2016 channel trends: Digital transformation to alter relationships

Editor's Note: This is the second of three articles in a series that will review 2015 channel events and look ahead to 2016 channel trends. For additional context, read last year's discussion of 2015 trends, which were driven by IT transformation.

Bolstered by the business shift from on-premises to on-demand IT and the increasing power of the customer, digital transformation trends have taken hold and are destined to drive 2016 channel trends with respect to vendor-customer relationships as well as vendor partner engagement.

The increased need for partners to specialize, differentiate and figure out how to evolve their business from second platform to third platform IT -- cloud, analytics, big data, mobility and social -- will be imperative in 2016, according to industry watchers.

Diane Krakora, PartnerPath

"In 2016, partners still need to focus on their differentiation and it's not something they're good at," said Diane Krakora, CEO of PartnerPath, who added that partners need to figure out how to breakout from being a value-added reseller or solution provider to saying, "'I specialize in mobile solutions or I'm a security integrator.' It's about how they identify in their marketplace and the specific value that they bring to their customers," she said.

(When SearchITChannel looked at channel trends for 2015, partner business transformation was at the top of the list. It remains there in 2016.)

The role of the vendor in helping partners that have third-platform denial transform their businesses will be critical in 2016, according to Darren Bibby, program vice president for channels and alliances research at IDC.

"It will persist unless vendors intervene," he said.

While Bibby acknowledged that many vendors did push their partners toward cloud, big data, analytics, mobility and social, it hasn't been enough.

"When big old-guard … [vendors] say, 'We've got to move to the cloud,' yet put all this incentive on blowing out a quarter and selling old stuff, people do what you do and not what you say," Bibby said.

The IDC analyst singled out Microsoft as an example of a company that put its money where its mouth is with its cloud-first, mobile first strategy, but that wasn't the case for all vendors.

In the upcoming year, expect to see vendors and distributors continue to offer partners transformation workshops. "These are important because unless you get a born in the cloud partner, business partners are a huge opportunity and challenge to the old-guard IT vendors," the IDC analyst said.

Kevin Rhone, ESG

Kevin Rhone, senior consultant and practice lead at Enterprise Strategy Group (ESG), said in the coming year vendors need to make the financial business case be the centerpiece of their partner programs.

This means vendors need to build and define a core value proposition for how partners make money, what the hot deals are, what it takes for them to invest and what their projections are over a two-to-five-year period for investing in a Tier I vendor's platform, for example, he noted.

Unlike traditional partner programs which included a checklist of must-haves such as discounts, incentives and rebates, for example, and were easily designed around selling products or boxes, the task of developing programs for partners that sell complex solutions, converged systems and cloud is far from cut and dry.

"When I talk to partners today, the one thing that comes through is they cannot predict an order cycle or a deal structure or size. That means they have to be well capitalized and there's a little bit of hope and prayer and we'll see what comes out at the end of the quarter," Rhone said.

Along similar lines, PartnerPath's Krakora talked about vendors offering individualized enablement to the partner. "We talk about it as readiness by role," she said.

In 2016, partners still need to focus on their differentiation and it's not something they're good at.

What that means is how vendors get a partner ready for marketing, ready for sales, ready for referrals -- depending on what the vendor is expecting from that partner, Krakora explained. Another way to think about readiness by role is as an enablement blueprint that's customized to a partner depending upon what it does. So, for example, what a resell or referral partner requires in terms of training and enablement is different from that of a partner that does implementations. With that, expect to see vendors shifting their channel allocations from technical training and enablement, which helps ready partners to install, manage and support solutions to ensure customer satisfaction, to front-end marketing and sales enablement, which grooms a partner to raise awareness, drive demand and sell a product.

Industry observers agree that digital marketing initiatives must be front and center in 2016.

Carolyn April, CompTIA

"From a business operations standpoint, expect to see channel companies get more savvy with their marketing and branding as cloud and managed services pushes them in that direction," said Carolyn April, senior director, industry analysis at CompTIA.

The marketing message started to bubble up in 2015 but not just with partners. Vendors were increasingly onboard with helping partners lead with their own brand, which is particularly important in the services world. Expect to see vendors provide partners with an easier path to marketing and marketing education.

2016 channel trends: Technology

Taking the conversation about marketing a step further, Anurag Agrawal, CEO and analyst at Techaisle, predicts that in 2016 channel partners with the help of their vendor partners will figure out a structured sales and marketing program for various products and services.

Anurag Agrawal, Techaisle

"These will revolve around four areas: cloud, mobility, managed services and virtualization," he said.

