The IT channel's looming paradigm shift 29 April, 2008 By Robert Cohen

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Within the SMB market, TBAs (Trusted Business Advisors) are asked about 90 percent of the time which brands, products and solutions to purchase. About 90 percent of the time, once asked and if the purchase is to be made, the TBA's advice is accepted verbatim. Thus, in about 80 percent of IT sales to SMBs, the TBA determines which products and which brands are selected.

Still, Vendors tend to ignore this huge buying influence that TBA's have. Vendors take painstaking care to ensure the quality and success of their end-user marketing campaigns, including hiring an in-house dedicated marketing team that works with an advertising, direct marketing, public relations, and other agencies. But these same Vendors typically assign channel marketing to juniors to work with channel sales people, isolated from in-house marketing resources and external marketing specialists. Furthermore, although the marketing department technically owns the channel marketing budget, they tend to informally relinquish control to channel sales managers, multiple distributors, and to a lesser extent, TBAs. This has created an ineffective pseudo-outsourcing arrangement that is not in line with their branding strategy, goals, market share objectives or long-term sales goals. Moreover, they cannot track results.

Channel marketing is a process that Vendors go through to identify suitable channel partners and then recruit, engage, enable, motivate and reward them for recommending and/or selling their product offerings. In the $750 billion Canada and U.S. IT industry, Vendors spend $23 billion (U.S.) per year (52 percent of their marketing budget) on channel marketing and only $21 billion on end-user marketing. Furthermore, they allocate about six percent of the marketing budget to channel with 94 percent going to end-user.

Eighty percent of Vendors' sales are directly tied to the channel. They allocate 52 percent of their marketing budget here, although a large portion of this budget comes through the product or sales side of the company. However, most Vendors allow channel sales people to control the channel marketing dollars. Furthermore, these Vendors have most of their staff and contracted marketing agencies working on end-user programs.

Not surprising, most C-level Vendor executives, who have very little understanding of the value that the channel brings to them, feel like the channel means paying out margins to distributors and resellers without receiving any significant return and being forced to purchase very expensive channel marketing programs that don't work. It is no wonder they cut channel marketing dollars at the first sign of budget cutbacks. If only they knew & that this will also take away 80 percent of their sales.

The North American IT Channel Marketing Landscape

Like many industries, the bulk of computers and related products are sold through a channel, whereby the manufacturer sells their wares to channel members who in turn sell them to end users. However, the computer industry has its own unique set of problems. The industry is beset with proprietary technologies, conflicting operating systems, far too many SKUs, rapid product obsolescence, unsatisfied customers, low margins and a growing shortage of qualified people who can sell, service, educate and support the growing end-user demands for business solutions.

A significant part of the challenge is finding a way to bridge the gap between a channel that consists of techies who are expected to be marketing and salespeople. Despite the challenges, the IT channel continues to grow its annual sales into the business community.

The Mass Market: Under 10 Seats

Most of these companies are owner-managed, who look at technology as a necessary evil. They tend to purchase products from the mass retail outlets or online stores and then look for family or friends to help them set-up and maintain their computers. Their product solution process is closely tied in with lowest price.

The Elusive SMB Market: 10 - 500 Seats

They have much smaller IT budgets, so they lack the buying power of that their larger counterparts. As such, they represent a large market place that allows for higher margins. This has resulted in a strong focus by Vendors in this SMB marketplace, which has led to a strong push by Vendors to create SMB solutions. Typically, these SMBs don't have a true IT department. They purchase about 80 percent of all products through TBAs. They trust their TBAs and have very strong relations with them. When they ask their TBA what products/brands they should purchase, 90 percent of the time they accept their suggestions verbatim.

Currently considered the most difficult to reach, yet most lucrative segment of the IT marketplace, every Vendor is trying to find the golden key that will unlock the doors.

The Forgotten Mid-Market: 501 - 1,000 Seats

Most of these companies have an in-house IT Team that focuses on: customer support (users within company); break-fix; upgrades; installs; data protection; security; hardware purchases; compatibility; training; etc. However, the CIOs are overworked, understaffed and being pushed to show contribution/justification for purchases via ROI (IT as a business tool). Technology as a showcase is gone. Although on average they have a $45 million IT budget, only about 20 percent of their purchases go though TBAs. They look for TBAs who have a specific skill set/knowledge from other clients with whom they've worked. Most are more interested in keeping existing technology working then in finding and implementing new solutions. They tend to be too big to use TBAs and too small to attract the attention of the big Vendors.

