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Change ahead!
It has been 2 weeks since my last blog, and it has a reason. I started a book called “Consumption Economics” by J.B. Wood, Todd Hewlin and Thomas Lah, and it has changed the way I look the future for the IT industry. Every thing we have experienced up to now will change looking forward.
The new IT consumption model, that some people call “utility consumption model”, is a result of the big inefficiency we have in this industry. In summary, there are 3 aspects that has driven it: excessive number features, infinite combinations of a IT solution, and upfront payment. Those 3 aspects combined with the industry maturity have produced a big waste of time and money, and consequently have forced the entire industry to change.
Let me start with the upfront payment. The vast majority of the IT vendors have offered their products (hardware and software) and collect the payment before the customers get the value of it. In average, customers pay around 60% of the solution cost in the first year, and 40% on the following 4 years when they will get the return (or value) for their businesses. Compare this model to your personal bills, such as telephone, cable TV, Internet etc. The majority of of your cost are paid on monthly or per use basis. You might conclude that the model may not be sustainable.
The second aspect is the excessive number features. For the past 3 decades, IT vendors have innovated by increasing the number of features to their products, what has been excellent for the evolution of the industry. It has attracted lots of investments, and as consequence the growth/progress has been fast. In contrast to it, end-users have paid for the innovation but have NOT used all the features, and worse, they have NOT transformed them all in value to their businesses. I am not saying the features are not useful, but that the end-users don’t use either because they don’t know how to do, or due to lack of resource/time to implement them.
Infinite combinations for IT solutions is the third aspect. There aren’t two end-users in the world with the same IT solution. When you think that an IT solution has 3 layers – Infrastructure, Platform, and Application – and for each of them there are not only several vendors, but each vendor has several options, then it is clear that it is impossible to have 2 end-users with the same stack of solution. It is as each implementation is a hand-made job, no optimization can be done. Can you imagine the amount of resource in people and money to put all combinations to work?
Undoubtedly, IT industry will grow in the next decades because there are still a lot of adoption to happen as well as potential productivity increase to be enabled by IT solutions. The question is “Can the IT industry grow despite the existing inefficiency?”. Probably not. Based on those aspects described above, it looks like the innovation investment will move from product (hardware and software) R&D to new business processes to enable “pay-per-use” model.
The change of the business model will impact how vendors, channels, and end-users play as protagonists of the IT supply chain. Can you visualize how it will change?
If you agree or not with me, please let me know your opinion about the change ahead. If you are not in the IT industry, please contrast your reality to ours.
Channel Readiness, Utopia?
Is the vendors’ dream of having prepared channels utopia? Vendors have invested millions in channel practice development every year. They have invested in training, certifications, policies, etc, to make their channels more capable in their technologies. Channels, on the other hand, have also invested millions in training, people, and time, but the question is: why aren’t they ready? Why have vendors and end users pushed channels to improve?
Readiness and enablement words are frequently used to define capacity and actions to develop the channels. Both words are not precise, therefore they drive all of us to intangible expectations. Even when vendors have certification targets, it is extremely complicated to measure the channel capacity/capability because they just consider a fixed number of people certified. The subjective way to measure the channel capacity and capability, plus the 3 aspects that I will describe below make me wonder if channel readiness is utopia or not.
The first aspect against the channel readiness is the nature of the IT industry. It has been a nature of pure innovation, as any industry in the “early” stages of its life. In the past 20 years, the speed of the innovation has outpaced the channels’ ability to learn the new technologies and products. It is true that the innovation speed slowed down in the past years, and as consequence the channels had the chance to catch up with the technology. However, recently, vendors started to market the concept of architectures, which is a combination of solutions, and the pressure on channel came back again. It increased the complexity and costs of practice development significantly.
The second aspect comes from vendors’ expectations. They have expected that channels should be as knowledgeable as they are about their “own” products. Is it reasonable? Most of vendors with their products on the early stages of “product life-cycle theory” (developed by Raymond Vernon) have developed the channels to provide post sales services because they focused their investment on R&D and Sales as the technological adoption speed was more important than the efficiency or the cost of sales. Therefore, channels became experts in installation and maintenance support. The symbiosis was doing great, and the gap between vendor expectation and channel readiness was shrinking. Then, as any other industry, the IT industry started to mature, the margins started to drop, and then the pressure on vendors to lower their cost came to the main stage. The vendors looked at the channels as a way to lower the sales costs by transfer the execution, not only the post sales services, but also pre-sales, demand generation, and sales activities. In summary, vendors who had to develop the channels on just one dimension, post-sales services, now they have to train channels in 3 additional dimensions: sales, pre-sales, and marketing. The new situation brought additional complexity and investment from both sides, again.
