CompTIA's 6th Annual State of the Channel
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CompTIA’s 6th Annual State of the Channel research provides an overview of the size, shape and growth factors influencing the channel today. It offers deep analysis of the topics driving debate across the channel and further delves into today’s leading opportunities and challenges, including some notable findings on the channel’s ongoing relationship with cloud computing. The study was conducted in quantitative and qualitative parts. The quantitative part saw 350 executives from IT industry companies complete a survey. The qualitative is drawn from a series of in-depth interviews with senior-level IT executives. Data collection occurred in July 2016.
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CompTIA's 6th Annual State of the Channel
- 1. CompTIA’s 6th Annual State of Channel Study Copyright (c) 2016 CompTIA Properties, LLC. All Rights Reserved. | CompTIA.org October 2016
- 2. Generally Optimistic 63% Mixed Feelings 17% Generally Pessimistic 16% Don’t Know 4% Source: CompTIA’s 6th Annual State of the Channel | Base: 351 U.S channel firms How Firms Are Feeling about the Future of the Channel
- 3. Reasons to Be Optimistic About Channel’s Future 1. Cloud computing opening new doors 2. Broader use of tech by all types of customers ups need for IT experts 3. Complexity of today’s solutions and services 4. Customer demand for managed services 5. Customers want internal IT free to work on strategic projects 6. Customers still want a local provider to be a “trusted advisor” 7. Demand for vertical industry expertise 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’s 6th Annual State of the Channel | Base: 351 U.S channel firms
- 4. Reasons to Be Pessimistic About Channel’s Future 1. New types of competitors (e.g. telecom providers) 2. Vendors increasingly going direct 3. Aging of the channel/lack of younger generation filling void 4. Cloud computing and shift away from on-premises IT 5. Skills gaps for emerging/complex IT 6. General business challenges 7. Customer access to price and feature transparency online 8. Wider availability of purchase options/customer self sufficiency 9. Many aspects of IT easier to deploy and manage internally 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’s 6th Annual State of the Channel | Base: 351 U.S channel firms
- 5. Things Needed to Ensure Optimistic vs. Pessimistic Future 39% 36% 34% 33% 40% 40% 31% 32% 33% 35% 34% 38% Vendors committing to partnership/decreased conflict Support from industry trade assocations Younger generations embracing channel More widely available/valuable certifications Training (business & tech) Availabilty of skilled IT workers 2016 2015 Source: CompTIA’s 6th Annual State of the Channel | Base: 351 U.S channel firms
- 6. Cloud & the Channel: Glass Half Full or Half Empty? Source: CompTIA’s 6th Annual State of the Channel | Base: 351 U.S channel firms 39% of channel firms say the opportunity in cloud computing is the top reason to be optimistic about the channel’s future And yet… Another 30% say cloud computing is a leading reason to be pessimistic about the channel’s future
- 7. Shifting Views on Cloud’s Channel Impact 1% 7% 30% 63% 1% 20% 40% 37% Negative Mixed Positive Extremely positive 2016 2014 Source: CompTIA’s 6th Annual State of the Channel | Base: 351 U.S channel firms
- 8. Shifting Perception of Cloud’s Impact on Customer Relationships 12% 17% 71% 16% 24% 60% No change Generally weakened Generally strengthened 2016 2014 Source: CompTIA’s 6th Annual State of the Channel | Base: 351 U.S channel firms
- 9. Channel Firms Expecting Influx of Net-New Business Past two years 17% 46% 37% Mix of new and existing Existing New Next two years 15% 39% 46% Same balance More from existing More from new Source: CompTIA’s 6th Annual State of the Channel | Base: 350 U.S channel firms
- 10. Expectations for Revenue Growth by Tech Area 1. Cloud infrastructure (NET 61%) 2. Security (NET 59%) 3. Mobility solutions (NET 59%) 4. Backup/DR (NET 58%) 5. Storage (NET 67%) 6. Database/data analytics/BI (NET 57%) 7. Cloud SaaS (NET 57%) 8. Custom application development (NET 5%) 9. Business process automation (NET 56%) 10. Compliance as a service (NET 54%) Source: CompTIA’s 6th Annual State of the Channel | Base: 351 U.S channel firms Nearly three quarters of firms with an optimistic outlook for the channel’s future are predicting growth in cloud infrastructure and cloud SaaS sales. That’s nearly double their more pessimistic channel counterparts.
