The Role of the Channel in UC
In this Industry Buzz podcast, the UCStrategies Experts discuss the Channel's role in unified communications, what is changing now and why, and recommendations and skills for future success.
Dave Michels: Hi, this is Dave Michels from UCStrategies, and I have a bunch of UCStrategies Experts with me. Today we're going to talk a little bit about what's going on in the Channel in Unified Communications. We often talk about the technology and how it's shifting, but the ramifications and implications to the Channel are pretty significant as well. "The Channel" is a term we use loosely to describe things like the distributor networks, the reseller networks; some people will include consultants in the term Channel because of their key influence capability. Also we use the term System Integrators and they're all in a bit of this metamorphosis with Unified Communications as the technology changes. And I thought we would talk a little bit about the challenge that they're experiencing. One big issue is the disappearance of hardware between soft phones and software-based systems. There's a lot less hardware to move around which has significant implications for traditional distributors and of course the traditional dealer model, which used to be largely based on a local model where they had inventory and service trucks. And all of that is flattening out, the world is flat, as they say, and VoIP is even flatter. So that has big implications about who is the Channel, is it somebody down the street or is it somebody across the country, or potentially somebody around the world?
We are also looking at the emergence of the hosted space. Everything from hosted VoIP to services like Skype have significant implications around the Channel, particularly since an organization with lots of offices around the country, may have had lots of different Channel reps. Now they might be using one hosted provider or a service like Skype for all of their sites. And these services have different kind of maturities in there Channel programs. For example, Skype doesn't have a very attractive commission to a lot of traditional Channel players.
We have also got the issue of the vendors themselves: Channel sales versus direct sales. A lot of the larger organizations expect to deal with the vendors directly. Most of the manufacturers do not offer any kind of implementation support and are pushing that towards the Channel. So lots of issues going on here and I thought we would kick it off with Jim. Do you have some thoughts on this?
Jim Burton: Yeah, thanks a lot Dave. Having followed the Channel for many, many years through the evolution of many technologies, history is somewhat repeating itself. There's a couple of things that I think are important to note. One is the Channel is always following the technology, meaning that the vendors come out with new products and services and it takes the Channel partners a little while to catch up with that. Because they are not interested in serving bleeding edge products and technologies, they want there to actually be a market for it before they jump into it. We have been seeing that in the UC Space. In fact, at the Microsoft Partner Conference a couple of months ago, I noted that a number of the vendors said that they thought they would be better off if the Channel had been a little more aggressive-that they actually could be selling more than they are today, but they are dependent on the Channel, the Channel is being a little bit slow.
The Channel though today is faced with some real serious problems. And it is an obstacle that they have to overcome, and they will overcome. They have in the past at least overcome. They are changing as you pointed out Dave, from a hardware model to a software model. And their business needs to be changing to reflect that. If you go back into history as the Channel of voice vendors and data vendors or Channel partners started converging a little bit, you saw that all of a sudden, the innerconnect as we call them, the voice VARs, they had a different business model than the data VARs. And quite frankly, it is the data VAR model that is winning out for a bunch of obvious reasons. They are not getting opportunities to make money on the hardware like they used to, so they have to do it in services. There is great opportunity, by the way, in selling in services, but it is just a little bit different model than what they are used to. And then if you add into that cloud services, you really start seeing challenges in the distribution model from where a reseller that was selling hardware would make an up-front sell and make lots of money for the services and the components that went into that, to a cloud solution, and then in that cloud solution, it is a recurring revenue over a period of time.
So their financial business model changes from big up-front lumps of money to that same amount of money spread over time. And that's hard for a business model to change. If you are in the services business and you have an opportunity to sign somebody up for a hosted service, in some ways that actually become incremental. And it also, I think, brings up another point, when people start talking about some of these new services, to understand that there is always the need for hardware. You need some bandwidth distribution and you need voice I/O of some kind within the organization. So there is always a need for some kind of hardware, but those big chunks of iron that we used to sell call PBXs, you know, it's software running on a server these days.
So I really expect the Channel to step to the table and to be very successful. They have got a lot to go through, they have got a lot of learning to do, they can use a lot of help and that is one place that UCStrategies is going to be focusing on, as we have in the past, of working with the Channel to help them get educated about the opportunities and the challenges in front of them.