The third aspect comes from the end user expectation, actually, 2 expectations. The first one is pretty much aligned with the vendor expectation, in which the channels should be as specialized as the vendors are on their products, what we already agreed that is really hard. The second is in the opposite side of the first, in which end users expect the channels to integrate the full solution. Full solution means that the channels have to be trained not only on one but several vendors. Again, it brings additional cost and complexity to the channels. To make the scenario worse, vendors compete for channels’ finite investment, and then channels end up dividing their scarce training budget within vendors. In addition, end users don’t reward channels for full solution integration with the same proportion of the investment requirement to deliver it.
Although the 3 aspects sound depressing, the channel chain has grown and continue investing in developing their capacity and capability. The channels have paced their development investment in a par with their margin evolution, this way the return on investment has been satisfactory. Besides, by allowing channels to lead the sales, vendors not only lower their costs, but also let the channels the chance to position their value as systems integrators to end users. In summary, I don’t believe that channel readiness is utopia. Based on what you just read, it is a matter of expectation and investment cadence.
I guess the message here goes to the vendors and end users to review the expectations, investments, and rewards directed to channels because as the IT industry becomes more mature then more integration will be needed, and if the utility consumption model takes off, then the channels will have a prominent figure on the chain. The Industry will need stronger and better prepared channels, so take care of them.
If you agree or not with me, please let me know your opinion about how the symbiosis between vendors and channels will change. If you are not in the IT industry, please contrast your reality to ours.
Vendors and Channels Symbiosis
After 20 years of experience in selling IT hardware and Services, majority through channels, I decided to share with you a bit of this experience. This blog was baptized as “Channel Conscientia”. Conscientia in Latin means knowledge, however the idea is to create another vehicle to debate concepts, experiences, trends, and questions about the future of the IT Channel, primarily focused on business-to-business (B2B).
It is the inaugural article of this blog, and the theme is the symbiosis between vendors and channels to serve customers (B2B). In 1879, a German mycologist Heinrich Anton de Bary, defined symbiosis as “the living together of unlike organisms”, and this describes my vision of the relationship between vendors and channels. The nature of the IT industry forced the model to evolve beyond the traditional and theoretical sales-cost-saving-through-channel model to a stage where vendors and channels share investments and risks. During the past 2 decades, the industry vendors have invested in Research and Development (R&D) for product (hardware and software) innovation, while channels have invested in sales, market coverage, and service capability.
The synergy and dependency between the two grew so much that there are several examples where vendors depend on very few channels and channels concentrate their revenue on few or, sometimes, one vendor. The mutual dependency generates lots of trust and focus from both sides. Regardless the cause of the mutual dependency, the consequence is a positive spiral where both sides trust each other, generating more investments and initiatives together, especially in growing markets or technologies.
This could be the perfect world, couldn’t it? But it is not. There is someone missing in this equation: the customer, who pays for the solutions.
The customers have dreamed about “one-stop-shopping”, which means that they want to buy the full solution from one single entity. It is against the “perfect world” described above. Customers are used to deal with several specialized channels to compose the final solution. In addition to the technology complexity, dealing with several channels adds another layer of complexity, and cost. Nowadays, customers are looking for channels that can integrate several solutions. Moreover, the utility model described by Nicholas Carr in his book “Big Switch” is accelerating this search. The utility model is the new IT consumption model, where customers will pay for IT services as they use, like electricity.
Very few channels can provide a full solution to a customer because very few channels have the characteristics needed to offer a full IT solution, which I consider a great opportunity for channels to start investing in this direction. One of the companies who can provide a full solution today is IBM and the recent Cemex BPO deal announced in July 2012 is a good example.
In closing, I consider the current symbiotic relationship between vendors and channels fascinating, and it should be a subject for studies, however it seems to be in check. The IT industry will suffer a big change in the next 10 years, especially due to the new “utility” model. All “organisms” of this ecosystem, i.e. vendors, channels, and customers, will have to evolve to a different stage and, of course, the relationship between them will also have to change. Some logic predictions could be customers rewarding more the multi-solution channels, Channels developing their capacity to offer multi-solution and managed services, and vendors learning to deal with multi-solution channels.
In summary, it doesn’t matter if my predictions will be right or wrong , but there is one thing will happen for sure: the change. Are you ready?
If you agree or not with me, please let me know your opinion about how the symbiosis between vendors and channels will change. If you are not in the IT industry, please contrast your reality to ours.
Channel Conscientia 