One of the more interesting things I've done recently was speak with the executive leadership of one of EMC's valued channel partners. They were going through a strategic planning cycle, and wanted an outside perspective.
I thought that wonderful on several levels.
First, they were investing serious leadership effort in a meaningful and non-trivial strategic planning process. It seems that far too few of our channel partners do this, and -- given all the structural changes occurring in our industry -- it's probably a good time to do so.
Second, they invited me (on behalf of EMC) to lead a business discussion -- not on technology, but on the broader industry, the changing face of IT, new business models and -- hopefully -- what it might mean for them. Although mapping my world to their world was a bit of an stretch for me, I like that sort of exercise.
The title of this blog post came from an industry analyst who described their business model as "in a vise" -- as in under severe and unrelenting pressure from several directions. I found it an apt description, as simply maintaining the status quo means you're planning on getting compressed into a smaller space.
Although we talked about several subjects (and I did what I could to link them together into actionable scenarios), there's one key thought I wanted to share with anyone who's in the VAR / reselling / distribution end of the IT business.
Organizations routinely buy a *lot* of IT stuff: servers, storage, networks, desktops, laptops, software, etc. etc. Historically, one could make a nice business being an efficient channel of distribution between thousands of IT suppliers and hundreds of thousands of IT consumers.
Indeed, much of the nomenclature in the channel (e.g. value-added reseller, value-added distributor, etc.) reflects the focus on essentially product distribution with some value-added services wrapped around it.
The distribution-focused models can get very large indeed, as they move a *lot* of product between manufacturers and smaller resellers.
Finding The Next Shiny Thing
Since the historical model has always been built on having the products people want, a lot of thinking goes into having the "right" products. And there's always a keen interest in newer products that are just reaching the market.
So, when we sit down with them, what passes for "strategic planning" usually boils down to finding the next shiny set of things to bake into their existing model. We, as a vendor, have many new shiny things -- and, of course, we'd obviously like them to sell a lot of our stuff.
Here's what's new in storage, in security, in backup, in big data analytics, in content management etc. etc. To be clear, there's nothing wrong with that -- an awful lot of IT products get bought and sold that way.
But what about the business model itself? How should it evolve? Should we make time to discuss that?
Is The Pressure Is On?
Much of the enterprise IT is quickly commoditizing: standard hardware platforms, consumer-grade technologies, vastly simplified installation / operations / support, etc. As a long-time employee of an IT company (EMC), there's no arguing the long-term secular trends in our industry -- they've been at work for many years, and have recently accelerated greatly.
But IT product distribution is also commoditizing quickly: many sources for the same stuff, easy access to comparative information and expertise thanks to Google and social, and so on.
Simply being an efficient distributor of largely commoditized IT isn't the value proposition it once was: witness the rise and fall of Dell if you'd like a well-publicized example.
As the IT products get simpler and better integrated, the need for value-added services diminishes and commoditizes as well -- especially in small-to-medium environments where do-it-yourself is the norm.
I also have to point out that IT tech is getting pretty mature -- there are fewer and fewer opportunities to create "must have" products that appeal to mass markets.
A Change In Perspective?
So much in IT today involves helping customers to be successful with the "thing" vs. the thing itself. Almost all the new and compelling value propositions today involve substantial learning and process change: IT and the business learning to do things a new way.
For example -- the various technologies that go into making a private cloud are established and mature -- essentially commodities. The skills required to re-wire IT and the business to use a cloud effectively -- those are very scarce and come at a premium.
Another example -- anyone can sell you a bunch of mobile devices and back-end support products. The expertise required to create new process flows and ensure end-user success with the new model -- well, that's a premium set of skills these days.
Ditto for unified communications, big data analytics, next generation security, etc. etc. -- pick virtually *any* reasonably significant IT topic.
The "thing" that a customer is buying is actually a proxy for a much more ambitious set of outcomes -- and to achieve those results, we're inevitably talking process and behavioral change both within IT as well as usually reaching into the business itself.