Art, you have always got a lot of wonderful ideas, so I am going to turn it over to you.
Art Rosenberg: Well I do not have ideas, I try to, before we talk about solutions, talk about what is the problem. Let's look at what some of the problems that you sort of introduced for the Channels, because it is not enough to say, here is the solution, here is a box, or even here is a software suite. Because what we are saying with UC is that the requirements for UC are not for everybody in an organization. Everything is different for the individual end users and end user groups and it makes no difference whether they are on premise or they are working from the home, or their mobile, it is all of the above so there is a lot of flexibility required and it has to be drilled down to something we have always been talking about as UC is, its main purpose is not for making it easy for users to communicate with other users, but it is number one from a business perspective to improve and optimize the business process. Which is not only person to person communications. So things like CEBP, Communication Enabled Business Processing, becomes very important. Which applications are we talking about are going to have high value, high payoff, and who are the people involved with them and what are their needs? And once you identify that, then you can do some implementation. But not the other way around where you all will buy everything for everybody and lets figure it out later.
So there is a challenge in terms of defining the real operational requirements, how it is going to be implemented because sometimes you really do not want to own the thing, you just want to try it out and so hosted technology has become very important just to find out what you are trying to do, it works. And things like CEBP, we're getting into applications, especially mobile apps, this is not just communications, it is what the application, the call flow if you will, the work flow. And you do not want to be connecting things, you just want to know who needs to be involved, with what information and how are they going to get it. And last but not least is going to be what you mentioned as who is going to be selling what to the end user organization, the customer as opposed to individual end users. Those individual end users are not going to buy anything except what they want for themselves. If they are working with a company, with a business, the business is going to dictate, "this is what I need for my end users; those that are within the organization, those that are going to be my customers and these are going to be by business partners." And who is going to make that all work together and be integrated in a smooth, non-violent and efficient way? So the challenge is going to be who is going to be doing what when it comes to the Channels. And how are they going to get there? And what are the developers, the providers, the vendors if you will, what is their role in contributing to that in terms of compensating, making it interesting, as Jim you pointed out, for the vendors to say, "hey, it is worthwhile for me to get on the subscription basis and because the people that I work with, that I know that are in my territory or whatever, my business model, they are the ones I can support."
Marty Parker: This is Marty Parker and I want to talk about the disruptive aspects of Unified Communications from the VAR and system integrators' perspective.
SI's must always be very careful about each vendor's intentions and motivations, since the vendor's goals may not be aligned with long term health of the Systems Integrator. Specifically, the IP PBX vendors desperately wanted to maintain their revenues and momentum in the transition from traditional PBXs, so the entire emphasis was on making the IP PBX look like safe but cheaper replacement for the PBX, sold to the same buyers. So, in most cases, UC functionality was just bundled into the PBX license structure. Whole families of new and disruptive technologies including IM, Presence, collaborative workspaces, social software, application development software tools, and cellular network calling were treated as just added features to a PBX, not as seriously disruptive solutions that would marginalize or replace the PBX over time.
Only three to five major companies did not have that specific view and were willing to have new, disruptive technologies - Microsoft, Cisco and IBM, are the top three, and maybe Skype and Google. Microsoft seeks to convert PBX spending into an entirely different form of communications, sold mostly to different buyers. Cisco wanted to grab market share from the traditional PBXs and so needed to look somewhat different; also, Cisco could sell in part to a different buyer, the infrastructure manager. IBM, however, was fine with the PBX and really wanted to add communication and collaboration to their strengths in business process automation, collaboration software and portals, delivered mostly by their own internal professional services organization.
Based on those views, Microsoft and Cisco spent heavily on developing new channel capabilities with programs for new VAR and SI skills development, new applications approaches and justifications, a start-up and application funding, and lots of marketing reinforcement including serious unified communication, not IP PBX case studies. The results are pretty clear - Microsoft and Cisco are the going-away leaders in the Gartner Unified Communications Magic Quadrant.
