ecosystems of SaaS companies such as Salesforce, according to McBain, a former Lenovo and Autotask channel boss who is now CEO of ChannelEyes.
While these firms have "exploded in numbers", the traditional channel has shrunk by more than 30 per cent at the same time, he argued.
The phenomenon is a reaction to the rise of shadow IT - where CIOs are being cut out of the loop on IT purchasing decisions - and has caught CompTIA and the wider traditional channel community cold, McBain (pictured) argued.
McBain cited figures from Gartner claiming that 72 per cent of technology spend is now being led out by LOB executives, much of the time without IT influence.
As a consequence, LOB-focused SaaS companies - as well as their partners and ecosystems - will rule the IT roost for at least a decade, McBain predicted.
None of the top 100 SaaS companies had a booth at this week's ChannelCon 2016 in Fort Lauderdale, said McBain, who nevertheless praised it as a "fantastic event".
"Dreamforce, an annual conference in San Francisco (run by Salesforce) is now the largest software tradeshow in the world," McBain wrote. "With over 150,000 attendees, you can see the new shadow channel in action - consultants, integrators, and other experts at serving the LOB customer, solving customer pain points and delivering real business outcomes.
"As much as we try to convince ourselves differently, things such as security, backup, disaster recovery, remote management and the multitude of other business-critical solutions the channel faithfully delivers, do not drive business outcomes in the same way. Hence, the disconnect."
"The traditional channel has the opportunity to play the adult in the room."
McBain went on to argue, however, that the shadow channel is currently like the "wild west", and on a par with the maturity of the traditional IT channel in the early 1990s. This could create an opportunity for the old guard, he predicted.
"They are putting customer businesses at risk every day by playing fast and loose with customer data, financial and even HR data," said McBain. "Proprietary information is flying everywhere across public clouds by smaller start-ups with little control or regard for the ramifications (or regulations).
"The traditional channel has the opportunity to play the adult in the room."
CompTIA: We agree with McBain
When approached for comment, Todd Thibodeaux, CEO of CompTIA, backed McBain's sentiment.
"Jay McBain is exactly right. I applaud his comments," he said.
Steven Ostrowski, director of corporate communications at CompTIA, added:
"We've talked for several years about Jay's 'shadow channels', though not in that unique phraseology. We've described it as 'everything-as-a-service' world, with new entrants building cloud-based solutions marketed and sold to LOB owners. Our 2015 report Building Digital Organisations provided perspectives on this shift and in technology buying decisions, budgeting, decision making and implementation of new business systems...
"Can we do more? Certainly, and you will see more from CompTIA and our members to take on these two very critical issues. Absent prompt and definitive action on our part, we won't like the answer to the question posed by Jay: 'Does CompTIA represent and lead this new channel or stay with whatever is left of the traditional one?'"
Robert May, managing director of managed services and consultancy outfit Ramsac, called McBain's open letter "interesting", but disagreed with his view of the market.
"I don't see this as the shadow channel," he said. "I think this is the ever-evolving channel. Businesses have to constantly be aware of the changing demands of their clients (and potential clients) and they have to understand the differences in doing business with different demographics."
But Stuart Fenton, CEO of Microsoft Dynamics partner QuantiQ, agreed that the rise of SaaS has been "fairly disruptive to the channel in terms of business models and customer ownership".
"In the early 1990s there were thousands of IT resellers and none were dominant; now the vast majority of IT is supplied through fewer than 10 resellers in the market. These are now very large organisations indeed. However, they are all struggling with their own transformations to meet the demands of market changes," said Fenton (pictured).
"If you want to buy Salesforce, Microsoft Dynamics, Workday, and have it integrated, there is an entirely different IT channel. Equally, many applications are simply bought direct from the vendor, thus eliminating the need for an SI altogether. While vendor direct can be incredibly cool, most firms are finding that they have an explosion of applications in an uncontrollable environment with data and information scattered and potentially useless. Disconnected. I suspect that there will be a correction over time, where the excitement will begin to be balanced by some form of standardisation. I have met firms with several CRM standards including many of the SaaS providers. Some have multiple ERPs, others have 25 different note-taking applications."