Time to Reinvent the Channel Business Model?

The existing channel sales model is constantly evolving, but a new report warns that market changes are accelerating the trend and all sides must adapt. Is a new era of collaboration at hand?

August 16, 2008

Al Senia

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The channel sales model is constantly evolving, but a recent research report from consulting firm Accenture warns the pace of evolution is rapidly accelerating. VARs and vendors need to adapt to the new, more collaborative model that is emerging if they hope to thrive, the report contends.

Kevin Bandy, senior executive with Accenture, says both vendors and channel partners  are trying to build profit margin by adding new services and solutions as the margins on traditional hardware and software products weaken. In some cases, channel partners are having to invest in expensive infrastructure to sell the new services. Others are selling these services independently of their vendor partners. This is setting the stage for future conflict. Some software and networking companies have started rethinking their channel business models, Bandy notes.  "Often they are discovering that their existing models hurt their efficiency rather than support it," he says. Another bad omen is that partner programs are expanding faster than the revenues to support them.

Well, it's hardly news that the channel is struggling over deteriorating margins, and vendors and VARs have been battling over loyalty and channel conflict since the channel was invented. Of course, when times get lean, blame gets passed around. However, Bandy makes a good point in arguing that these issues are escalating as the channel's customer base shifts to fast-growing SMBs; customers become a lot more demanding; and merger and acquisition activity in the channel increases. (Then again, over the years every time there's a slowdown in growth and spending, these same trends emerge. The real question is, will they stick around long enough this time to have a deep impact?)

Bandy says in his report entitled "Big Changes in Indirect Channels Bring New Opportunities to Achieve High Performance" that a number of steps should be taken to mitigate the potential damage to channel relationships. Vendors, for example, need to collaborate more effectively with channel partners and give them more of a role in designing channel programs rather than just imposing them. He suggests that starting small and scaling fast can help build trust.

Vendors also need to be a bit more savvy in differentiating their products, services, software and financing to channel partners and expand their value proposition to include codelivery platforms. The idea is to develop a more collaborative model that integrates the strengths of all parties – vendor, distributor, VAR -- and provides an infrastructure that can be leveraged for the benefit of all.

That's easier said than done, but there is real wisdom in this approach. There has been growing discussion within the channel, from industry executives such as Cisco CEO John Chambers to distribution executives and to many VARs themselves, about the need to build a more collaborative model that is flexible, mutually beneficial and easier to scale to better meet customer needs. It's tough to say whether all of this hand-wringing over changing customer demands and evolving business models is overwrought or prescient, but if it ends up creating a more collaborative environment between vendors and their channel partners, it will be a worthwhile endeavor that ultimately strengthens the channel.

(Al Senia is managing editor of ITChannelPlanet.com.)

TAGS: collaboration,software,networking,Cisco,VARs

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