My bottom line message for VARs and Systems Integrators right now is to really evaluate the option of just milking the replacement of PBXs with IP PBXs versus the option of really embracing the disruptive solutions, as several of my peers have already suggested. If that feels too risky, then consider starting another division of your company, maybe even with a different brand, or even starting a new parallel company in the pure UC, Collaboration and business social applications spaces. Even there beware of the vendors who are just branding their products as collaboration or social - we've seen a rash of that in the last year. Really look for the new and disruptive solutions. Don't be afraid of integration - that's a skill the customers will pay for, just as they did with Genesys Labs in the call center market in the 1990s. And Genesys Labs went on to be the call center leader by the early 2000s. Remember, Integrator is part of the SI acronym. And, if you find some great applications, don't hesitate to package them and sell them to every company within that vertical or horizontal need set.
If this makes sense to you, stay tuned here are UCStrategies.com. We are committed to the creative work of building these new, disruptive markets, not to the goal of once more migrating of all the PBXs on the planet.
Steve Leaden: Excellent points. I have a couple of thoughts on my end as well. So number one, you know within the last 10 years, the entire Channel has gone through some tremendous disruptions. For example the legacy voice vendors VARs now have to learn data skill sets. So we still experience, on the enterprise level with our customers, some of the VARs that we deal with just do not have good data skill sets. And so there is a learning curve there. So they had to learn that. The voice over IP model in general doesn't require truck role. Jim as you had mentioned a little bit earlier and Dave, it is not the traditional model anymore, in fact most of the manufacturers claim and most of VARs claim that most of the troubleshooting, up to 90% can be resolved remotely. That is a huge paradigm shift in the industry from truck role, that I can solve your problem now in the cloud if you will, or from the knock center from the VAR or from the manufacturer.
You had mentioned software based models. Absolutely, and everything has now been pushed towards the licensing-based model versus hardware. So again, there is less hardware going out to the field. Another significant change has been, in the voice over IP world, geez, I do not have to pay move and change activity any longer with the local VAR. So all that revenue that they have seen over the years, in some cases have even gone to close to zero line item, depending upon how they have been able to adjust. And of course you have got the dynamic of the cloud you, to Arts point. And how is that going to change with the hosted model. And to Jim's point earlier, I think the solution here for the manufacturers, and the ones that are originating this, is that they have to look at some kind of ongoing compensation model. So that the channel can eventually adapt to all of this disruption. So and finally, you do have several vendors out there: ShoreTel, Avaya, Siemens, Cisco, just to name a few that really want to push themselves towards a Channelized model. So there is a lot of disruption going on. The manufacture-based direct sales model is slowly moving away towards a Channel sales model and yet all of this disruption going on based on this new technology or technology that has been around for a short time, you know, is changing.
And then my last point, I know I said final, but my last point here is that the other thing the VARs really need to be looking at, the Channel needs to be looking at, is how do I adapt to these new technologies. So in the UC space specifically, the IM Chat function, the presence, all of the software based UC functions, you need to develop a professional services skill set in order to adapt and use that as a core competency, which you have always been able to do dial tones, Mr. VAR, you have always been able to do voice mail and all the basics, cabling etc. But now you have got all these new skill sets in the software-based model.
But the one key I think really that all of the Channel has, and it is way above any manufacturer or anyone else that does not have, and that is that they have the customer relationship and there is a significant dollar value to that relationship so somehow, through all of this disruption, we value the channel and we have to let the manufacturers figure out how we are going to compensate the Channel to maintain that relationship with the customer.
Dave Michels: Steve, I wanted to ask you a couple of questions because I know that you are active as a, you know, your primary business is a consultant.
Steve Leaden: Yes sir.
Dave Michels: As the traditional dealer moves away from inventory and more into selling their expertise or the SI model of you know, "come to us to help you implement..." do you see a blurring between what we would normally call system integrators or dealers and consultants? I know for example you are a member of the Society of the Telecom Consultants which does not allow any type of reselling arrangements at all.
Steve Leaden: Correct.
Dave Michels: So my question is, do you see the consultants moving more towards reselling acceptance and more of the resellers moving more toward consulting? What are your thoughts on that?