The Portfolio Enterprise Market: Over 1,000 Seats

With average annual IT budgets of close to $400 million, the "enterprise" market has traditionally been the bright spot in the marketplace. However, with the new focus on accountability, solutions and ROI, enterprise CIOs tend to work directly with Vendors and negotiate price, service, etc. leveraging their brand name that Vendors still want to show in their portfolios.

The Paradigm Shift

Traditional Method: Most channel marketing programs are not in line with what TBAs require. Vendors promise high margins but do not protect prices at the street level. They promise leads but the leads are not qualified and they do not take the time and effort to provide TBAs with the necessary product and sales training. They offer marketing tools but the TBAs do not use them as they don't trust the Vendors and are afraid to let the Vendors near their databases.

The New Model: Vendors sell products. SMBs want to purchase solutions specific to their business. TBAs are not the sales people, but rather, they provide the conduit. They help remove the FUD factor (fear, uncertainty and doubt) from SMBs by assisting in the determination of what solutions are available, sourcing the necessary products, configuring and integrating these products, training staff on how to use the solutions, providing on-going service and support and acting as an on-going trusted business advisors to SMBs. Simply put, they bring together the various products and make them work harmoniously as a solution for the SMB. Then, they stay around to assist with problems and updates.

The North American IT industry's go-to-market model is inefficient and ineffective. It is based on a flawed strategy whereby Vendors rely on technology focused TBAs to act as their sales team. Most TBAs lack the business knowledge and selling skills necessary for survival. Meanwhile, Vendors ignore the core problem and continue to train them on their technology.

For the channel to survive and thrive, it needs to change. The paradigm shift is already starting as Vendors are pushing their marketing and sales people to show measurable ROI on channel marketing expenditures. Distributors are cutting services in order to turn positive net profits. TBAs are leaving the industry in record numbers as they cannot survive on the margins they are earning, and do not understand how to change their business model. The change, coupled with declining profits and mixed go-to-market messages, has created a state of distrust within an industry that is out of control.

The TBA's Role In The New Paradigm: In the new paradigm, the industry's human resources need to be realigned so that strengths are being leveraged and weaknesses are being complemented. Integrated mar.com and the ChannelLine Advisory Council have assumed the leadership roles in this area, educating the industry on the basic notions of what TBAs are capable of doing extremely well, and where their shortcomings are. Integrated mar.com has then gone one step further by building tools and providing education for TBAs that will help compliment these shortcomings.

TBAs' Strengths: Deploying technology. Developing long-term relationships with their customers. Passion for problem solving. Hard working. Locally based. Accessible to clients. Solution focused.

TBAs' Weaknesses: Obtaining new customers. Selling new product categories. Acting as extension to Vendors' sales forces. Loyal to providing technology solutions, regardless of Vendors' requirements or their own business requirements. Business skills.

As Vendors are looking more and more downstream into the SMB marketplace for sales, they are quickly realizing that it is a daunting task to reach, sell solutions to, service and support these businesses without the assistance of the TBA community.

ChannelLine Advisory Council

For 2008, the Council has five task forces:

i) "Trusted Business Advisor Program": consisting of Channel Business Education, Channel Seal and Channel Business Certification as well as developing course material and launch a weekly eNewsletter and quarterly print publication focusing on the Business Aspects of being a VAR.

ii) Channel Advocacy and VAR Locator.

iii) Channel 2.0 - Communities. Industry focused, organically grown, the Council will provide: infrastructure, rules of engagement, content, audiences, management and promotion. Overall content and direction will be driven by the participants of the Community. In Q2 08, three Communities, Channel Business, Data and Software will be launched, with Telephony, Hardware and Mid-Market & Enterprise launched Q4 08.

iv) IT Biz: In conjunction with the American Chamber of Commerce, Canadian and US Consulates and several other alliance partners, a multiple of educational vehicles will be created to help Vendors to successfully do IT business In North America.

v) Channel Collaboration: Education, vehicles and tools designed to assist Vendors and VARs work better together, including: Channel Sales Cycle Workshops and the W3 Channel Enablement Program that will be supported by a $4 million advertising program.

If you want to get involved with the ChannelLine Advisory Council, please contact Sharon Ashfield at sashfield@integratedmar.com or by phone at (506) 854-2188

Robert Cohen, a passionate and enthusiastic channel advocate, is the founder of the ChannelLine Advisory Council as well as president and business editor of Integrated mar.com, publishers of Channel Advisor, eChannelLine and ConnectIT. Since 1980 he has worked with 300 IT Vendors, distributors and resellers in developing and implementing strategic go-to-market programs, using a variety of direct, channel and hybrid models. Robert at 1-800-465-2059 or by e-mail @ rcohen@integratedmar.com.