- 11. Channel Firms Less Content with Vendor Relationships 7% 52% 41% 15% 45% 39% Partly satisfied/partly not satisfied Mostly satisfied Very satisfied 2016 2015 Source: CompTIA’s 6th Annual State of the Channel | Base: 351 U.S channel firms
- 12. Main Reasons to Drop a Vendor Partner Program 1. Cost of membership 2. Insufficient pre- and post-sales support 3. General difficulty in doing business with vendor 4. Vendor products no longer fit customer need or business model 5. Constantly changing requirements 6. Low margins, minimal discounts/rebates 7. Channel conflict with vendor’s direct sales team 8. Insufficient technical training 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 6th Annual State of Channel: Base: n=350 IT channel firms
- 13. Vendor Benefits Partners Find Less Useful Today than Past 15% 21% 28% 31% 32% 31% 33% Certifications Business training Assigned channel account manager Technical training Backend rebates Upfront/volume discounts Sales spiffs Source: CompTIA’s 6th Annual State of the Channel | Base: 350 U.S channel firms Just 12% of channel firms report that each of the following vendor resources remains important to their business. The No. 1 reason vendor benefits have declined in significance is that channel firms are relying more on their own sales & marketing efforts.
Editor's Notes
- This level of optimism was spread across all types of channel firms, with a couple exceptions. The smallest companies (1-49) employees are more pessimistic than medium- and large-sized firms. A quarter of small channel firms deemed themselves generally pessimistic about the future, compared with 17% and 9% of medium and large firms, respectively. It’s likely the case that the smallest channel players are struggling to undergo significant business transformation due to resource constraints that cut into the time that can be spent on retraining to embrace emerging technologies. They are also facing difficulty in talent recruitment, hiring and retention. These challenges are not exclusive to small firms, obviously, but larger organizations typically have more available cash flow, automated processes and other structural pieces in place that enable them to more easily build toward new models for the future, while simultaneously maintaining their legacy revenue streams.
- Beyond cloud, there are several other drivers of channel optimism. Two fall into what could be described as the “complexity” category. The thinking goes that end customers today have access to a much broader array of technologies than ever before and that these options also run high on the complexity scale. Cloud, mobility, big data, Internet of Things, to name a few. More than a third of channel respondents see this as reason to think good things about their future, presumably because end users will need help vetting, implementing and, most importantly, managing these technologies. Another 3 in 10 respondents also believe demand for vertical skills is a reason to think positively about the future. Vertical expertise can be a differentiator for a channel firm, appealing to both end customers and vendors. Most vendors do not have the technical-support footprint to address their customers’ various vertical needs after selling what are mainly horizontal solutions and products. That opens the door for channel companies to step in and provide services such as the customization of applications to fit the business processes of a particular type of vertically oriented customer. Demand for managed services is another optimism booster among 34% of channel respondents, which is down from 40% that identified demand in the MSP arena as an optimism driver in 2015.
- In spite of the optimism generated by certain market trends, still others are causing concern. Last year it was general business issues that induced the most angst among channel firms. A dip in the economy, rising interest rates, lack of access to credit or other capital, or the inability to recruit and hire people with the right skills. Any one of those events can turn a good year into a bad year fast. These issues remain a pessimism driver this year, but other factors are keeping the channel up at night. A third of respondents cite new types of competitors, a reality that is only multiplying. Not only are telecom-oriented firms beginning to sell traditional IT, competition is burgeoning from non-traditional channel competitors such as digital marketing agencies and rapidly growing ecosystem of firms that resell and manage SaaS applications for the ISV community. The aging of the channel is an issue as well. Nearly a third of respondents identify this as an area that prompts concern for the future, and with good reason. The collective age of the channel is increasing, with a wave of business owners actively preparing an exit strategy for retirement, merger or acquisition. Some figures peg this attrition at nearly a third of the total number of channel firms in recent years. The question then becomes whether there are sufficient measures in place across the industry to fill the void.
- The availability of skilled workers, for example, is considered most critical, singled out by 38% of respondents. Also, the availability of training, both business and technical, will be necessary for a bright channel future, according to 34% of firms. Both technical and business-related training is considered crucial to the channel’s future by slightly more than a third of respondents. As more channel companies eye emerging technologies as their calling card, technical training is going to be paramount. Traditional technical roles will continue to exist, but consider some of the newer job titles cropping up frequently in industry job postings: chief analytics/data officer, data scientist, data visualizers, cloud systems engineers, marketing technologist and Internet of Things architects.