Steve Leaden: Well at least in my space Dave, we are strictly Independent Consultants and I know that when we get engaged by an enterprise clients, they are actively seeking or have very high interest in using someone who is independent, who does not have any specific ties to any one VAR. So do I see a disruption in the market in that space? I think there is always going to be a need for an Independent Consultant, I think though what is going to happen is that as this crossed border happens between integrators and VARs, I think that will definitely merge. I think VARS in order to offer value and the Channel wants to offer value, I think the VARs are going to have to create additional professional services skill sets. So is there potentially some overlap between consultants and professional services? Yeah, at least in the highly specialized areas I would think. But I think there is always a role for an Independent Consultant through a needs assessment through a procurement process through project management skill sets that will represent the customer side for sure, David.
Art Rosenberg: Dave, I just saw a recent study done by the Brookside Group on telecom consulting growth drivers for 2011 - 2012. I do not know if you have seen it. But they surveyed all their, you know, the people they consider as telecom consultants, whatever label you want to put on them. And the number one driver for their business is one, unified communications, two collaborative technologies, three mobile applications, number five shows as cloud computing is giving the business and number seven is the contact center area, and I think number nine is virtual networks. But the point is, that everybody is now hovering around unified communications for business communications in general. So telephony is only a part of that, and never will be separate anymore.
Dave Michels: Russell, we have not heard from you, what are your thoughts on this.
Russell Bennett: Picking up on what Art and Steve were just saying, I think an important part of the Channel for UC are the implementers and deployers. This is a completely new skill set and very few if any customers have these skills in house and so their tendency is going to be to outsource the deployment of UC to a systems integrator. If we think back in the technology business to the Y2K era, there were systems integrators who were making tons of money on rolling out SAP and other Y2K-related business systems. I think that scale of business is going to be there for these in guys in deployment of UC. You think about the major UC deployment that has happened to date, particularly in oil and gas. You have got hundreds of thousands of employees being rolled onto UC systems in many different countries and many different sites. I mean, in geographically challenging sites like offshore oil rigs and so on. And this all takes just a ton of work. It is a multi, multi million dollar project.
So the skills in deploying and managing and architecting on these UC Systems, integrating them with the existing systems and with the CEBP that Art already mentioned, there is just a ton of business there. The problem is there is a bit of a chicken and egg problem. Because the SI's do not have the skills either. So they have to try and figure out as they go along. And a lot of them are not that willing to make investments up front. They want the business to be there before they will make the investments. Obviously, that is a chicken and egg conundrum. But a significant part of the Channel play for UC is going to be deployment and even dedicated hosting. I know that Shell outsourced the entire project to AT&T. AT&T runs Shell's UC network for them. So these are all opportunities, these are all some degree of challenge, but a significant part of the future of the UC network is the deployment.
Art Rosenberg: I just wanted to add a comment because definitely we are in agreement as to the role of the SI's and especially the things like CEBP, but now we are getting to a level, not just of individual end users and what they personally prefer or want, but now we are getting into the individual business processes, and each one of those requires some analytics as to how to make the process more effective and more efficient, and exactly and for whom. And then you can bring in how the UC capabilities will be integrated. But again, chicken and egg, what are going to do first. Are you start with, well I have got the communications part, well what are the applications? I don't know. Obviously I think there is going to be the need for someone to go in and say, let us look at our business processes the way we have been doing it, and how we might want to do it, and start evolving there. And the question is, whose skills can help them do it, because no one has the experience, period. Especially when it has to be customized.
Dave Michels: You know, both of you bring up a real interesting point because the skill shortage is a big problem in the distribution or Channel network. And it is not a problem that can easily be solved by the vendors because so many of the solutions are multi-vendor solutions and require a broader focus than a single vendor can provide. But I think that is an interesting change that is impacting distribution. I have seen a lot of the distributors are focusing much more around training and education than they have in the past. I know that I get a lot of these e-mails from ScanSource for example that are pushing education. I did not think of a distributor as so focused on that. You know, 10 years ago, the distributors were much more focused on the product 10 years ago. Don Van Doren, I know that you have got an opinion on this as well, what do you have to say Don?
Don Van Doren: Hi Dave, thanks very much. I guess I just would emphasize some of the points that Steve and Art had just been making. Especially with respect to this issue about what is the overlap between the SI's and the VARs and the Independent Consultants. One of the things that is interesting of course is that as the vendors are broadening their unified communications capabilities, one of the things that happens, of course, is that they are all getting into each other's turf. What that means of course is that VARs or the SI's that represent one of those particular vendors, all of a sudden there is potential at least for a company to have relationships with several VARS, both of which could be offering some UC solutions. That is one of the ways that frankly Independent Consultants still have a very important role to play, is just to help to sort that sort of thing out. Marty and I get involved in those kinds of projects continuously, because people do want that independence as Steve mentioned before.
