ChannelTrends: The Three Biggest Threats to the IT Channel Business Model

Experts have been predicting the demise of the IT channel for more than a decade, and dozens of others have added to that narrative over the years. The problem with that premise is that the reseller/support segment of the industry has continued to strengthen and morph itself to overcome every challenge that comes its way so far. But there are some significant concerns that could threaten the channel business model as we know it.

Channel threatReports of its death have been greatly exaggerated. While it seems like an annual occurrence, some experts have been predicting the demise of the IT channel for more than a decade, and dozens of others have added to that narrative over the years. The problem with that premise is that the reseller/support segment of the industry has continued to strengthen and morph itself to overcome every challenge that comes its way so far.

The thing is, most SMB companies couldn’t compete without the solutions and services channel firms provide, despite decades of ads and communications informing them otherwise. Local support and trusted advice remain a crucial value-add that online vendors simply haven’t been able to replicate — nor should we expect it to anytime soon. But solution providers can’t take that for granted. That personalized service as a differentiator could all but disappear if certain things were to happen.

What could possibly cause that kind of shift and threaten the “IT channel way of life?”

1. Complacency
Satisfaction with the status-quo will severely inhibit the growth of a business. In fact, stagnation has been the death knoll for many IT companies over the years, including solution providers, VARs, vendors and distributors. No tech business can afford to ignore advances or fail to address the changing needs of its clients. Yet, for numerous reasons, many of them do.

The issue often comes down to bandwidth and focus. While some IT services firms are getting better at engaging and discussing portfolio expansion with their customers, most are still having trouble finding enough skilled professionals to provide more than their basic offerings to their existing clients. Some settle with doing what they can with who they have. Those that get creative with salary and benefits packages or use experienced IT HR specialists to recruit the right people usually fare much better — if they can overcome all the other challenges that VARs and MSPs face today. Complacency has no place in their vocabulary.

Channel firms will rely even more on innovation and specialized expertise in the future. Those are the differentiators that allow them to attract new clients and secure longer-term contracts with existing customers. Recurring revenue growth improves cash flow, which allows MSPs to continue expansion, hiring and a host of other business-critical activities. Those who become complacent (whether satisfied with their current situation or just tired of pushing forward) will quickly find themselves falling behind. That’s a real threat to channel success.      


2. Business Acumen/Structure Limitations 
For every person with an accounting, marketing or other organizational degree running an IT firm, there are probably 10 (or more) tech entrepreneurs with no formal training in those areas. That doesn’t prevent those in the latter group from being successful. In fact, thousands of small firms started by IT engineers and technicians have grown into multi-million dollar enterprises over the past couple decades. But just as many, if not more,     

The reality is, many MSPs may find themselves competing with large, enterprise organizations in the future. CompTIA’s Carolyn April recently shared thoughts on Amazon’s foray into managed services and how that company’s new offerings might eventually trickle down to the SMB. Competing with organizations like that will require a much higher level of business acumen.   

If not already doing it today, IT services entrepreneurs will need to delegate and plan much better than they do today. That means shifting day-to-day responsibilities to others with the proper skills and training, freeing more of their time to work on “big picture problems” and long-term strategy. Without someone working “on” the business instead of “in” the business, many IT services will lose traction to more forward thinking competitors.  

That’s why management skills and resolve are so important. Even when MSPs thoroughly research and evaluate all their options, chances are good that some of the decisions they make will falter or fail. The problem is knowing the signs to look for that indicate a shift in strategy is needed, and what adjustments could drive a more positive outcome. After committing to a project, how long should they let things progress before altering course or shutting it down? Are they tracking ROI and other crucial metrics on a continual basis?

Every business manager must be able to answer those types of questions today. Organizational leaders need their hands on the wheel and their focus on the road ahead. Many channel companies will fail in the years ahead if they don’t have someone with that business insight at the helm.


3. Artificial Intelligence                                                                                              
Automation will replace millions of jobs in the coming years. In fact, several recent articles based on somewhat reputable research have suggested that upwards of half of the current labor force would be displaced in the coming years. Those figures are suspect, knowing the bigger the number, the better the headline. But those dire warnings still contain a certain level of authenticity.

Machines are already replacing people on assembly lines, in restaurants and grocery stores. What makes those in the channel exempt from those advances? Imagine a world where small business owners could input their plans and problems online and have receive advice and design options with no human involved. Integration and delivery processes could be automated, with the implementation mostly “plug and play” so little technical support is needed.    

These wouldn’t need to be canned solutions based on checking the right box, but intelligently designed systems adapted to meet that customer’s unique business plan, infrastructure, employees, vertical and a host of other organizational factors. AI and other technological advances may never replace field technicians and other critical tech roles, but they may end up working for large enterprise organization rather than smaller channel firms. What sounds like a “Buck Rogers” scenario may actually end up being the biggest threat to the IT channel “way of life.” 

Brian Sherman is Chief Content Officer at GetChanneled, a channel business development and marketing firm. He served previously as chief editor at Business Solutions magazine and senior director of industry alliances with Autotask. Contact Brian at [email protected]

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