CompTIA 5th Annual State of the Channel Study
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he indirect IT channel continues to experience healthy growth along with the rest of the IT industry, remaining resilient and upbeat about future prospects as both channel veterans and newcomers find their way in a rapidly evolving market. The Fifth Annual State of the Channel study provides an overview of the size, shape and growth factors influencing changes and attitudes in the channel. It offers deep analysis of the topics driving debate across the channel and further delves into today’s leading sales and marketing practices and challenges. The report also provides knowledge and applicable insights while examining the channel’s most pressing hurdles.
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CompTIA 5th Annual State of the Channel Study
- 1. 5th Annual State of Channel Study Copyright (c) 2014 CompTIA Properties, LLC. All Rights Reserved. | CompTIA.org October 2015
- 2. 3% 14% 22% 61% Generally pessimistic Though mostly positive in their thinking, two groups have a slightly more pessimistic outlook than the rest: • Small channel firms (10-99 employees) • Younger channel firms (Less than 5 years in business) Big Picture Opinion on the Future of the IT Channel Don’t know Mixed feelings Generally optimistic Source: CompTIA 5th Annual State of Channel: Base: n=350 IT channel firms
- 3. Reasons to Be Optimistic About Channel’s Future 1. Cloud computing opening new doors 2. Customer demand for managed services 3. Customers still want a local provider to be a “trusted advisor” 4. Broader use of tech by all types of customers ups need for IT experts 5. Complexity of today’s solutions and services 6. Demand for vertical industry expertise 7. Customers want internal IT free to work on strategic projects 8. Vendor direct sales insufficient to cover full market Note: rank order listings are useful for summary purposes, but should NOT be interpreted quantitatively. For example, the first-ranked item is not necessarily 8 times more important than the eighth-ranked item. Source: CompTIA 5th Annual State of Channel: Base: n=350 IT channel firms
- 4. Reasons to Be Pessimistic About Channel’s Future 1. General business challenges 2. Skills gaps for emerging/complex IT 3. Wider availability of purchase options/customer self sufficiency 4. New types of competitors (e.g. telecom providers) 5. Many aspects of IT easier to deploy and manage internally 6. Cloud computing and shift away from on-premises IT 7. Aging of the channel/lack of younger generation filling void 8. Vendors increasingly going direct 9. Customer access to price and feature transparency online Note: rank order listings are useful for summary purposes, but should NOT be interpreted quantitatively. For example, the first-ranked item is not necessarily 8 times more important than the eighth-ranked item. Source: CompTIA 5th Annual State of Channel: Base: n=350 IT channel firms
- 5. 55%37% 7% By the numbers… • 66% of channel firms identifying CLOUD as their primary business model consider hardware sales very important • Just 43% of firms older than 10+ years consider hardware very important, compared with roughly 2/3 of firms younger than that Does Hardware Still Matter to Today’s Channel? Not important Very important Somewhat important Source: CompTIA 5th Annual State of Channel: Base: n=350 IT channel firms
- 6. Channel Revenue and Customer Trends Copyright (c) 2014 CompTIA Properties, LLC. All Rights Reserved. | CompTIA.org
- 7. Primary Means Channel Firms Make Money Today 8% 36% 37% 39% 43% 46% 48% Other vendor-driven benefits Recurring revenue (managed services/cloud) Referral fees Upfront discounts/backend rebates Margin on product sales Project-based work (not ongoing) Consulting services (no products sold) Source: CompTIA 5th Annual State of Channel: Base: n=350 IT channel firms
- 8. In business <5 years In business 5- 9 years In business 10+ years Product sales (hardware/software/peripherals) 62% 58% 38% Project-based solutions & services 62% 70% 35% Recurring revenue (managed/cloud services) 64% 63% 52% Other (e.g. referrals, extended warranties, etc. 56% 47% 28% Positive Expectations for Growth by Business Model Percentages above represent NET findings, combining responses for “significant growth increase” with “some growth increase.” Source: CompTIA 5th Annual State of Channel: Base: n=350 IT channel firms
- 9. Generating Revenue: Who Does the Heavy Lifting? 15% 19% 22% 45% Other channel firms you partner with Distributors Vendors you partner with Your own company Source: CompTIA 5th Annual State of Channel: Base: n=350 IT channel firms
- 10. Expectations for Revenue Growth by Tech Area 1. Security (NET 63%) 2. Cloud infrastructure (NET 61%) 3. Storage (NET 60%) 4. Custom application development (NET 59%) 5. Database/data analytics/BI (NET 57%) 6. Cloud SaaS (NET 57%) 7. Business process automation (NET 57%) 8. Mobility solutions (NET 56%) 9. Backup/DR (NET 56%) 10. Office productivity (NET 55%) Source: CompTIA 5th Annual State of Channel: Base: n=350 IT channel firms Not everyone’s a happy camper. Respondents professing general pessimism about the channel’s future expect NET growth in all these tech areas by about 20% less on average.
