And The Numbers Are In

Earlier this year, I shared the partner business model transformation paradigm highlighting Vintage, Progressive and Transformative business models. Transformative business models are typically those where hosting, managed or cloud services account for more than 50 percent of the company’s annual revenue. In a word, managed or cloud services are the core of their business.

The majority of U.S. solution providers will transform to the Progressive business model. UBM Channel’s research most recently tracked the Progressive business model, where some company revenues were recognized in a recurring revenue fashion, to roughly 70 percent of the U.S. partner population.

Even when a partner chooses to acquire another company for its recurring revenue expertise, the newly acquired company’s revenue may account for 10 percent of the solution provider’s annual revenue. For that reason, we targeted 5 percent as an indicator that a recurring revenue business had been established beyond a pilot “check the box, I offer cloud” effort. We were reluctant to set the bar at 10 percent of company revenue, requiring aggressive growth or company acquisition to indicate transformation. Clearly, however, acquisition is the fastest transformation path.

If 70 percent of U.S. solution providers are Progressive and generate some recurring revenue, and 55 percent of them demonstrate more than 5 percent of company revenue in a recurring fashion, we have a significant number of Progressive partners making meaningful progress toward building new managed or cloud service offerings and practices. You know better that with a lower price point and total cost of ownership, it takes time to build that recurring revenue base from zero. This year’s research also reinforced the pattern that those who have been successful and gained momentum tend to stick to the knitting, which is to say, their early forays into managed or cloud services leveraged their core competencies and company offerings.

Server, storage and systems management software solution providers tend to enter the world of recurring revenue with backup -- disaster recovery, help desk, managed desktops and servers. Telephony VARs offer voice and data service management, expanding to VoIP-driven unified communications, or even a managed PBX. A peripherals VAR with print capability would typically add managed print. A Microsoft Exchange and SharePoint integrator usually hosts Exchange and SharePoint or sells the Online Services Microsoft hosted version of the same products, not unlike Microsoft Dynamics, Oracle and SAP integrators opting to add the self-hosted or vendor-hosted SaaS offering.

The second round of a partner adding capabilities to the line card expands beyond the immediate core competencies. The next set of offerings might then involve an acquisition, for example, an IT MSP might buy telephony capability through acquisition of a small carrier service provider agent or telephony VAR. Now we’re talking game-changers’ ability to leverage IT and carrier service offerings, sell sophisticated unified communications offerings, cross-sell IT and telephony capabilities into two distinct customer install bases. Think of the opportunities!

BACKTALK: Contact SVP, IPED MarketBridge Alliance Rauline Ochs via e-mail at [email protected].