Strategic Alliance Magazine Q4 2017 - 29

and this trend will continue as many owners exit into
retirement. One might think the survivors are more
profitable, but that's not the case. Product margins
have been under continual pressure, and the shift to
cloud has changed the revenue model to a slim drip
feed on recurring subscriptions.

Business model disruption
Many VARs have shifted their business model to services-oriented managed services providers (MSPs).
But even the hybrid MSPs and the pure-play MSPs are
seeing margin pressure and a lackluster market opportunity in on-premise computing. Many MSPs are still
providing operational services, such as backup and restore or PC help desk services to on-premise computing
resources. So there is mounting competition for a market space that is declining in growth and will soon be
declining in size.
New technology purchases are happening almost entirely in the cloud. On-prem computing will be around
for quite a while as companies want to maximize their
investment in capital equipment already on the books.
Some highly sensitive applications may always reside in
on-prem data centers.
One data point illustrates this quite clearly. Some $10
billion of Amazon Web Services revenue displaces $30
to $40 billion in traditional IT revenues, according to
Baird Equity Research. Bad news for the traditional
supply chain, but a great boon and cost savings to the
consumers of cloud computing.
So as the traditional partner ecosystem model is displaced, what is taking its place?

By Norma Watenpaugh, CSAP
The traditional information technology (ITC) or
value-added reseller (VAR) channel is undergoing
tremendous change and turmoil; some have called
it an extinction event. While 70 to 80 percent of information technology (IT) products and services are
sold through partners, the number of partners has
been steadily declining. Some 30 percent of VARs
have disappeared from practice since 2008, according to the 2016 CompTIA State of the Channel study,

Phoenix Consulting Group has done extensive research
into this transitioning landscape with interviews and
conversations with 29 ITC channel chiefs and alliance
executives. Most recently, we had the opportuntiy to
do a comprehensive survey with the industry's largest
distributors, Arrow, TechData, Synnex, Ingram, and
Westcon, which validated these trends, but also pointed
to the future of the next-generation partner ecosystem.
And it truly is the next generation. The partner community is shifting from the baby boomer generation,
which benefited immensely over the past 30 years from
the ascendance of information technology, to the new
generation of born-in-the-cloud millennials. Some 75
29
Q4 * 2017 | STRATEGIC ALLIANCE MAGAZINE



Table of Contents for the Digital Edition of Strategic Alliance Magazine Q4 2017

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