What Consolidation Means to the (Sub) Agent

In this Channel Futures article, a few good points were made. One point that gets made twice is that the bigger, “new improved” master agencies will offer more tools for the agent to leverage. No one specifies which tools agents will find useful – or even what tools there are. Isn’t there data on what tools these masters have that agents are in fact utilizing? Because repeating “tools” over and over doesn’t make it useful.

Today, agents leverage master agencies primarily for vendor contracts and commissions. Commissions being the operative word here as the real value that master agencies bring to the table. Agents only get paid when they sell services and count on that recurring commission to pay rent and buy food and diapers. Every agent that has been in the business longer than ten years has been screwed on commission at least once. They count on the masters to fight for their commissions, since they get a piece of that too.

Agents typically spread the wealth around to about five different master agencies in order to not have all their eggs in one basket. Why give one master all that influence over your revenue?

Vendor consolidation has been rough. In the wake of the Duopoly – Comcast, Charter, AT&T, Verizon and CenturyLink – getting so big (and so bogged down with debt!), the landscape for partners and buyers has changed. The world of the CLEC has mainly disappeared. In addition, at least two companies formerly known as CLECs have cut commissions on network sales. As Christopher Scott of StratoNet commented in the article, It doesn’t leave much choice for the customer or partner.

In the CF article, there is speculation about masters buying out agents. Let me clear this up: it is happening! Investment programs and base rolls are happening as I write this. One reason is to lock in partners for exclusivity to one master. It is revenue driven. There are ventures that are buying up top partners. It seems that the MRR model of partners is attracting venture money. We see it at the national level with master agencies and with regional partners. JG Wentworth has come for the channel!

Capital is looking for a return. The stock market is up. Real estate prices are climbing. There are so many Boomers with retirement funds. These funds have to go somewhere to get returns on investment. MRR models are attractive.

It comes at a time when partners are looking to retire, too. After the 2008 recession and now a pandemic, not many partners want to re-build their practice. Also, not many partners want to learn new technology or deal with cloud services. They have spent over 15 years making a decent living selling voice and network and now it is time to leave the table and cash out some chips. The game is changing.

When pundits say the channel is dying they are wrong. They expect other business models – like ISVs or affiliates or affinity groups – to replace the current crop of partners. That may add to the partner world, but it isn’t replacing them entirely. Partners had to pivot a little to add project management, but some of that is due as much to telecom being broken as being necessary for the many moving parts of cloud communications installations.

When channel execs talk about more opportunity, it usually means that they want partners to shift. Shift what they sell and who they sell to – neither of which is easy to do for so many reasons. Just look at hardware vendors to showcase the challenges in migrating from a hardware business to a cloud business. It takes time, focus, adjustment, re-adjustment, layoffs, slumps and maybe, just maybe, a win.

Another neglected data point is that customer billing is down. Zoom’s $10 per seat phone is driving down prices again. A 20 seat deal can be as low as $200, which provides for $40 or so in commission. The 100MB pipe is under $900 and the commissions on that are low. A partner has to generate a lot of sales in order to survive today. It is harder to generate the volume of sales because every sale involves hundreds of emails, phone calls and project management for deployment. No idea what tools masters have to improve that!

It was much more profitable to be a partner in the early 2000’s, before vendor consolidation hit. It will be even less profitable to be a partner with M&A in the channel.

For years, channel personnel have double-dipped – by that I mean that many channel managers and other titles had their own agency on the side. Partners didn’t know then they were working with a competitor. More than a few master agencies sell direct – not many partners are aware of that. The vendor quotas drive that kind of activity. Survival drives that. This kind of channel conflict will only get worse with investment programs.

A final concern is when a master agency goes public or gets bought by a PE firm – and the best way to instant profit is to stop paying the commissions. Lawsuits may work in the long run, but it is a long (and expensive) road.

The channel is about relationships. It is also built on trust. M&A doesn’t lead to trust.

And one thing that is certain in telecom: Bigger is never better. Ever.

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