While vendors are exploring new routes to market, the traditional role of the reseller still exists in the modern channel with hardware not going away, although its role is diminishing in a cloud and digitally driven world.
“Vendors still have VARs that do what they used to do,” Eckstein added. “But the new channel emerging is a mash-up and amalgamation of older partners transforming into managed service providers.
“There’s cloud service providers also, along with ISVs. ISVs can be both a partner and a customer at the same time which is a different dynamic for the channel.
“They can consume technology but they are building applications on it, and then they sell their apps to the customer at the same time.”
As partners adjust to the new demands of the market, vendors are also facing challenges in response to the rise of SaaS-based technologies.
“Traditional vendors are taking on-premise licences and breaking it up over a 36-month period to make it look like a SaaS product,” Eckstein said.
“They are losing deals because new vendors are coming in from the bottom up with real subscription solutions at a much lower price.
“As a result, the larger, more traditional vendors haven’t been able to move fast enough which means the only thing they can do is put a new coat of paint on an old piece of software and say that it’s subscription just so they don’t lose the deal.”
According to Eckstein, the conventional software powerhouses such as Oracle, IBM and SAP have been “caught out” because some of the emerging SaaS-based vendors have emerged quicker than expected.
“So, their defensive move is to SaaSify their product line but it’s the same thing just with a different price, it’s purely a blocking move,” he explained.
To compete effectively with this new breed of vendor, IT giants are investing heavily in persuading current channels to adapt.
“They know it’s faster than recruiting a whole new channel,” Eckstein said. “So, the market
has moved on from opening your mind and changing to if you don’t transform this year, you’ll be in deep trouble by 2018.”
In examining the market, Eckstein believes the wave of SaaSification impacting the industry will continue beyond 2020, until the dust settles on this new paradigm of IT consumption and the commercial models associated.
A mandate for change
During the past 18 months, the industry has been flooded with mergers and acquisition activity, as the leaders of the past invest in guaranteeing relevance in the coming years.
Because despite all the talk of consolidation at the traditional end of town, the number of vendor-based cloud companies is growing today.
Telecom providers, thousands of SaaS ISVs, and public cloud behemoths such as Amazon Web Services (AWS), among others, count among the ranks.
“For the channel, this voluminous market is expanding opportunity for vendor management,” Herbert said.
“While seemingly obvious, a vendor manager acts as liaison between end customers and cloud- based vendors/service providers.
“The indirect channel is accustomed to this role, but today the task holds new meaning as customers navigate potential travails of the cloud world.”
According to Herbert, case in point is that many SMB clients provision cloud solutions on their own.
But when things go wrong with a specific SaaS application or uptime performance is spotty, for example, these self-procured cloud solutions can be a headache.
“And many SMBs have no idea whom to call, nor, frankly, the time or patience for finding out,” Herbert said.
“That’s where the channel, and MSPs, are finding ways to provide value, solving a crisis for clients and managing vendor relationships. It’s the one way channel firms can cement relevancy in the era of cloud.”
As demands change, Herbert said channel firms are becoming more fussy when it comes to partner program tastes.
“What they once valued as essential from a vendor benefit standpoint is less relevant in today’s services-based market,” he said.
“Especially among partners heavily invested in consulting work and services, traditional incentives such as sales spiffs, upfront discounts and back-end rebates are not what endears them to any one vendor over another.
“Indeed, while vendor-provided margin once accounted for a majority of their revenue, channel companies today credit their own sales and marketing activities for driving the bulk of sales.
"What does this mean for vendors? Time to revamp partner programs.”