The Gartner IT Symposium this week featured discussion about a new style of partnering that views the nurturing of connections with partners as key for tackling today's premier challenges.
At the Gartner event, which ran from Oct. 18 to 21, Gartner distinguished vice president and analyst Hung LeHong said traditional one-to-one relationships between CIOs and technology providers "can go much further" than they currently do. Situations where customers need unique solutions that don't exist on the market call for "a new kind of partnership," he noted.
LeHong called the new partnering style "generative," meaning that the enterprise and the technology partner co-innovate and build the offering. The organizations then co-sell the jointly developed offering and generate revenue.
Generative-based IT spending is expected to expand at a compound annual growth rate of 31% over the next five years, LeHong said, citing Gartner research.
Examples of generative partnering already exist today, however. LeHong pointed to Johnson Controls, a building management product and services company, which sought to build and sell a suite of intelligent services. Johnson Controls called on the technology industry for help, but providers wanted to see a rough project plan with outcomes before committing to further engagement, according to LeHong.
Accenture, however, "agreed to share in the challenges that come with ambiguity," he said.
Accenture has also noted the growing importance of co-innovation in the partner ecosystem.
Johnson Controls reported that margins on its co-created offerings are equal to, if not better, than its previous lineup. Johnson Controls and Accenture are co-earning revenue, LeHong added.
Other research findings released at the Gartner IT Symposium included:
- Uptick in risk tolerance. Fifty-seven percent of boards of directors have increased or expect to increase their risk appetite moving into 2022.
- Increased focus on digitalization. Boards have made digital business their top priority, according to Gartner. This push covers such technologies as AI, 3D printing, AR/VR and blockchain.
- Building on the cloud. Cloud-native platforms will provide the basis for more than 95% of new digital initiatives by 2025. Fewer than 40% of such initiatives used a cloud-native foundation in 2021.
- Digital business development goes beyond IT. Forty-one percent of employees identify as business technologists, creating technology or analytics capabilities outside of IT departments.
Kaseya: M&A key to MSP growth
Many MSPs, faced with sales and service delivery challenges, will need to tap mergers and acquisitions as a growth engine.
That's one takeaway from Kaseya's IT Connect Global event, which ran this week in Las Vegas and online. "It is not very easy for an MSP to obtain hypergrowth," said Fred Voccola, CEO at Kaseya, which sells technology to run service provider businesses. Voccola identified hypergrowth as annual growth in the 40% range.
MSPs struggle to create a sales factory to generate that type of growth. That's because an MSP's offering is "somewhat unique for every customer," Voccola said. Software companies such as Kaseya, in contrast, can distribute intellectual property based on products, which don't vary from customer to customer as an MSP's service does, he added.
In addition, software companies generate leads at scale to feed the sales funnel. However, even if MSPs could generate massive amounts of leads, the question becomes whether they could deliver services to the sudden influx of new clients, Voccola observed.
M&A, in addition to serving as a key growth driver, is also the natural tendency of localized markets. Local businesses, whether movie theaters, car dealerships or MSPs, eventually roll up to achieve scale, Voccola noted. Defining an MSP as any company that provides technology services to an SMB, Voccola said Kaseya has identified 144,000 MSPs worldwide.
Those MSPs that seek to harness M&A will find themselves in an active market. Private equity dollars have flooded into the market over the past three years. To attract a buyer, however, service providers must pay attention to key financial metrics. Kaseya CFO Kathy Wagner cited annualized recurring revenue (ARR), gross margin, operating income or EBITDA, and free cash flow as among the top measures. She also cited the "rule of 40," which is the sum of an MSP's year-over-year top-line growth and its profit margin.
Gary Pica, president at TruMethods, a Kaseya company, said the rule of 40 can help MSPs determine how to invest. For instance, an MSP with a 20% gross margin and a 10% revenue growth rate could evaluate how much margin to invest to get the extra 10% growth needed to reach 40. Pica presented with Wagner on M&A financials at Connect IT Global.
Investors also look favorably on longer contracts, Wagner added. "They love predictability and they love growth," she said, noting that longer contracts lend themselves to both.
Pica, who owned an MSP and sold it to MindShift in 2005, said his company originally offered customers month-to-month terms but had to transition to one- to three-year agreements as part of MindShift. While initially apprehensive about the longer contracts, Pica discovered that customers weren't deterred.
"We learned that customers want to protect the price," he said.