- Cloud computing has sparked a dichotomy of thought within the channel. On the one hand, the opportunity potential for cloud is cited by nearly 4 in 10 respondents as the No. 1 reason to be optimistic about the channel’s future. On the other, cloud is also one of the main reasons a third of channel firms are thinking negatively about the days ahead. The disconnect speaks to one of the most notable findings in this year’s study: After several years of aggressive cloud activity, the channel appears to be undergoing a reality check as to what they are doing and how it is working out.
- This year’s study finds that channel firms have tempered their opinion of cloud’s effect on their businesses and customer relationships. If anything, the findings demonstrate that the shift to the cloud is not a linear, evenly paced march, but more of a classic two-steps-forward, one- step-back trajectory. The channel is not rejecting cloud. Their tempered assessment more likely reflects deeper experience working with cloud today, which has led them to see problem areas and to reset their own expectations around ROI, cost and skills needs. They are now in what we call the “refinement” process.
- When asked how cloud computing has impacted their relationship with their end customers, this year’s responses mark yet another downward shift from those provided in 2014. While 7 in 10 channel firms said cloud had generally strengthened their ties with end customers two years ago, 6 in 10 did so this year. What is more troubling, however, is the increase in those that believe cloud has weakened customer bonds: 17% felt that way in 2014, 24% do so today. The percentages are pretty much consistent across all channel business models and sizes. One not-too-surprising disparity exists between firms that are generally sanguine about the channel’s future and those with a more pessimistic outlook. Nearly 8 in 10 of the former say cloud has been an asset to their customer relationships; nearly half of the latter consider it a detractor.
- How channel firms are thinking about future revenue sources is one indicator of the changes swirling in the industry. Over the last two years, the majority of channel players (46%) said the largest percentage of their sales revenues came from existing customers, while 37% said the majority of revenue in that same time period flowed from net-new customers. Their outlook differs for the future, however. Over the next two years, 46% of respondents believe that most of their revenue will be coming from net-new customers, compared with 39% who say the majority will originate from existing customers. Predicting a heavier contribution from net-new customers is likely due to the channel’s slow shift to the service provider model, whether that’s cloud or managed services. Volume matters a lot in a recurring revenue model, and thus it will be imperative to drive margin and sales by adding ever-more new clients to contracts.
- While most channel firms today are reliably selling traditional solutions around backup/DR, storage and security, increasing numbers of these companies are expecting strong growth in emerging areas such as cloud infrastructure, SaaS and data analytics. Still others are predicting growth in areas that the channel has not traditionally played, such as custom application development, business process automation and compliance as a service. It’s an encouraging list of offerings, but with one major caveat: Are channel firms prepared to offer these more advanced services today? A year from now? For most firms, this shift will require hiring new technical staff, retraining existing staff and building a marketing story around such sales. So while 56% of firms are expecting growth in the area of business process automation, for example, the ultimate proof will lie in the execution.
- Amidst this shifting landscape, today’s channel population still remains mostly positive about their current vendor relationships, though the numbers have skewed slightly down from the favorability ratings found in the CompTIA study done one year ago. Thirty-nine percent of respondents described themselves as “very satisfied” with their vendors in the last year, mostly on par with the 41% that did so in 2015. This change is within the margin of error. But what might be most telling -- and indicative of some unrest within the channel -- is the number of firms expressing partial dissatisfaction with their vendor relationships this year. That subset more than doubled to 15% of respondents this year, compared to 7% that said they felt that way in 2015. Among another group of respondents – those that said they were generally pessimistic about the future of the channel – the degree of vendor dissatisfaction jumps even higher, to 23% of those respondents. To top that off, just 10% of the pessimistic group said they were very satisfied with their vendor relationships today.
- Beyond the cost of membership, which was cited as the No. 1 reason to drop out of a partner program by 4 in 10 respondents, there are myriad other irritants that cause channel firms to withdraw from partner programs. A general difficulty in doing business is one of them. It is a perennial complaint cited by channel firms dropping a vendor from their line cards. This complaint typically stems from poor vendor-partner communications, haphazard and ever-changing policies and requirements, and the prevalence of channel conflict.
- When it comes to vendor benefits, a third of channel firms said sales spiffs are less relevant to them today, while another third consider volume/upfront discounts and back-end rebates less important to their bottom line. Technical training provided by vendors is also seen as less valuable today. The No. 1 reason vendor benefits have declined in significance is that channel firms say they are relying more on their own sales and marketing efforts to burnish and promote their company brand.