Dave Michels: Very good, does anyone else have any wrap-up comments to make?
Jason Andersson: This is Jason Andersson calling in from Europe. I think the discussion around channels is really important and the new skills that they require is rather vast, if you look at it from the whole perspective. First of all, they need a much more close relationship with the vendors that they represent, which is what we see here in the Nordics and in Europe. The vendors tend to limit the number of vendors that they represent, so the channels become narrower in terms of who they represent.
At the same time on the other end, the customers are requesting them to become almost like a consultant, telling the customer where to go or advising them where to go, based on the vendor that they've chosen or the strategic direction that they've chosen. Now this requires (like you have talked about before) a much better IT know-how than they have today, and also a much closer relationship on the business side. So the channels are changing from pure technology advice into technology delivering to a business relationship, talking to the business owners more than the IT departments.
In addition to traditional IT skills and IT know-how, they also need integration skills. Now UC is much more than just showing presence and having a soft phone on your PC. It very much is about tying unified communications features into a business process perspective and that requires integration skills. With the new types of devices coming, such as tablets and things, where you can show a lot more information than you can on a fixed line or even a mobile phone, you want to integrate much more to get more information in the hands of the users.
Looking at it from a mobile perspective, the Nordics has a very high penetration of mobile devices in the enterprise, and mobile UC is high up on the "must have" list of most companies here. Then you get into the issue of mobile device management, of understanding security on mobile devices, and all of that area is extremely important together with the integration skills.
And of course, you have some new skills on top of this that is required and demands that are coming very strongly and very quickly. Cloud is one of them that you mentioned before. And other than that, you have new devices. And with new devices comes new opportunities and of course, you can have a mobile device or a tablet or something similar to that where you have a SIP client or even UC apps, and if you tie these to the cloud, with security issues and firewall issues and all of these different things, you get a very complex situation that requires new skills for the channel representatives.
On top of that, a lot of the new mobility features are going to use enterprise-based wireless WiFi solutions and even 3G data solutions for more wider roaming. And that is also a different skill than they are used to. In Europe, DECT is still very prevalent in many offices and enterprises. And this is being changed over to somewhat SIP-based, but also to WiFi solutions and 3G data solutions.
So there are a lot of new skills and a lot of challenges for the channels in terms of changing the relationship they have with the vendors. Changing the relationship they have with their customers, and at the same time building up the know-how, limiting the number of vendors they represent at the same time as they get the new skills, such as mobile device management and cloud security-type of computing issues. Those are some things that I see from where the channel needs to go in the next year or maybe even shorter than that.
David Yedwab: I would like to add some comments to my colleagues' thoughts regarding channels. It's also obvious to me that UC solutions are likely to continue to be multi-vendor for many reasons going forward. From the channel perspective, that's likely to require the channels to decide whether they need to become certified by more and more vendors, which is a lengthy, time-consuming time, or to find a way to partner with each other for both provisioning solutions and supporting solutions.
Which of the partners is going to be the lead? Which pieces of provisioning support, sales, etc., will each of the partners do? And how will the dollars be divided?
Several of the vendors are just beginning to wrestle with the support offers in a multi-vendor environment, and more work needs to be done, because customers won't buy if they are not comfortable that the solution will work and that it can be fixed, when it doesn't.
Art Rosenberg: The last comment I would want to make obviously is, especially when it comes to the integration issues, we don't have all the standards in place unfortunately. And I think that is going to be a big handicap in being able to move forward in a seamless way and for people to be cooperative, "coopetition" if you will, because it is all going to be software based, not so much hardware. And the question is, are there going to be standard to ensure the software, because software is going to constantly change. It is not fixed and you're done, like hardware. Hey we are not going to make it anymore or it is going to be good for a couple of years. It is going to be constantly changing as the need requires. And so the question is, how are those standards going to come about, because they are not here yet. They are not good enough.
Dave Michels: Very good. With that, we will wrap up this podcast. Thank you all experts for participating and we will be back in about a week.