Business models have fundamentally changed from selling and buying gear to responding to how customers consume technology and how it changes their businesses.

We are experiencing seismic changes in the tech industry driven by the convergence of SMAC (social media, mobile computing, analytics and cloud technology), the change in technology consumption, the rise of Digital Transformation (DX) and the Internet of Things (IoT). Though the industry has experienced massive disruption before, the changes underway now seem to be different. Why? One reason is that business models have fundamentally changed from selling and buying gear to responding to how customers consume technology and how it changes their businesses.

For a clearer picture of what’s happening, consider the following:

  •  Channels are consolidating: According to the 2016 CompTIA study, there has been a 30% decline in the number of partners transacting since 2008.
  • Despite this decrease, channels remain productive: 70-80 percent of IT products and services continue to be sold through channels in North America, according to a 2016 CompTIA study.
  • Channel partners face increased competition due to the convergence of partner types, including traditional solution providers and telecom agents.
  • While the number of traditional channel companies has declined, it’s been offset by the rise of influence/affiliate channel models and new partner types including marketing and digital agencies, accounting firms, private equity companies, and HR firms.
  • Amid this upheaval, traditional IT/networking solution providers are transforming their business models to accommodate for cloud, IOT, SDN and SaaS applications.

What else is driving change? The new buying paradigm led by line of business (LOB) managers for one thing. They are now in the driver’s seat and their motivations are keenly focused on business outcomes. IT in certain software applications and solutions may be an influencer, or taking a back seat in the sourcing of technology solutions. Similar paradigm shifts are also happening among infrastructure vendors who have responded by reorienting their organizations around business value, software, and not allowing their businesses to become plug-and-play commodities.

The conversation is also shifting regarding who is a vendor, who is a partner and who is a customer. Vendors may be hardware, software or services-oriented, and channel partners may be cloud providers, master agents, solution providers or some combination thereof. Vendors, service providers and solution providers are all partnering together to create additional value for end customers and to ensure long term solvency and success.

All of these trends, changing business models and buying dynamics amount to an incredible transformation happening in partner ecosystems. We must rethink how vendors and partners go to market as an ecosystem. Partners once on the fringes are now more powerful as influencers.  Often, they are becoming orchestrators of the ecosystem. With their established customer relationships and trusted advisor positions, they are diversifying their revenue streams to incorporate managed services, API innovation and integration.

As we see more and more consolidation in the traditional IT channel, we see an influx of new players centered on particular industries. For example, GE Digital is becoming a powerhouse in IoT and industrial transformation. Today, there are over 1,000 new VC-funded entrants into the IoT space. This is a space where digital transformation and IoT require a more verticalized approach and level of expertise.

So what does this mean for companies seeking to transform their current partner ecosystems to meet the challenge? TCC & Phoenix Consulting Group have recently engaged in extensive research to understand how companies are engaging with new partner ecosystems. We have interviewed partnering professionals across a “Who’s Who” in the ICT industry to glean their insights so we can better understand their actions.

Here are three trends that stand out from our conversations and research:

1.  Organizational Structures Are Evolving  Vendors are compelled to think more holistically about their different routes to market. As partners adopt a more blended business model of services, homegrown IP and recurring sales streams, vendors need to break down silos between their channels, ISVs, alliances and services business units. Companies are beginning to organize their various partner communities under a single reporting structure and framework, and a unified partner program.

2. The Meaning of Value Has Changed Partner programs need to restructure to accommodate the changing nature of value. Instead of sales volumes, they must think in terms of rewarding new definitions of value prioritized by end customers. Thinking value means reevaluating incentives. Vendors can no longer subsidize partner profitability through back end rebates or discounts.  They must instead reward skills, competency, vertical expertise, customer relationships and sustained engagement. These behaviors are the new leading indicators for partnership success.

3. Encouraging Peer-to-Peer Collaboration Since no single vendor or partner can deliver DX or IoT solutions by themselves, working together effectively has become a premium competency. Many of these solutions are custom-assembled for each customer, and the constellation of partners may be different for each opportunity. A new model of more agile, more integrated partnering is required. A partnering model dependent on trust which becomes easy to replicate—or terminate—once the work is completed..

In a very complex and changing landscape, we believe the vendors and partners who embrace the change, build partnerships for the long run, and make partnering a core tenet of their company strategy will achieve a competitive advantage that could last for years.

About the Authors:

Theresa Caragol is founder and principal consultant of Theresa Caragol Consulting, LLC, and Achieve Unite a strategic advisory firm that provides business acceleration services to global enterprises including partner and channel development, go-to-market planning, M&A channel integration and executive learning forums. She has more than 20 years’ experience in building and managing multi-million dollar indirect channel teams and strategic alliance business and programs from inception to sales success. Prior to founding TCC, Theresa held senior executive roles at Extreme Networks, Ciena and Nortel.

Norma Watenpaugh is the founding principal and CEO of Phoenix Consulting Group (www.phoenixcg.com), which provides partnering and collaboration consulting services with expertise in partnering strategy, multi-channel and alliance management, and ecosystem development. Prominent clients include Amazon.com, Adobe Systems, Cisco Systems, Dupont, Intel, PayPal, Microsoft, SAP, and Xerox. Norma is also a Board member of the Association of Strategic Alliance Professionals. She also leads the U.S. delegation to the ISO standards committee for Collaborative Business Relationship Management.