The majority of IT spending will go via partners, but it is never as simple as that and proceedings will need to be handled right for a more opportunistic future
Canalys has predicted the total addressable IT market will grow 3.5% this year, with the good news that 70% of it will be delivered by the channel, with growth coming from continuing interest in digital transformation, moving to the cloud and securing data.
“The long-term technology mega-trends will continue to drive growth opportunities for both vendors and channel partners in 2023,” said Matthew Ball, chief analyst at Canalys.
But the research begs certain questions. Has the channel reached the peak for its share of the addressable market or is there an opportunity to gain even more? What is the optimum share for vendors and the channel? Are they in agreement or is there always likely to be some tension between the two?
David Watts, senior vice-president and regional managing director of UK and Ireland for TD Synnex, expects a higher proportion than 70% to be delivered by the channel. “We’ve seen vendors moving more towards partners as their preferred route to market and I’d expect that to continue as the industry and the channel itself matures,” he says.
He argues that vendors, distributors and reseller partners – and the many other forms of businesses that constitute the channel (aggregators, ISVs, MSPs, systems integrators and so on) – are increasingly on the same page. “We agree that, in most scenarios, a mix of skills and capabilities that no single organisation possesses is required to deliver the best solution to the user,” he says.
Watts adds that all parts of the chain are finding ways “to work and collaborate together more efficiently and effectively, with the ultimate goal of delivering the solutions that best meet the needs of, and result in great outcomes for, the customer”.
And with 99% of enterprises being small and medium-sized enterprises (SMEs), and most of those microbusinesses made up of fewer than 10 people, “vendors simply cannot reach all of that market”, he says. “Distributors play a vital role in providing the automation, processes and efficiencies that make it possible for reseller partners to meet the myriad variations in requirements of the SME market.”
Aligning values
Dan Webb, vice-president of global channel sales and alliances at Expel, believes there is an opportunity for partners and vendors to gain more market share, as the total addressable market is growing.
“[But agreement] depends on alignment,” he says. “Partners and vendors that share the same values and ultimately want the best outcomes for their customers will tend to agree on how to achieve those outcomes. Even if there’s some disagreement in exactly how it gets done, shared goals and a desire for mutually beneficial results should help partners and vendors stay aligned on how to address the cyber security needs of their customers.”
“Partners and vendors that share the same values and ultimately want the best outcomes for their customers will tend to agree on how to achieve those outcomes”
Dan Webb, Expel
Gert-Jan Wijman, Celigo EMEA vice-president, agrees with Watts that the channel’s market share hasn’t peaked. “Many companies – including our own – are actively recruiting new partners and expanding the channel,” he says. With many customers facing stiff competition for IT talent, “it’s simply not feasible for them to build all the solutions they need in-house, which creates a demand for the variety of options the channel provides”.
Is there an optimum balance to be found? “There’s no definitive answer for finding the right balance between vendors and channel players, as each region has different needs,” says Wijman, adding that the channel typically plays a larger role in smaller markets, “offering a boots-on-the-ground, nuanced level of expertise that vendors simply can’t afford to deliver outside of their core regions”.
“In larger markets, where vendors can sell direct, the channel takes on a different role, offering vertical-specific insight or providing an additional level of consultancy around the integration of multiple solutions,” he adds.
Francis O’Haire, group chief technology officer (CTO) at DataSolutions, is another person who believes the addressable market for the channel could grow further. “I don’t believe the channel has reached any peak in its addressable market since businesses have become more reliant on IT than ever before,” he says, citing factors such as the acceleration in digital transformation from the pandemic.
Joseph Landes, co-founder and chief revenue officer (CRO) at Nerdio, agrees that the channel has not reached its peak addressable market. “There is always a balance to be had between the share vendors would like to see the channel serve and the share the channel would like to see,” he says. “There isn’t an optimal number. The key to success lies not in achieving a fixed share, but rather in being able to adapt and capitalise on the opportunities that the rise in marketplaces brings.”
Simon Pearce, EMEA and APAC vice-president of sales at Netwrix, notes: “For value-added partners, we see virtually more than 90% of deals within the EMEA region going through them. [It’s different in the enterprise sector], where the share of channel-driven deals is lower since these customers prefer to have a direct relationship with the vendor.”
Greg Jones, EMEA vice-president of business development at Kaseya, believes that whether the channel has reached its peak share or can gain more depends on several factors. “Key considerations include the pace of technological advancements, the evolving needs of customers, and the ability of channel partners to adapt and expand their offerings,” he says.
“The main growth opportunity is upsell and cross-sell. We don’t always need a bigger addressable market. It is always cheaper to grow and do more business with your existing clients,” adds Jones.
Carlos Morales, senior vice-president of solutions at Vercara, has an interesting perspective. “The fact that channel partners are now driving around 70% of the total IT market spend speaks volumes of the maturation and differentiation that the channel partner community has been able to build over the past decade,” he says. “With the breadth of technologies and deployment models required, and the need for specialised skillsets and experience, channel partners have become a critical part of delivering cohesive solutions and services to users.”