CDW to acquire Sirius
CDW Corp. aims to boost its services business to take on complex digital transformation projects in its pending acquisition of Sirius Computer Solutions Inc.
The deal would result in a combined company with sales of $20.5 billion, based on 2020 financial results. The $2.5 billion cash transaction is expected to close in Dec. 2021.
Christine Leahy, CEO of CDW, based in Lincolnshire, Ill., said Sirius "accelerates our services and solutions capabilities" and adds scale to CDW's services portfolio. Sirius focuses on cloud and managed services, hybrid infrastructure, security, and digital and data innovation. The expansion of services will help CDW meet customers' increasingly complex technology challenges, Leahy said. Leahy, speaking during an investor conference call, noted that the acceleration of digital transformation demands greater services capabilities.
CDW, which originated as a reseller, has been expanding its services business since at least 2006, when it purchased Berbee Information Networks. That company provided network infrastructure, unified communications and managed services.
With the Sirius deal, "CDW continues to pivot from being primarily a direct market reseller to a global solutions provider of enterprise and managed services," according to a transaction brief from M&A advisory firm Martinwolf. The Scottsdale, Ariz., company was not an advisor in the CDW-Sirius transaction.
Sirius, an IT solutions integrator based in San Antonio, had $2.04 billion in 2020 sales. In 2016, the company acquired Force 3, a solutions provider that works extensively in the federal government market.
Partner roster update
- GM Sectec, a managed security service provider (MSSP) based in Puerto Rico, will partner with Commvault's Metallic venture to provide a managed data protection offering. GM Sectec's Metallic Data Management as a Service offering will include ransomware readiness, backup and data recovery as a service, according to the companies. Metallic general manager Manoj Nair said the relationship with GM Sectec will expand Metallic's footprint with customers in Puerto Rico as well as other areas, noting the MSSP has offices in more than 50 countries.
- Wipro Ltd., an IT services provider and consultancy, will launch a practice based on its alliance with Apptio, a technology business management vendor.
- A2U, an IT services provider based in Wexford, Pa., became the first partner to obtain IGEL's Services Provider Specialization, followed closely by other IGEL Elite Partners: Computer Products Corp., Netplans Cloud Solutions, Sirius Computer Solutions, T4Change and XenTegra.
- Qumu Corp., a cloud-based enterprise video technology provider based in Minneapolis, inked a deal with distributor TD Synnex. TD Synnex now offers the Qumu Video Engagement Platform to its reseller network.
- Telefónica Tech, the digital business unit of Spanish telecommunication firm Telefónica, expanded its alliance with Fortinet to launch an SD-WAN managed service. Channel partners have been wrapping services around SD-WAN technology in recent years.
- Telecommunications company Nokia is at the center of two international partnerships. ARC Solutions selected Nokia to provide a data center interconnection offering in the Middle East. Orange Business Systems, meanwhile, will partner with Nokia to provide a private mobile network for Butachimie's chemical plant in Alsace, France.
- MITRE Engenuity, a foundation focusing on critical infrastructure, unveiled ATT&CK Evaluations for MSSPs and managed detection and response (MDR) companies. The offering aims to "provide transparency into the capabilities of MSSPs and MDRs," according to MITRE Engenuity. The evaluations will take place in the second quarter of 2022, with results slated for release in following quarter.
- Resolve Systems, an IT automation software vendor based in Campbell, Calif., launched its Engaged channel partner program. The program is geared to systems integrators, MSPs and VARs.
- Protos Technologies, a Michigan-based data protection and recovery services provider, expanded its business through a partnership with Redstor, a data management and protection SaaS vendor. Protos Technologies has more than tripled customer data under its management to 460 TB in 18 months, according to Redstor, based in Reading, United Kingdom.
- WekaIO, a data platform provider for cloud and AI applications, named Frederik Schroeder as its vice president of strategic partners. Schroeder joins the company from Hitachi Vantara, where he was vice president and general manager of global inside sales.
- Broadvoice, a unified communications company based in Los Angeles, appointed Jason Smith as vice president of sales engineering, a remit that includes technical pre-sales support and partner education.
- Panzura, a global file system vendor based in San Jose, Calif., hired Brian Brogan as vice president of global sales channels. Brogan's channel experience includes stints at Automation Anywhere, SAP, EMC and IBM.
- Kodak Alaris appointed Fred Scherman as its Americas channel sales director. Sherman joins Kodak Alaris from Panasonic, where he was national sales manager.
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