Look Ahead: The VAR Of The Future

From deep specializations to new sales models, the solution provider of the future is going to look very different than it did 10 years ago as the industry shifts to more of a services model.

The change is being felt all the way up to the top channel chiefs at major vendors. At XChange 2014 in San Antonio in August, CRN sat down for a roundtable discussion with top vendor channel chiefs to get their thoughts on the evolution of the channel.

The roundtable included Tami Duncan, vice president, North America channels at IBM; Stephen DiFranco, Enterprise Group channels vice president at Hewlett-Packard; Will Knight, vice president of channel partner sales at Rackspace; Frank Vitagliano, vice president, channel sales at Dell; and Bruce Klein, senior vice president, Worldwide Partner Organization at Cisco Systems.

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[Roundtable Video: Who Are the New Partners?]

Here’s what these industry-leading channel chiefs had to say about the future of the channel.

CRN: One of the things that we see as you talk about the evolution of the channel is that more partners are becoming specialized in specific markets. Talk about how the VAR of the future is going to be structured, how critical is this verticalization, and are you guys driving that?

Tami Duncan: I think a client would say it's critically important. It's such a personal decision by a VAR and so what we're having in those conversations with the VARs is, what's your geographic reach, what are your overall business goals, what is a reasonable point of adjacency for you to jump out of your comfort zone into the next thing? Because one of the things that's very important to us is we have to have healthy partners and so we're careful not to push too hard but, once they show a desire to go into a particular area, then we'll connect them with our industry experts. We'll line them up with the software solutions, software industry frameworks.

Health care's been one that's been particularly successful, but we're also very sensitive to looking at what are the realities for that partner? What can they really do -- are they willing to buy an analytics firm to get into analytics because, when you look at their demographic makeup today, they wouldn't be able to do it. They'd probably put themselves out of business with what they have so we want to have very fair, honest conversations to make sure that we keep them healthy.

Stephen DiFranco: So you like to talk about verticals, everybody gets excited about that word, they're basically building a practice. So if you go through the funnel, the logic stream is the following: I can't be everything to everybody. IT is forcing me to understand how workloads function. I have to understand the workload and how it functions, that workload is probably existing within a certain industry. ... So what's going to happen inevitably is I'm not going to be able to do 10 or 15 of those. I probably can only do one or two, and what's going to happen is everybody will see me as a health-care VAR, or a big data VAR. Now some companies probably can do more than one or two but most of them probably can't and, therefore, within a few years what you'll see is a lot more of this specialization.

But all it does is get back to this same issue, which is I have to get so good at something that I can lead with consult and, therefore, I make money at it and charge for it, so I have to be pretty good at it. So that's software-defined networking, certain medical ISVs, big data, security, cloud, whatever it is it appears that the economics are telling us that VARs are going to have to focus on few of those and go very deep, which is a lot different than what we've had for 25 years, which is a relatively horizontal data center VAR.

Will Knight: Where we're seeing success is definitely where people are building around core solutions. ... The sales process is getting more complex; it's harder to get the right people to do that solution and services sell. Let's speak about the complexity. Many times we'll go in around the digital solution around content or commerce and if you go into a CMO and start talking about infrastructure, forget about it. If you start talking about abandonment rate in their cart because the transaction took a 10th of a second longer than it should've taken, then that's an interesting, compelling discussion to the CMO and they want to understand more. I think that’s a very different conversation than an infrastructure conversation. They're less concerned about where it is and they're more concerned about performance around that application.

Next: How Far Along Is The Channel In This Evolution To A Services-Based Model?

Frank Vitagliano: The other reason, if you think about it and you believe that the decisions at the end-user level are being made more in the lines of business than just a centralized IT or centralized CFO area, to be able to have those discussions with the lines of business, a VAR needs to have a level of expertise with that kind of business and it becomes a different set of discussions that they're having. ... So there is no question that it's migrating to health-care focus, financial focus, things like that, and they are becoming more and more experts at it and are going to have to become more and more expert at it.

Bruce Klein: This is what we're working on, developing the connected ecosystem because that VAR is not necessarily going to be a manufacturing consultant, a health-care consultant, a financial services consultant. ... They need someone that really understands the technology, the network technology, the systems technology, the software technology, which is their domain, and so connecting them with the consultants or connecting them with someone like a Schneider Electric or an ABB that are more vertically focused and putting multiple partners together to deliver that business outcome. ... They're not going to be able to be experts in everything. They're just not going to be able. They're going to have to be more creative with their business model on connecting, and our job is to create the right marketplace for them to make those connections.

CRN: How far along is the channel in this evolution to a services-based model?

