In the channel ecosystem the phrase “Channel Only” means a great deal to managed services providers and solution providers because it ensures conflict free partnership with vendors.
But is “Channel Only” all that it is cracked up to be? One senior level executive believes channel partners are either unaware or do not have all the information on the consequences of the “Channel Only” go-to-market tactic leaving these organizations at risk.
“Channel only is being marketed by many vendors as an utopian model. But, it’s important to note there is a hidden downside to it. Channel healthy is more of a framework that goes beyond channel only and it enables MSPs to set their own pricing and margins and regain control of their business,” Eran Farajun, Asigra’s EVP, said.
Another important aspect of the channel healthy approach is that it will insulate the MSP’s customers from vendors. “The vendors can never know who your customers are because the MSP controls the communication,” he added.
The Channel-Only model originated approximately after 2010 as solution providers and MSPs moved on mass away from sell once/collect once deals to monthly recurring revenue models. With this shift, many channel partners started looking for vendors who could deliver as-a-service solutions to build up their MRR portfolio quickly. Many of these channel partners turned themselves into cloud brokers to avoid the cashflow crunch.
Farajun suggests looking back at the old reselling model where channel partners acquired products from a distributor, put some margin on top and then provided value-add professional services to customers.
“In the old reseller business model, if EMC, HP, Microsoft or IBM asked you to reveal your customer list to them you would have said they were ‘freaking crazy’. But in the channel only model, vendors have complete access to customers because it’s in their legal agreement,” he said.
Most MSPs decide to live with the consequences, but the real downfall is when a vendor usurps an MSP’s position with the customer and directly markets or communicates to them on a new product release. This essentially undermines and dilutes the strength of the relationship between the partner and the customer.
“This creates a lot of friction; especially if that MSP is not authorized to sell that new product, or has already positioned an alternative solution” Farajun said.
Another benefit of Channel Healthy is the quality of the monthly recurring revenue generated by the MSP. Since the partner has insulated itself from the vendor the customer contract cannot be easily moved by a vendor to another broker.
According to Farajun, when a channel partner is ready to sell his or her business there is more certainty in the “channel healthy model” that these customers will remain with the new owner, as compared to the “channel only model” which increases the value of the MSP’s business.
As cloud services such as office productivity suites, storage, remote monitoring services and others become commoditized, the Channel Healthy model protects MSPs better by giving more control over pricing, margins, communications, and a higher business value.
Farajun suggests that MSPs begin to look at solutions in a “channel healthy” way and begin to cross over. Eventually these partners will find the right mix for their business if its 50/50 or 80/20.
“If you are a cloud service broker and you are doing more than 90 per cent in the initial channel-only way, then start to look at services that are easier to move over to ‘Channel Healthy’ first such as monitoring, back-up, networking and VoIP. Those are the easy ones. At some point there will be an inflection point and you’ll flip and start to control more of your own business and increase your own business value instead of increasing the value of your supplier vendor,” he said.