There are two general perceptions that have become established in the global tech distribution ecosystem over the last few years. One is that the business paradigm of IT channel partners has shifted from being hardware-centric to more of being Independent Software Vendors (ISVs); the other is that IT channel partners in general have lost out (both in relevance and market share) to the global system integrators (SIs) across the world.
While the first perception might be more or less accurate especially in these days of shrinking margins, the second view has been strongly refuted by Steve Brazier, President and CEO, Canalys during the 2019 APAC Channels Forum in Taipei. While the large SIs might be growing inorganically through local acquisitions and garnering market shares, it would be incorrect to concur that the IT channel partners are whittling away.
Rather, the opposite seems to be true, according to Brazier, as a number of Canalys surveys in different geographies reveal that both big and small channel partners are comfortably outperforming the performance of the global SIs, technology vendors and the economies they work in. “The channel is on fire,” remarked Brazier even as he took potshot at the American analyst firms for continually predicting the demise of the channel partners.
The global SIs, no doubt, are on the ascendancy thanks to their acquisitions and increased focus on cloud services but that has not come at the cost of the growth of the channel partners. As they say, the numbers do not lie. The top ten global channel partners in the world — CDW, World Wide Technology (WWT), SoftwareOne, SHI, Insight, Computacenter, Bechtle, Atea, Econocom and Sirius– grew 11% in terms of revenues over the past 12 months. However, according to Canalys, most channel partners are growing at higher than 11% signifying their healthy position notwithstanding the onslaught of the global SIs.
While some analyst firms continue to proclaim that ‘the channel does not have a future, it is run by ageing people, they have not transformed’, Brazier urged partners to start having more confidence and belief in themselves and not get influenced by negative mindsets. The vote of confidence from the investors should be a strong motivation for the channel partners. According to Canalys, an investment in a global SI five years back would have doubled by now, while that in a leading channel partner would have tripled today.
Brazier advised that IoT and physical surveillance could be the two big catalysts for channel partners to grow in the future. According to Canalyst, there are 16.7 billion connected devices today expected to nearly double at 32 billion by 2023 driven by 5G and WiFi 6. “Each of those products needs to be sold, maintained and needs to be delivered – perhaps as a service. That’s your job!”
The partners need to deliver these devices that connect to the internet and maintain them. While that means the growth of IoT services as a lucrative area, the doubling of devices also means an explosive amount of data and services around how that data needs to be managed, stored, backed up, having disaster recovery procedures and security in place.
Another opportunity Canalys continues to encourage partners to think seriously about is security. Brazier recommends physical surveillance, building surveillance an easy business for partnerts to get into. Because physical security systems are shifting toward implementing technologies such as biometrics which can also make accurate assumptions about where individuals are on the premises, Canalys expects the convergence between cybersecurity and physical security to grow very soon and very quickly.
Overall, flash, wireless, hyper-converged, SaaS, IoT and sensors, managed security and public cloud are high growth areas for channel partners. The future is a hybrid, multi-cloud world where if data is primarily used locally, edge computing will be on the rise. For the more hardware-centric partners, with rising PC prices, cool designs and Windows 10 refreshes would drive growth. For all partners though, skills gap still remains the biggest challenge.
There have been other issues plaguing partners though these also might turn out to be business opportunities at the same time. These include subscription frustrations, an emergent cloud billing dilemma for vendors and partners, failed SaaS models, partner marketing maturity, AI and more. On the mobile front, smartphone shipments in the APAC region fell 2.8% year-on-year in Q3 to 549 million units due to weak performances by Huawei and Apple.
There was a bit of crystal ball gazing from Brazier and other analysts at the APAC forum. Google needs to make a considerable hardware or software acquisition in the next 12 months if it intends to gain a greater share of public cloud competitiveness. There is a new taxation on the anvil on deliveries of online-bought consumer hardware. There would be rebound in the smartphone market in 2020, kicking off a three-year era of growth as consumer demand is invigorated by 5G, foldable screens and faster chipsets, according to Rushabh Doshi, research director of global mobility, Canalys.
Jordan De Leon, Senior Analyst, Canalys analysed the pattern of channel growth in the APAC region. Distributors grew by 8% in APAC (excluding China where it grew 15%), while partners grew by 10% (13% in China). What drove the distributors? Primarily these included PC volumes, IoT, Public cloud, Security, Smart phones, Smart homes, and expanding vendors. For partners, the growth was led by security, Windows 10, digital privacy, IoT, Office 365, Infrastructure, Analytics, Digital transformation. In Q3 2018, the vendor share of the commercial channel product revenue in APAC was led by Microsoft (12%), HP Inc (6%), Lenovo (6%), Cisco (5%), Dell (5%) and HPE (4%).
Connecting the unconnected, straight to digital, cloud repatriation and edge computing remain the four biggest themes influencing the Asian channel markets. Individually, what are the growth points for partners in each country? Australia-New Zealand is witnessing growth in hybrod IT, edge computing and SaaS, while China continues to lead despite slowdown and showing its prowess in AI. India continues to ride the digital wave, Japan looks to host the most advanced Olympics, South Korea is the first to launch commercial 5G while in the South East Asian economies even streetfood distribution is going digital.
Some unique predictions for Asia: Alibaba Cloud will become the largest public cloud in Asia in 2019 (the third largest if China is excluded from APJ); Alibaba will be the largest B2B ecommerce platform in Southeast Asia by 2020, beating Amazon Business; by 2021, India will overtake UK and France to become the fifth largest IT infrastructure market; within three years, Chinese companies will become the leaders in AI, smart cities, 5G, exascale computing and microfinance.
Even as the forum concluded, Canalys left partners with a few important questions to ponder as they prepare for 2025. What kind of seller do you want to be? Do you have the right culture and management profile? Are you prepared to embrace new partnerships, and new partnership models? How far should you go in becoming a creator/lender/helper? It’s time channel partners look inward for the answers and if they successfully apply those learnings in their business environment, Canalys 2019 would prove to be the real success.