Klein: The partners that we talked to, the majority of our partners are saying that they will have these new consumption models in their model whether they become a reseller like I said or help build clouds, but they will have the ability to go in and have a conversation with the customer where they can deliver on-prem solutions or they can deliver cloud solutions. What we're trying to work with them on is: How do you help them understand the hybrid world? How do you become the consultant to work with those partners and customers and be able to offer that expertise to say, 'This is when you should, this application should be on-prem, this could be off-prem,' and have the ability to actually help them do that?

DiFranco: But this is the point, that is a very special skill and that requires understanding the business model that's existing at your customer, not the technology problem they're trying to solve because first they're trying to solve a business problem, which means that they need a practice and I actually think that this partnering is going to be, I'm going to be a contrarian here, I think it's going to be really hard. I think it's going to be a very hard transformation for these partners to either build the practice and build the skill sets to be able to go in. ... I would argue the hardware's not going to be the hard part. Converged systems, we can stand up virtual machines all day long. That's just not going to be hard. That's going to get easier, not harder. The hard part is understanding what's the workload and what are we trying to do with the workload and how do we evolve our customers, how does the VAR evolve their customers, into this hybrid world. That is a really hard fascinating piece of work and they should be paid for it.

Duncan: They can't do this without a certain amount of investment. And someone asked the question, 'Who does this? Does the vendor do it, the distributor do it, the VAR do it, the solution provider?' The answer is, it depends. It depends on the size of the client; it depends on the depth of the need. I see a lot of our solution providers tapping deep, technical skill that the distributors have already hired while they figure out do they want to do this step change required, there's going to be help that's required, there's going to be hand-holding that's needed to do the skill buildup. The SoftLayer classes we [offer are] filled to the rafters. ... Whether it's hardware, whether it's software, the partner can help the client make a business decision to drive the business outcome, not an IT-based decision.

DiFranco: And that becomes their brand. At the end of the day, this is where their differentiation is going to happen, wherever they sit in that paradigm from hardware infrastructure provider to application consultant, they're going to sit somewhere in this paradigm and wherever they decide to sit is what their brand is going to be about and everyone will probably sit somewhere different, right?
Duncan: The possibilities are endless. We just have to help them with where do they want to connect and how much do they want to invest and can they sustain themselves. One thing I find fascinating, my traditional hardware partners define themselves by geography. My traditional software partners define themselves by capability. I think we're going to see that shift and we'll start to see many more of the partners defining themselves by their capability and they'll be willing to go further if they find somebody that's willing to pay for that capability.

Next: How Are You Building Partner Incentives Into Programs To Develop Consultative Sales?

CRN: Typically when the vendor community identifies the direction they feel the channel needs to go, you start to build incentive programs. How are you building incentives into programs for partners to develop consultative sales that you say are so critical to them?

Klein: That's what we did at the Partner Summit in March, we made having a hybrid IT practice part of being a Gold partner. A requirement in being a Gold partner. We also, from a training perspective, we offer classes called the Business Value Practitioner where we start training the sales teams and the technical teams within the partner community on how to have that business conversation with the line of business. That also becomes a requirement to be a Gold partner -- to have a certain number of folks on your staff that have that Business Practitioner certification. So you know it's kind of, you have to have the little rewards, you have to have the incentives to drive that behavior you want to drive, and that’s why we made it part of our program.

Vitagliano: We've done the same thing. We've built in a Cloud Competency as part of our Premier program but the truth is, you can force some of that but to get it to the next level is not about what we're going to be able to do. It's about what they're going to be willing to do because their customers are asking for them to do it or because the opportunity is so great that they don't want to miss out, right? But, yeah, we're all headed in that direction to do that if we're not already there. But the next step is how do they then go figure out how to really become experts as opposed to just sort of dabbling in it? Many of them are well on the way to doing that, well on the way.

CRN: Are the lessening of your requirements around technology freeing partners up to focus more on business outcomes?

DiFranco: No ... we're not lessening the importance of the infrastructure. We're encouraging the partners to make investments and, in our case, software applications. Security, we have three products for that. For cloud, we have products for that. For big data, we have products for that. We're encouraging our partners to start to build practices around those. What we're trying to do is make sure someone doesn't try to do all of those, right?

We're being really blunt, you probably want to focus on one of those and not all of them because to build true software competency takes investment, and it takes a focus, and it takes a customer base that you want to go after, and I think you're going to see a lot of these traditional infrastructure VARs, a good number of them, I should say, who will start to invest, who will start to make the investment and they'll invest in building software practices, application layer practices. They have to. They have to; it's where the profit is. The practice is where the profit is.

This article originally appeared as an exclusive on the CRN Tech News App for iOS and Windows 8.