Roughly speaking, we could divide the current IT Channel into four main types.
“I got this” type:
These Channel partners have already invested and transformed their businesses into a recurring-revenue services (MSP) model and are doing quite well. This group is currently gobbling up clients of the laggards as they stumble along!
However, a significant part of this group is struggling with profitability as the market becomes more competitive and prices drop due to the commoditization of managed services. That said, as they continue to streamline their operations and add more services, they should be able to carve out a solid future.
One of the biggest risks to this group is the “over” simplification and automation (including Artificial Intelligence) that’s being built into most managed services applications. Over time, some managed services will become much easier to deploy and require much less human intervention for monitoring and maintenance from the MSP.
This will make it more difficult to differentiate and compete, thus driving some managed services providers to become weaker. This circumstance should continue to fuel more mergers and acquisitions. Some big players like Telcos, will continue to gobble up many of these smaller companies as they build on their empire of recurring revenue services.
Consolidation may actually pose the biggest threat to a larger number of MSPs and Vendors. With less “resellers” the power shifts from vendor to reseller. When fewer people holding the power, bad things can happen.
When MSPs disappear, vendors will most likely take over ownership of the installed base without further obligation to the partner. This is an interesting strategy for vendors, but it is a longterm play and do come with other risks, so I do not think that this is consciously being baked into their playbook.
While automation and AI will fuel this race, it is still unclear as to what extent it will require near zero human touch or when this tipping point will happen.
Then what? This may be the ideal conditions for Telcos to win the battle becuase full automation of the delivery of services with “take a number” poor support is their sweet spot. Although, AI may actually help them to resolve their support shortfalls as well as prevent problems from happening.
It seems logical that with such a fully automated solution, more MSPs will struggle to compete and many may not survive. However, the channel could be the opposite of logical. If full automation and AI can make the delivery of managed services incredibly easy, then MSPs may actually be able to ride the storm to a very profitable future by reducing staff and overhead! If they focus on the customer experience and continue to build loyalty, then they can outsmart and outlast everyone.
“I’m outta here” type:
A big chunk of IT Channel is aging and will retire within the next 5 or so years. Most have very low expectations of business succession. They don’t care to invest big money and effort to transform. Mostly, they are looking to milk the dwindling cash cow business for as long as possible.
They are also quite frustrated to discover that after the years of building their company that it has not translated into more value to sell or retire. As such, they may need to continue working longer.
Another problem that many face is the “tire-kickers” looking to check out their business under the false pretense of “looking to buy”. The process of a sell or merge deal is not for the faint of heart! (If you want more information on M&A, ask me for some link to a webinar I recently saw on the issue).
I think this group is missing a huge opportunity that is right under their noses. Outsource or convert your customers into a managed services contract and use the solutions that are becoming fully automated and AI to manage with less effort. You may not need to go full tilt into transitioning your business, team and infrastructure to migrate your clients to managed services. There are several outsource-opportunities and we know of some, if you are interested.
If this group can flip succession plans into outsourcing plans, then they may actually generate significant predictable and sustainable monthly revenue that is much greater than any social security or retirement plan! Your customers are your primary asset and bargaining chip to a brighter future. Find the right “home” for them and you can win big!
“I am thinking but nothing is happening” type:
This group is still on the fence and not sure what to do. They come in all shapes and sizes. They are thinking, “Do I give up, start over or reinvent?” Many of these could easily survive, as the demand will increase for more channel partners. This group still has energy and passion so I never write-off this group.
I see them as nimble and life-style players. They got skills but just not playing a strategic game. Peer-groups and some coaching can help these business owners get the right support to get back into the game with a fury.
“Actually, peer-groups can help every channel partner to improve their game!”
Some of this group will simply bang their own drum to the very end. We salute the lone wolfs as they make this industry interesting. This group will definitely need some guidance and support to get back into the game, but they can do it!
“Catch me if you can” type:
These are the super smart elites and visionaries of the channel! They built their own Intellectual Property (IP) and have dominated their target markets and sectors by delivering a proven line of business solution that is near impossible to be replaced. They have built a sustainable and predictable cash cow.
Now they are on the hunt for partners to expand into new markets. They are starting to think and act like vendors!
This group has also been built from the “born-in-the-cloud” players as they entered the market from an entirely different angle and do not understand much about the traditional channel. These are mostly Independent Software Vendors (ISV). They are the outliers of the IT Channel and they are here to dominate.
I believe that this group is the next wave of opportunity for the IT Channel. If you cannot beat them, join them! Creating IP or building an amazing SaaS is not easy. Sometimes, it is best to become the marketing and sales force of these ISVs and IP players. Arguably they need the channel as much as anyone!
There is a bright future for the vast majority of channel players if they get on the right track. Some critics like to discard the channel as the way of the Dodo Bird, but just when you think it’s the end, something happens to spark another “worm-hole” dimension.
What type are you?
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