It’s hard to believe this year is almost come to an end (and what a wild ride it’s been). I’m not talking about the political debates and related turmoil we went through in 2016, but all the channel activities and milestones that took place over the past twelve months. It truly has been one for the history books.
In fact, some of the activities that captured headlines in 2016 are expected to become more commonplace in the years ahead, and will likely play a significant role in shaping our part of the IT industry. A few of those trends that the experts have been predicting for what seems like decades are finally showing promise for the channel. More importantly, the path to the next-gen innovations is getting clearer, as is the business case for IT services providers for these technologies, services and platforms.
That’s the good news. On the not-so-positive front, many channel firms (including some familiar, long-established companies) continue to struggle. Some are no longer around or ended up merging with other IT organizations. The challenges facing entrepreneurs and managers seem to be escalating at an exponential rate as innovation cycles speed up and competition levels increase. In other words, things are only going to get tougher for IT services providers — as well as the vendors, distributors and other companies they work with.
The number of channel activities that take place each year is astronomical. From events and corporate news, the vast majority of those happenings typically fall into just a few categories or trends. These are the things members of our community should be paying attention and evaluating. How will it impact my business? What plans or actions should be taken for the company to benefit from a particular trend (or minimize the negative repercussions of it)?
Which stories were of most importance to the channel in 2016? There were many to choose from, but the five that topped my list should have a major impact on the channel for many years to come:
- Mergers and Acquisitions
By all accounts, this was the year of M&A in the IT services space. Those who kept up with the channel news saw an average of 3-5 MSP acquisitions or mergers each week, along with one or two suppliers every month. And those were just the transactions we knew about. Not every deal comes with a formal (or informal) announcement, and troubled companies often just sell off their assets and close the doors.
Consolidation was a common theme among long-established MSPs in 2016. A number of those providers have been working in the IT space for 20 or 30, and in some cases, 40 years, and are ready to retire. Others looking to cash out and try something new. On the flip side, the next generation is moving in and gearing up. Some are building “born in the cloud” organizations leveraging vendor and distributor support to keep costs low and MRR high.
Based on expert discussions and industry research, it looks like the uptick in M&A will continue for quite some time. That’s a good thing for those interested in cashing out since the increased demand will continue to drive valuations higher (check out the new CompTIA guide, the Quick Start to Mergers and Acquisitions for more details).
- The Shadow Channel
There is a major chasm between the IT services community and SaaS (software-as-a-service) suppliers. On one hand you have VARs and MSPs who typically aligned themselves with the IT departments or technical leads in small and mid-size businesses. On the lower end of the SMB ladder, those providers would sell to owners or office manager. That equation expanded over the past few years to include department heads and the occasional end user, though channel firms typically worked with the leadership team on procurement.
The SaaS community often takes the opposite approach. They often bypass IT departments altogether and focus their sales and marketing efforts directly on the line-of-business executives. CIOs and CMOs are gaining more power in the procurement process. VARs and MSPs may not have strong relationships with those executives, who often get their technical information from peers, trade publications and their own research. In those situations, the advantage often goes to the SaaS community. Providers have to gain a better understanding of the shadow channel and the people involved, and develop connections with the suppliers that play in that space. That topic gained a bit of a following in 2016 and the conversation will surely become more prominent in the years ahead.
- Internet of Things
No one in the channel pays attention to innovation until it has a business case. For IoT, 2016 was the year. Real business applications with a suitable ROI that channel firms can help design, implement and support. Some have argued that IoT solutions are nothing new, that RFID and supply chain specialists have been installing them for years — and they are right. But in 2016 the big vendors in the IT industry jumped on board with major announcements and big marketing budgets, including Cisco, IBM, Microsoft, Google, Amazon and AT&T. Collectively, they made major investments in the platforms and related technologies, which should open up a variety of new opportunities for the channel community.
- Channel Renaissance
In 2016, the conversation in our segment of the industry seemed to turn away from margin erosion and cash flow challenges. That doesn’t mean they went away, but the focus became more proactive and far-reaching this year. Many in the channel seemed to have found their way or their mission to build for the future, and in many cases, security was driving that new wave of optimism.
They found out that differentiation and specialization drive value. As cloud and managed services lowered the barrier to entry for new providers over the past decade, commoditization crept in and some MSPs struggled to find a place in the market where they could survive, let alone thrive. They had to reinvent their businesses and redefine their unique value to their customer base. What services would their clients be willing to pay a premium for? Which would render them invaluable and help them secure more profitable, long-term contracts?
The answers were common topics in the channel press in 2016. They included advanced security services such as penetration testing and compliance consulting, as we well as end user training to reduce “human error” vulnerabilities. On the cloud front, the focus shifted from margin to procurement, management and support options that enhance the customer experience. And the IoT conversations highlighted a real strength of many channel companies: network infrastructure. VARs and MSPs can play a major role in the design, implementation, monitoring and long-term management of these platforms. They can partner with vendors, distributors and peers to fill the gaps. Each specialization is an opportunity to grow customer count, revenue and value.
- Election 2016
This year’s national elections left a lot of IT services providers, vendors and distributors wondering what the future would bring. The outcome has some scratching their heads trying to predict which, if any, regulations will be loosened or eliminated, and what economic impact will result from decisions the new administration makes. So far, the markets have responded positively. Combined with a judicial ruling that at least delays the implementation of the current administration’s new overtime rules, the small business community has been rather optimistic. Of course, many of the issues that concern or affect the IT industry may not be addressed for several months, including cybersecurity, net neutrality and tax rates. Time will tell, but channel professionals should pay close attention to proposed policy changes and potential legislation in the coming months.
Brian Sherman is Chief Content Officer at GetChanneled, a channel business development and marketing firm. He served previously as chief editor at Business Solutions magazine and senior director of industry alliances with Autotask. Contact Brian at Bsherman@getchanneled.com
