Strategic Alliance Magazine Q4 2017 - 30

BIG CHANNEL BETS

percent of channel owners will be millennials by 2024,
according to the 2016 CompTIA study.

TRANSFORMING THE BUSINESS MODEL
The business model transformation from

The large distributors each cover hundreds of vendors
and thousands of partners, so their perspective is of a
large cross-section of the industry. They are also most
at risk of disruptive changes and have the most to lose
in the shift to the cloud. Cloud distribution doesn't require a warehouse or drop-ship logistics. And the impact
is beginning to be felt in tangible ways. In September,
TechData took a massive 19 percent hit to its stock price
because the company missed Q2 profitability targets,
even though revenues were solid. The profitability hit
was attributed to a shortfall in vendor rebates, which are
paid out based on hitting performance targets. This was a
warning signal that vendors are no longer going to subsidize partner profitability through back-end rebates.

transactional sales to recurring services
is a tough transition. The vanishing VAR
typically counted on product resale
margins to generate profit. Most VARs
have incorporated more services into
their business, but it is difficult to make
a complete transition. It takes two to
three years, and in those years they are
often operating at a loss as product
sales drop off and services slowly ramp.
At some point, the services can become
quite profitable and sustainable, which
is the beauty of recurring revenue.
It becomes like an annuity, though
companies will need the resolve and
financing to weather the trough during
the transition. Investing in IP innovation
generates another revenue stream
that adds incremental customer value
to the mix and perhaps a competitive
differentiation that would facilitate
customer retention and promote
renewals.
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STRATEGIC ALLIANCE MAGAZINE | Q4 * 2017

So what are these big bets?
For the most part distributors, including
TechData, have not been sitting around
like the proverbial frog in the pot. Distributors have been making massive bets on the new cloud
ecosystem and new opportunities arising from the Internet of Things (IoT) and digital transformation. Based
on the size of the ecosystems they serve, they have an
ability to influence and shape the next generation-perhaps moreso than even the large vendors they support.

Selling to the new buyer
The customer relationship becomes even
more valuable. Since the channel partner
is the customer-facing relationship, they have an enormous opportunity in building customer intimacy. The
sustaining role for the channel partner is that of the
trusted advisor. This requires a depth of knowledge
of the customer business and an ability to manage the
customer experience. We've seen a shift from customer
support services with focus on break/fix services to customer success management. These services maintain a
continual, deepening contact with the client, ensuring
that they are using the technology and services effectively, providing additional help as needed, and always
being aware of opportunities for up-sell and cross-sell.
The value of the channel partner becomes less about

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