Our channel partners in this space complain bitterly about being "shopped" by customers looking for the best deal -- as well they should.
But if your business model is largely based on commodity goods being efficiently distributed -- well, you should expect a great deal of comparison shopping these days, and inevitably more in the future.
There's a natural push back when you bring up this topic with people in the distribution business -- it all sounds like professional and consulting services. It's perceived as a messy, imprecise, low-margin and quickly-commoditized business that doesn't involve clean-cut SKUs, inventory levels and factory rebate programs.
Yes, those are valid points. But you either have move in that direction, or perhaps start modelling your business to look like NewEgg.com. Your choices appear to be limited.
A Non-IT Example?
If you've read my blog bio, you'll probably know that I'm working on my second career as an aging rock-and-roll musician. That means I'm always in the market for new musical goodies, which can sometimes get quite expensive.
I used to scour the internet looking for the absolute best deal, but that's changed recently.
You see, there's a music retailer out there with a differentiated proposition: they want to make me a better and more successful musician.
They've got clinics where you can hone your chops, message boards to help you find other musicians, bands and gigs, practical advice on everything from equipment to setting up your rig to how to market your band, how to build a set list, how to deal with inevitable band conflicts, a marketplace where you can sell your old gear to buy newer toys, and so on.
I now buy almost all my stuff through them. Their prices are reasonable, but certainly not the lowest around. Why? Because they're focused on making me successful with what they sell -- which, after all, was my real goal all along.
See the difference? You can argue whether this is a winning strategy or not, but -- from their perspective -- it's the only reasonable way forward.
Since they have the inevitable costs of maintaining storefronts, their operating costs will always be at a disadvantage compared to an internet retailer. But there's a lot they can do that the low-cost guys can't do -- and I'm willing to pay for it.
The As-A-Service Discussion
Inevitably, the whole discussion around "cloud" comes up -- what is it, what does it mean to them, what should they do?
There's also usually some less-than-accurate assumptions at play: cloud is immature, clouds have to be very big, offering cloud services are inevitably expensive, customers aren't ready to buy cloud, and so on.
I would beg to point out that -- perhaps -- there's a different perspective.
Let's get back to our premise around the new IT thing that the business is trying to accomplish -- pick your favorite: VDI, social CRM, analytics, security, whatever. I've tried to make a case that investing in the required professional services capabilities to ensure customer success is becoming an essential part of the new business model.
Ease-of-consumption is the other half. That means being able to offer external, variable IT services during the outset of the initiative is quickly becoming a compelling part of the value proposition.
Look at it this way -- your customer is trying something new. They're not quite sure how it's going to go. It's almost impossible to figure out exactly what you'll need at the outset. Getting funding for all the resources is a major obstacle in itself -- not to mention the operational expertise you'll need to run it all.
Being able to offer important components of the new thing as-a-service makes it so much easier for your customers to consume. Less investment, less time, less risk, less hassle.
Perhaps they'll get to a point where they'd like to invest in doing whatever it is internally. Fine, they'll need a bunch of stuff. Or, perhaps, they like whatever external service you've shown them, and decide to commit more heavily to it.
Either way, you win. And they won't be shopping you on price :)
I should point out that there's no need for a VAD or VAR to actually build or operate the service -- although that's certainly an option. There are many, many good external IT service providers we work with -- all trying to figure out a better route to market for their IT services that doesn't require investing in a massive sales force.
What You Do Vs. How You Do It
I'm doing what I can to encourage many of our partners to start to shift their perspective.
Understandably, they see the industry forces and competitive pressures at play, and are trying to figure out their way forward. And we, as their business partner, very much want them to be successful.
But we all fall into the same trap. They ask us about the latest, hot technology -- and we feel compelled to tell them all about it.
Perhaps -- instead -- we should spend some time discussing new value-add models -- entirely based around customer success?