The TSD Conflict of Interest

After Scansource’s CEO blundered the announcement of the NewCo subsidiary in Vegas last week, LinkedIn chimed in. As is often the case, most commenters did NOT read the whole article. As is always the case, a bunch of comments were just ads for one brokerage or another.

Like many brokerages, Intelisys is going to buy agencies that want out. Most of the brokerages (or TSDs or TSBs if you like those acronyms) do this as well either as an invest program or base purchase or something that looks like M&A.

Most, if not all, brokerages have a direct selling force. TBI had a call center to sell CenturyLink products in order to continue to hit quotas for that carrier. This actually benefited the agents because it solidified the agreement with CenturyLink, which rolled up Level3, TWTC, Qwest and so much more into a dysfunctional circus tent of a telco.

The PE backed firms like Bluewave, Upstack, Amplix and Bridgepoint, all acquired agencies and sell direct. Telarus and AppDirect invest in agencies. TDM/Clarus and ACS have direct selling as well as sub-agents. For a partner, hard to duck the conflict of interest.

Lucas didn’t like my opinion that Mike Bauer has become a liability to Intelisys. Most people don’t understand the difference between running a distro business and a brokerage. One is like running an Amazon store and one is like running an insurance company or a Keller Williams franchise. Mike often mentions bar codes. I get it, ScanSource sells a lot of bar code scanners, but through VARs not through Agents.

I see Microsoft chasing Agents. Why? Agents don’t install or support software. That would be VARs or MSPs. Another case of people not understanding that THE CHANNEL consists of many segments and business models – and one size does not fit all. (This very misunderstanding is why many channel programs flounder.)

Last year AireSpring hosted a round table of TSD leaders (see it HERE). It provided some interesting insight from the top TSD/TSB. (I dislike the acronym TSD, since these businesses do not distribute anything but commission checks. I like TSB since they are brokerages.)

Vendors and Brokerages alike have 2 big problems: (1) Partner M&A slows down sales to buyers/ end users as the partner spends months focused on the transaction instead of sales. This doesn’t drive the new logos that vendors demand. {see slide 2 in this article} And there has been a lot of partner M&A in the MSP, VAR and Agent space over the last 3 years.

(2) Most products sold via the channel are declining in revenue. VZB had to write down billions due to MPLS contracts expiring as well as copper replacement. Often the replacement services go to another carrier. VZB doesn’t sell POTS replacement.

In addition, network services renew at the same or lower rate every three years. UCaaS was $17 per seat 3 years ago; now closer to $13. Revenues are in decline. More and more has to be sold every year just to maintain the same revenue. Telcos have lived this for years. Cellular saved VZ and AT&T. UC providers are learning this. So are TSBs.

A TSB has 2 revenue sources: MDF and commissions. They pay out 70-90% of the commissions to the selling partner. Marketing funds from vendors are the only income that the TSB can control, which makes it more and more significant for the TSB. As MDF ramps up, the customer isn’t the partner; the TSB customer is the vendor!

The conundrum with having 200 to 400+ vendors is that they get lost in the crowd. What value does a TSB bring to vendor # 403?

The TSB could charge for value-added services to the partner. The TSB execs often tout their value, yet they find it challenging to explain that value. O n that round table ignored the fact that the Number 1 reason any partner uses a TSB is to collect commissions. If  carriers still allowed for hundreds of direct agreements, the TSB would be in trouble.

As the TSB needs more revenue, selling direct or helping agencies cross-sell their base becomes more important. As MDF increases, more attention is given to the vendor in place of the partner.

Like Ancestry and 23andme, the data in the systems is more valuable than services sold directly. At some point all that data accumulated will be leveraged or sold to pay back the investors.


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