[I love GapingVoid!]
The last 3 years (2019-2022) have involved a lot of turmoil: pandemic, M&A, economic headwinds, and global turmoil (Iran, Ukraine, China, Russia, UK and more).
The Channel will change in 2023. It is shrinking. Each segment of the overall channel has seen changes. MSP M&A has been heavy for the last four years. Agencies have been invested or acquired. This is affecting sales growth with vendors. VARs and Inter-Connects – people pushing boxes of one flavor or another – have had to re-tool their business model. The generous SPIFFs by XaaS providers is a reflection on this aspect. Will it continue in 2023? Probably.
SPIFFs will be high in Q1 because 4Q sales have sucked due to “Macro economic headwinds” – according to many vendors in their financial reporting. Layoffs have been crazy – due to re-adjusting the P&L and the fact that sales have stalled.
I don’t know where the sales bump will come from. During economically challenging times, agents usually get involved with cost savings. That will be good for activity but not for any bottom lines.
If I hear ECOSYSTEM one more time, it will be too many. The only ecosystems that will prevail will be built around a software hub like Salesforce or Microsoft. ISVs are a channel that many SaaS and software vendors have been chasing with SDKs and APIs. Here’s the thing: you have to be able to make money on your development. In a market with 1M users if only 1% buy your add-on or app, that’s 10K buyers. The smaller the user base – or the absence of any real add-on value – means less buyers.
Programming isn’t a one size fits all situation. APIs aren’t easy. You have to know the coding language and how to extract/import the data in usable forms. Everyone thinks it is boom-boom done and the app starts making money. That never happens.
Salesforce officially launched its API on February 7, 2000. In 22 years they have built a large business around an ecosystem or marketplace or whatever you want to call it. 22 years around a widely used software that is central to a business organization. Developers can make a living from that. Can they do that with all of them? No.
Pax8 hit $1B in ARR but isn’t profitable. Will the Marketplace ever be profitable? Unlikely. There isn’t enough margin for the Marketplace, SaaS vendor and partner to make a living AND support the customer.
They say a Influencers and Brand Ambassadors are also channels that will boom. Does that work with Telecom? More likely that works for consumer products, so it might work with SMB on the small side of SMB. But is there enough money in that sale for everyone and support?
Will 2023 be the year of the Contact Center / Customer Experience software? Nope. There are not nearly enough sales reps and partners who can intelligently discuss Cloud Contact Center. And many vendors are pushing a CCC product that isn’t ready for prime time – or is not as advertised. Once again, the vendors don’t know who their product is a good fit for, so they want to sell it to everyone. In the midst of 100 vendors also selling something similar to everyone. Once again, No Differentiation. Nothing going vertical. This will also be an unprofitable segment. When no one understands the difference, it sells on price.
To me it is potato chips. There are several dozen chips in a grocery aisle, but really their are a dozen or more sub-markets. Not everyone likes vinegar and salt chips or BBQ. Do you get the point?
Conferences will see a decline in attendance in 2023. Why? M&A has shrunk the number of partners. Plus in an economic downturn, partners will choose carefully their travel dollars. They will tend to go where the ROI is high. Boot camps, Workshops, and Peer Groups will win in 2023.
TSB/TSD (fka master agencies) – at least one will pivot or be in trouble. Why? In all the M&A and Synergies, they forgot that the customer is the partner. And while you try to get partners to sell your Platinum vendors to maximize your EBITDA, what customers want/need/ask for is too hard to procure from you. I know I tried to upgrade a pipe in 2022 and just could NOT get help from the TSB that acquired 2 of my master agencies. It was a Disaster. You can tell that they do not want to be in the telecom broker space.
The Super-Agency isn’t built to take order except from “Managing Partners” (internal orders). These agencies also cannot collect or pay commissions in a timely fashion. I tried to move my accounts to a different broker and that was not successful. You don’t want to pay me but you won’t let me move the account either. It’s a bunch of bull shit that tells you that the PE money isn’t going to destroy itself.
I know that this all comes down in a flaming ball of fire. When vendors like cyber-sec are laying off in the tens of thousands and UCaaS vendors are eliminating sales teams, do you think that the sales numbers are up or down??? AT&T and Verizon are struggling with debt and new avenues of revenue. Selling network, voice and replacement services are the core of the channel — but also it is the core of most sales people in this business. Selling data center, cloud services, cyber-sec, customer experience and other emerging tech like AI require a different skill set, mindset and motivation. If you are motivated by ink, transactional sales is how you keep going. How do you go from closing weekly to closing monthly or quarterly? Even if those are bigger sales, the triumph of the sale happens less often — and other skills like effective follow up are now a requirement whereas in transactions follow up isn’t nearly as important. Mindset is just as important as skill set. It is like if the partner doesn’t think cloud is for everyone. How do you get them to sell cloud to everyone then? You don’t.
This is already a problem, but it will only get bigger.
You know who else is in trouble: Channel Chiefs. Why? As the selling partner numbers decline and sales slow, who do you think gets blamed?
Many vendors ask where the next avenue of sales will come from. They look at the number of Microsoft partners and Ingram VAR numbers and think that the gold lies there! No it doesn’t. Those numbers are as inflated as any partner number you see. No one has any idea how many active partners they have.
Think about this: Microsoft and Ingram have entirely different reasons for having large partners. Microsoft has 290M users of Off365/Teams. They need hundreds of thousands of partners to maintain that. And those partners have a business model revolving around Microsoft, their MS certifications and their Gold status. Most vendors can’t say any of those things.
Ingram and Tech Data have 200k partner globally. That is like saying they have 200K customers, because the relationship between Ingram and the partner is shopping/distribution. Who has it in stock closest to my client – TD or Ingram? That is kind of like the relationship between telecom resellers and partners: who has the cheapest Internet pipe for my customer. But then the service delivery has to be performed well and the sales friction has to be removed. In my experience of 20+ years selling telecom, sales friction and service delivery failures are the common ingredients in telecom. Where is the docusign? Where is the simple order-to-quote-to-cash process? Is there a written process for service delivery that can be tracked online? It’s 2023 next week and the vendors still have the same process as 1999 when I entered telecom.
The key to success: maximize the partners you currently work with and duplicate them! Period. Take the friction out of all of your processes. Make it easy and desirable to do business with you!
The key to winning in 2023 is to make your partners successful. Stop looking for new ones. Milk your own cows. You have other services to sell to the partners’ customers. You have MDF money that you can use to do Lead Gen for the partner. There are a ton of ways to grow sales through partners who have already sold your stuff. Focus on them!
Final thought: There will be a lot of M&A around PE owned firms – that includes software vendors, MSP software vendors and FTTH providers. In 4Q next year, we will have fewer fiber providers, because the key there is scale and geography – oh and government funding. A bunch of broadband funding winners already accepted PE investment — and that will be happen some more in 2023.
A few PE firms own a bunch of software, especially in the MSP realm – like ConnectWise, backup, automation, etc. There will be off-loading of assets in 2023. Just my feeling, but these companies won’t see the growth they expect in 2023.
I just see a lot of disappointed PE firms in 2023. It turns out having money doesn’t make you smart – it means that you have a primary tool that businesses need but the PE firms still have to spread the risk across industries or they will replay the early 2000s. And money isn’t free now – the interest rates are up. That changes the landscape as well.
Happy New Year from RAD-INFO INC.