- 11. Channel Revenue: Customer Contributions 28% 45% 27% Majority net new customers Majority existing customers Balance between net new and existing 46% 30% 24% Expect more from net new Expect more from existing Expect balance stays same Where is channel revenue coming from TODAY? Where do channel firms see revenue coming in next TWO years? Source: CompTIA 5th Annual State of Channel: Base: n=350 IT channel firms
- 12. Vendor-Partner Relations Copyright (c) 2014 CompTIA Properties, LLC. All Rights Reserved. | CompTIA.org
- 13. 41% 52% 7% Food for Thought… • Statistically speaking, ZERO respondents reported being very or mostly dissatisfied with vendors • Satisfaction levels were mostly consistent across all channel business model types, company size and years in business Channel Contentment with Vendor Relationships Partly satisfied/di ssatisfied Very satisfied Mostly satisfied Source: CompTIA 5th Annual State of Channel: Base: n=350 IT channel firms
- 14. 28% 14% 56% Profile of firms expecting a NET drop in number of programs • 7% micro • 23% small • 20% medium/large • 19% <5 years in business • 15% 5-9 years in business • 10% 10+ years in business Expectations for Partner Program Participation Next Year No change in total # of programs NET drop in total # of programs NET gain in total # of programs Source: CompTIA 5th Annual State of Channel: Base: n=350 IT channel firms
Editor's Notes
- Despite an array of challenging and changing dynamics in the IT industry, the indirect channel largely feels pretty positive about their future. This likely indicates that more channel firms are growing comfortable with the concept of cloud computing and rather than fear it, see it as a viable business opportunity.
- The broader user of more complex IT solutions plays into the hands of channel firms that can execute and implement for customers today. Vertical expertise is a value-add for the channel and will resonate with customers
- Paradox: While many think cloud is oopening doors, some also feel it’s shifting things to far away from on-premise IT installations at the customer site, a traditioal bread and butter business for channel firms. Skills gaps – think for cloud, big data, mobility, app dev – will continue to torment channel firms. This raises the need for training, certification and more vendor support
- Hardware is not going away despite cloud. Expect this line of business to co-exist with recurring revenue dollars within channel firms. It’s a HYBRID model for foreseeable future.
- Consulting services, both business and technical, are becoming a primary line of revenue for channel firms, with more than a quarter of micro-sized firms reporting consulting and their No. 1 source of revenue in the last year. Yet the channel remains highly diverse in where it is capturing sales, ranging across a number of business lines and technology areas. In fact, a quarter of firms with fewer than five years in business – the relative newbies, if you will – said IT and business consulting was their primary revenue driver. This can run the gamut of activities, from helping customers vet the veritable glut of cloud- and SaaS solutions on the market today, to providing guidance around security, compliance, mobility and other tech policy areas that end user organizations are grappling to solve.
- Channel firms are relatively bullish about revenue growth over the next 12 months across a range of different business models and customer engagement types, including core products sales. Project-based work, which often includes a large dose of consulting dollars, is the area where respondents anticipate the most growth, with a combined 63% expecting some or a significant increase in sales. Cloud-based firms, Web application development specialists and larger-sized firms tended to be most optimistic about their project prospects, with roughly 7 in 10 from this group expecting growth. Both cloud and app development are two disciplines where integration work and customization are in play, and these are two activities that lend themselves to a finite project-based scenario. A near-equal percentage (59%) of respondents are eyeing growth from recurring revenue, which could include managed services or cloud-based business models – or both. Recurring revenue and project work appear to offer the most opportunity for the channel, especially in light of new and emerging areas such as cloud, mobility, big data and even social media.
- Close to half of firms report developing revenue opportunities organically through their own company efforts, with the balance being generated nearly evenly from the likes of vendors, distributors and other solution provider partners in the industry. This maps closely to the revenue generation findings from CompTIA’s 2014 study. Older firms with 10 or more years in business relied on their own devices more so than the youngest companies have been. Half of the former generate revenue leads on their own compared with 40% of the latter, a demographic that is partnering with other channel firms in slightly higher numbers.
- NET growth is anticipated across a wide range of IT solutions and services, notably security, cloud infrastructure, storage, custom application development and data analytics. For its part, security is one of those technologies that in theory should be included in all IT sales, regardless of the product or service being sold. Savvy channel firms understand this practice and have managed to include security solutions and policies as a part of most every type of engagement. Consider one group, cloud-based channel firms. Three quarters of them expect a NET increase in security revenue next year, which likely reflects their need to reassure customers wary about putting data and applications into the public cloud environment. Speaking of cloud, cloud infrastructure is another primary growth area cited by respondents (along with cloud SaaS). From an infrastructure perspective, respondents in all likelihood are referring to hosted cloud engagements for their customers. Some may also be referring to the infrastructure sold to build private clouds. Going forward, it’s hard to imagine that this category of hosted cloud solutions will flourish for channel firms, as end customers can take advantage of the cheap compute cycles available via the major cloud providers such as Amazon Web Services, Google and Microsoft Azure. As a result, many channel entities may find themselves moving away from hosting in their own data centers and instead positioning themselves as the manager of all things cloud to their clients. This would include monitoring solutions in the public cloud, recommending new offerings and using the major Amazon-style providers on the back end for infrastructure. A few of the technology areas where channel firms expect growth seem aspirational today. In other words, these are directions where respondents see they should be headed, but as yet have not invested heavily or acquired the skills to execute. This would include custom application development, data analytics and business process automation. All three of these disciplines are a layer above basic hardware, software and services and require new and varied skills.
- Q30-31
- Half channel firms described their vendor relationships as “stable,” meaning the mix of vendors is likely to remain status quo over the next two years. But nearly 4 in 10 called the relationship “exploratory” in nature, one in which they expected to maintain current vendor ties, but are open to looking at new partners to work with. Another 11% said their vendor alliances were “shifting” toward dropping some existing relationships in favor of new bedfellows.
- Fifty-six percent of channel firms predict a NET gain in the number of programs they join next year, while 14% expect a NET drop and the remaining 28% will maintain the status quo. Many solution providers remain keen on old-school incentives and benefits that partner programs typically provide. And they remain mainly optimistic that these perks, including marketing dollars (MDF), sales spiffs and others, will continue to flow their way. Just more than a third of respondents expect these vendor financial incentives to increase either significantly or moderately over the next two years, while 4 in 10 expect no change. Twenty-three percent are predicting a NET decrease.