But he’s not sure there’s room for much more growth in the addressable market share, arguing that 70-75% of market share “represents a fairly optimal mix of channel versus direct vendor business, therefore, the channel share is unlikely to grow much more than it has already”.
He claims that larger, well-staffed enterprises, particularly in financial services, service providers and technology, will continue to work directly with vendors. “[This is] to get access to top technology expertise and development resources. These heavy-hitters will account for 25-30% of the overall IT spend, so the ratio should stabilise,” he adds.
Dale Smith, EMEA and LatAm channel director at Juniper Networks, takes the opposite view. “[There is] massive potential for channel partners to continue gaining opportunities to win more addressable market share within the IT market, despite already owning the reported 70% of the delivery,” he says.
And with the emergence of channel ecosystems, “vendors, as well as other partners, are relying on cooperation with partner peers to successfully meet customer needs”, says Smith, adding: “This means that because partners are now also collaborating with each other as well as vendors, there is the opportunity for further growth as more businesses are working together to form a strong, thriving ecosystem.”
N-able CEO John Pagliuca’s response to the question of whether the channel has reached its limit when it comes to the addressable market is unequivocal. “Not by a long stretch,” he says. “I believe there’s a clear opportunity for the channel to gain even more share, but it will be the channel partners who are on their toes, as opposed to their heels, who are going to succeed.”
He echoes Pearce’s view that growth doesn’t always come with selling to new customers or new verticals: “It will come with being smarter, and offering technology and services that are truly integrated.”
Christopher Bray, senior vice-president of partner and e-commerce sales at Sectigo, is just as blunt. “Not in the least bit,” he says. “I think a company in our space can only scale so far on their own, and I’m certain our focus on expanding our channel ecosystem will drive strong growth and scale.”
“It will be the channel partners who are on their toes, as opposed to their heels, who are going to succeed”
John Pagliuca, N-able
Like many others, he is reluctant to try to define what the optimum balance would be in terms of share. “The optimum is a strong symbiotic relationship where the partnership is greater than the sum of its parts,” says Bray. “Both sides are engaged and driving the business forward, and both are driving new opportunities fulfilled by the channel, and the vendor has programmes and support infrastructure to set its channel partners up for success.”
Juniper Networks’ Smith is also not going to be tied down to a figure. “In terms of growth and partnership, the optimum situation for vendors and partners is to be able to create equilibrium in the relationship to enable success and growth for both parties, working as a team to deliver on shared goals,” he says.
“Often, this means a ‘give-and-take’ relationship that enables the partner to get what they need to meet customer needs and continue a growth trajectory while also championing success which benefits the vendor. Vendor/partner relationships cannot work unless there is an exchange of trust, feedback, skills and knowledge.”
Navigating tension
Of course, owning such a large share of the addressable market and, possibly, being able to increase that share has the potential to create tension between vendors and channel partners. After all, it’s not as if friction is anything new when it comes to the relationship between vendors and channel companies.
As O’Haire points out: “In my experience, there will always be some tension within the channel with those vendors who see the channel as a necessary evil and eating into their margins.” Partners have all seen that before from short-sighted vendors that “don’t see that, with the channel ultimately expanding their reach, they may get a slightly smaller slice, but it will be of a potentially much larger pie”.
N-able’s Pagliuca sees it as a normal part of everyday business life. “There will always be tension in any business arrangement, that’s perfectly natural,” he says. “The key is making sure it’s a healthy tension, rather than an unhealthy one. In fact, healthy tension drives better results.”
That relies on a healthy relationship that has accountability and transparency at its core, says Pagliuca: “Accountability means that everyone knows what their role is, and transparency ensures that everyone shares a common goal. Without these, you have unhealthy tension, what I would call pressure. This pressure leads to poor results.”
Celigo’s Wijman highlights one of the most common causes of friction. “The likelihood that tensions will emerge depends on whether the vendor has a competing direct and channel business,” he says. “Those that do not will have less tension than those that have competing operations.”
This is hardly surprising, but it’s also not uncommon for vendors to have some direct presence – the secret to making it work is to ensure any potential cause of friction is contained.
As Netwrix’s Pearce notes: “Vendors and channel partners serve customers more effectively when they work as a team and involve each other in their interactions with the customers.” Like Pagliuca, he points to trust as an important element of any relationship. “A trusting relationship between vendors and partners that focuses on meeting and exceeding customer expectations ensures a mutually beneficial collaboration,” he adds.
Jonathan Wright, director of products and operations at GCX, outlines what is required to achieve a perfect ecosystem between vendors and channel partners: stability in terms of programmes, products, pricing, channel value-add and customer needs.
“However, with increasing innovation and disruptive technologies, the market is more volatile than ever,” he warns. “Therefore, both vendors and channels need to be flexible and adaptable to grow and succeed together. This is not always easy to achieve.”
Sectigo’s Bray makes the not entirely unexpected comparison of the vendor and channel relationship with a marriage. “I’ve always said any strong partnership is like a marriage,” he says. “It takes work. Everyone won’t always agree, but if there is a strong foundation of trust and commitment to the partnership, challenges will be overcome and both partners will be successful.”
Without the effort, the conclusion is that the relationship will still follow the marriage analogy and ultimately result in separation.
