With $650M in private equity money pouring into TSBs and “Super-Agencies”, the question every partner needs to ask: Where is the ROI for the investor coming from?
Most partners won’t think to ask that because they want an M&A transaction and the thought of equity and a new title are more than enough to ink the agreement without the aid of a good lawyer.
Remember TNCI’s Equity Plan? Granted that was 2008 (14 years ago), but it ended in Bankruptcy and unpaid partners.
Another question to ask a TSB or Broker/Agency: What Value do you bring to the partner? Because often the Value explanation is yoga-babble as Prof. Galloway says.
The TSB and the Super-Agency have just three streams for revenue: (1) commissions which they collect and split with you, but they hold the paper; (2) MDF from vendors, which is millions per year at this point with 200-500 vendors in the space; and (3) revenue from resale, like off a marketplace where they resell Microsoft or if they start rebilling services from a vendor, like many CLECs do on the AT&T APEX program.
The ROI on $650M is at least one billion dollars. Where exactly is that ROI money coming from within the window that most PE firms operate in (3 years)? Think about that.
No one is building a better mousetrap. There is no Amazon-esque marketplace out there — yes, there are at least 4 firms working to build one – Upstack, AppSmart, Cloudscene and Lightyear. This will eat up hundreds of millions of dollars to build, maintain, secure and transact – and right now, as Lightyear explained to me at EC22, there is a lot of swivel chair and humans to make the software/portal/marketplace work for the customer.
These firms will compete against existing cloud marketplaces like Pax8 and Ingram Blue. Now if 4 more marketplaces spring up and start getting traction, the next competitor will be Amazon. They already took a swipe at selling broadband about 10 years ago. Amazon also sells Chime and CCaaS. So why isn’t Chime as popular as Zoom if 60% of buyers like to buy off a marketplace?
One big hurdle with a marketplace is that not every vendor wants its prices public. As I wrote earlier, AT&T’s Legal department would call me any time I published AT&T pricing on my blog. SaaS software sales have public pricing because it is just ecommerce of licenses. [But buying rack rate pricing off the website is dumb – negotiate for a better rate!]
Telecom, data center, security and other managed services are different from SaaS due to pricing, promotions, ordering from legacy systems, installation, and more. Despite being the largest ISPs in America, Comcast and Charter still need to do a site survey on a spreadsheet before any order is accepted. Voice is easy with new numbers; not-so-much when porting numbers. There are hurdles everywhere in the sale of most of the services partners sell. If ecommerce was easy, 8×8, RingCentral and the ISPs would have cut out the indirect channel a while ago.
The final question: Where does the Partner fit in the marketplace? Like a Referral or an Affiliate? Or is it profit share for equity partners? No one has an answer for why partners should push their customers to the marketplace.
Let’s leave Partners with some good Questions:
- Where is the ROI on the $650M in PE money coming from?**
- What new revenue stream will the PE powered broker add to help with the ROI?
- What Value does the broker bring?
- Is there a commission guarantee?
- What is the marketplace strategy and where do I as a Partner fit?
- What vendors are on-board with public pricing?
Partners aren’t dead yet, but don’t make any rash moves – and think these things through. They only have 3 possible income streams — and your commissions are the top one!
** On the ROI, is the commission revenue increasing substantially? Intelisys is the only public TSB and they are growing at 14% YoY. Most partners commissions on networking and voice services have been decreasing like Lumen, AT&T and Verizon’s wireline businesses. Lumen revenue is decreasing 7% per year. If the wireline revenue is decreasing and commissions along with it, how does the pie get bigger in order to pay back the PE investment?