And, along with that, partners will begin to understand the value of cloud orchestration. "Partners will come out with solutions to deploy cloud to their customers and figure out how to connect the technical processes to the available technology solutions and how to connect applications to automate tasks," he explained. It's ultimately all about managed IT and managing IT assets in the cloud, he added.

Expect to see the acceleration of cloud and software as a service as well as the continued move toward mobility in 2016.

"We've also entered an era where DevOps and software developers are also gaining steam," said Jeffrey Kaplan, managing director at ThinkStrategies. Partners need to think about how to better align their companies with an internal software development organization, he added.

Another hot technology area for partners is security. There's no shortage of agreement on the continued significance of security as partners move into 2016.

"There's a headlong rush for security-focused partners to add an infrastructure practice and for infrastructure partners, who formerly didn't do much in security, to acquire or build a security practice," ESG's Rhone said.

The ESG analyst said that he views security as one of the biggest transformative trends for partners, comparing it to the importance that adding a cloud practice was two years ago.

We can't talk about 2016 without mentioning the Internet of Things (IoT), which was more hype than reality for partners in 2015. Industry observers expect to see more Joe partner-type companies -- 20-50-100 person shops -- creating some offerings around IoT.

Jeffrey Kaplan, ThinkStrategies

What will drive IoT is businesses recognizing the tie between digital transformation and leveraging their cloud investments to support their IoT ambitions, according to Kaplan.

One example of an IoT offering is tracking consumer behavior via mobile devices and providing retailers with proactive notification as well as using the tracking capability to improve customer engagement and maybe provide that customer with new products and services. This scenario intertwines three things: IoT, which places the sensors on a device, in this case; the digital aspect, which enables the virtual relationship with the customer; and, the cloud, which provides the economics to connect, and collect, store, and analyze the data more effectively.

"From a channel point of view, it's not just about being able to sell those sensors, devices and software but it's about developing a new set of skills where the partner can become the trusted advisor and supplier for these customized solutions," Kaplan said.

That's because there are very few IoT or cloud vendors that offer end-to-end systems, sensors and software. It will take an integrator to pull those pieces together and a managed service provider to maintain them, he offered.

It's all about change

Whether we're talking about technology, vendors, partner programs or channel partner business operations, it's clear that the ongoing upheaval in the industry isn't for everyone.

Just as the industry has witnessed several news-grabbing mergers and acquisitions among vendors, and many M&A deals that didn't garner the spotlight in 2016, expect the M&A trend to continue -- and that's among partners as well.

With this in mind, partner firms need to be thinking about valuation and what will make them attractive to a buyer. And running a professional services firm alone won't cut it, according to IDC's Bibby, because that isn't something that's tangible.

Darren Bibby, IDC

"What is tangible is recurring revenue and contractual revenue, being up on the latest technologies, and [partners] have to have IP (intellectual property) … we've been saying that for years, but you'll see more VARs, system integrators and MSPs creating IP, not just ISVs," he said.

On the vendor side, partners will recognize the distinction between old-guard and new-guard vendors -- IBM, Microsoft and SAP, for example, as old guard versus Salesforce, Amazon Web Services and NetSuite as examples of new-guard vendors -- or two sets of players with two sets of rules. Watching how this story unfolds in 2016 will be unavoidable, according to Bibby.

Can the old guard make itself look new again? Microsoft is certainly on that path. And, what will the changing of the guards mean to partners who still look to old-guard vendors that have partnering in their DNA?

Another unanswered question moving into 2016 is which among the big vendors will be the most successful in recruiting and getting MSPs to sell their hybrid cloud offerings for them, suggested Charles Weaver, CEO and co-founder of the MSPAlliance.

"No one has a lock on this yet," he said.

Charles Weaver, MSPAlliance.

Finally, while Weaver isn't certain whether there will be indirect regulation of MSPs in 2016, he said it's coming to the U.S. within the next two years. It's already come up in Europe.

"It won't come through licensure, like legal and medical go through, but I think what's going to happen -- as a fallout of who wins the election in 2016 and who retains control of Congress -- you may see some data privacy, data security legislation being promoted that would in some way make it the responsibility of the end user, and in some way the third-party providers, to take certain precautions on the data they manage," Weaver said.

More specifically, he's referring to how certain data must be handled, transmitted or stored while at rest, for example.

"That would definitely impact -- and maybe in a good way -- the MSP," he said.

Certainly it would bring more attention and scrutiny of an MSP's business.