How the IT Channel got in this mess

08 January 2017

In last weeks’ blog I talked about the complexities of the IT Channel between Clients and Vendors.  I thought it would be sensible to elaborate and explain whats going on.  Its basically all about Cloud.

Back in the 1970’s, the IT channel model was very straightforward.  If you were an end user of technology, a Client, you would buy from a technology provider, a Vendor, and everything was easy.  Your mainframe would turn up from IBM broadly on time, built to order, about 2 months after you ordered it, with all of the punched cards and green stripy paper that you needed.  Technology was the reserve of the major corporate, which was probably only a few hundred companies globally, so life was simple.

Client/Server technology then made this all more complex.  Client’s wanted to buy from Vendors, but had an expectation that technology would speed up their world and demanded swifter delivery times.  Also, the cost of technology plummeted to such an extent that it became ubiquitous.  Vendors couldn’t cope with the logistical complexity of stocking and cash flow / credit for this enormous market, and established the Channel.  Welcome to the stage, Distribution.

But it very quickly became apparent that stock and credit were not the only issues with this model.  Skills were missing, for installation, configuration, deployment and general support.  The birth of the Reseller really took hold in the 1980’s and 1990’s, where Clients would approach a Reseller to buy their technology, who in turn used Distribution to manage their Vendor relationships.  Kickbacks and backhanders were flying everywhere, as Vendors and Distribution were trying to get their stock and technology moving through the channel.  Ferrari’s and Miami Vice-esque padded suits were at every technology conference. It was great to be alive.

But Reseller’s value started to diminish.  Clients were looking for a bit more than “ship and plug in”, they wanted advice.  Impartial advice.  And they wanted to understand how to make multiple Vendors work together, not just the one that the Reseller stocked.  Arise, the birth of the System Integrator, or SI.  God loves an acronym.

Services became the only differentiator.  Rather than Clients having their own skills, they looked to the channel to provide ongoing support rather than just installation – arise the Managed Service Provider or MSP.  Clients also looked for services beyond technology, they wanted the technology and people to be owned by the channel so they didn’t have to worry about financing it or taking the risk – here comes the Outsourcer. 

It’s now about the end of the 1990’s, Oasis are having a great time in the charts, but the IT Channel is all over the place.  Resellers want to be MSP’s, MSP’s want to be Outsourcers, SI’s don’t really know what they want to be, but their revenues are so bonkersly big they can’t stop themselves from carrying on.  Vendors are struggling to work out which bit of the channel to court most actively, and Distribution are now running at stupidly skinny margins because their value is back down to stock and credit.  We’ve not even reached the Cloud era yet.

As a stroke of pure genius, Amazon create a business model.  Their spare capacity from their retail operations could be sold to other clients to perform compute processing whilst they aren’t selling toothbrushes in dull brown boxes. 

There were others, but in my view this was the birth of the mainstream Cloud.  Literally overnight, the IT Channel had a meltdown.  Clients won’t want technology any more.  Those lovely lumpy revenues that Resellers and SI’s enjoyed were no longer a thing, MSP’s were all going down the swanny as Clients wouldn’t need services and Outsourcers were way too monolithic to compete.  Vendors all dashed to be Amazon’s best friend, or to build their own Clouds (Azure, vCloud Air, Oracle’s Cloud Services), or to  buy their own Clouds (IBM/Softlayer).  Blood was running down the gutters of IT Channel Avenue, “somebody think of the children”.  This was around 2005-2008.

Here we are in 2017 and a lot of people are still employed.  The reality of Cloud is that it has become just another technology option, a Vendor, that should be considered as a potential solution to a Client problem.  Resellers are struggling with the reduction in up front revenues, System Integrator’s have adapted to integrate cloud as a “System”, MSP’s are the new Outsourcers as very few people want to TUPE staff these days.

So what does the future hold?  Well many of the Cloud Vendors still struggle with finding Clients, and Clients still struggle with consuming Cloud.  Office 365 on a credit card is by no means a solid financial way for a business to purchase its critical productivity tools.  Clients need the channel to help them identify not just the right technology, but the right delivery model (On-Premise, Hybrid or Public Cloud), as well as the right channel provider (Reseller, MSP, SI, Outsourcer) to glue it all together.  Arise the birth of the specialist consultancy to advise on how to navigate this horrific mess of a sector.

Embedded are an advisory consultant in this field.  We have relationships with over 200 channel providers, across most of the core Vendor and technology platforms.  We are service focused, with ITIL being at the core of what we do.  And Embedded’s MD has worked with all of the above channel partners in his long-standing career.  That’s me.  Give me a buzz if you want some help!

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