Within the last couple of months there has been a lot of buzz how the channel is going to change beyond recognition in the next 5 years.  I am now a believer in this scuttlebutt. Driving this is the notion that margin from the sales of hardware products will evaporate (did evaporate?). The technology channel was born to sell hardware to the SMB markets in the ‘80s (that’s 1980’s for you millennials).  That hardware margin disappeared as the business shifted to various forms of software/hardware “bundles” and then ultimately “solutions”.  Now the channel’s  revenue source is set to shift again as there is a growing trend away from “buying systems” to “renting solutions” on a fixed fee or pay per use basis.   The emergence of the “Cloud” is credited as the catalyst for this change. While the cloud is certainly a driver, I don’t believe it’s solely responsible for the shift.  The emergence of managed services providers as a channel type has been evident for years—and I believe they will play an increasing role in the channel composition as the shift in buying preferences occur.   Let me give you just one example of how the managed services concept is extending beyond the cloud:

A client of ours was in the copier business, now they are in the copying business. What’s the difference?  Not subtle.  Instead of selling or leasing copiers, they are offering a turn-key pay-per-copy program in which the reseller (managed service provider?) now is responsible for making sure the paper is purchased and stocked, the toner is at optimum levels, and provides continual  service and maintenance at scheduled intervals.  Many of these aforementioned service actions was formally the responsibility of the owner (or leaseholder)  to initiate (e.g. buy and stock paper). But now we’re in a pay per use model, and this becomes the channel partner’s problem.  While this is certainly not an example of  SaaS software delivered via “the cloud”, it certainly is a parallel model including the quick start, low maintenance, pay per use components.  Which is why this model is going to become more commonplace.

This small shift buying behavior creates a big shift in your channel program and your partner’s business model.

The Notion of “who owns the customer” will get more convoluted.  As we are a SaaS software provider who sells through channel partners, we are facing this dilemma first hand.  We support the software, even though a channel partner made the sale.  While the channel plays a continual role in client relations, when it comes to assuring overall customer satisfaction, who is really responsible?  Well, the answer to this question is:  “it depends”.  What it depends on in our world is less important than the fact that you are going to be asking yourself this question soon enough…you better prepare for the answer. 

Subscription invoicing will become commonplace.  If companies are moving to rented solutions or pay per use models, your channel strategy will have to adapt to this recurring revenue recognition model. This means that you’ll either be invoicing the end user company directly, or you are going to have to revise your terms and pricing with your channel partners to accommodate such a model.  In any case, one bill is going to the client/end user, and every participant in the supply chain has to get their share  with each billing period.

Channel source of revenue will introduce new business models  and perhaps new capabilities.  This is evident in the example provided above. The “reseller” now has to become the “Stock boy” and “office services” too.

Distributors will play an even stronger role in multi-vendor solution coordination. This is true more or less depending upon the products you manufacturer, but someone has to put these “ready-go” bundles together, teach reseller new tricks about how to sell and support the solutions, as well as coordinate supply chain administration and marketing funds from the various vendors (if the vendors haven’t had the foresight to create a prepackaged solution among themselves.)

Gee, and I left package goods industry some 20-odd years ago because I thought the technology channels were more dynamic. Dynamic indeed!