Distribution channels are moving front and center in the competitive arms race. Virtually everywhere in our scan of a hundred-plus markets, companies are finding that channel design, execution, and management are becoming critical to profitability, defensibility, and long-term growth.
This isn’t too surprising in mature commodity product categories, but it’s also the case in technology markets as well.
And even though technology offerings for small and mid-sized businesses (SMBs) seem tailor-made for direct-channel delivery, upstream providers and downstream customers often continue to favor the value created through new one- and two-step distribution models. The reason, we’re finding, is that SMB owners and managers still find themselves stymied by the dizzying pace of technology change, a proliferating universe of sources, and an insurmountable array of adoption hurdles.
And because they usually lack sophisticated and dedicated technology staff, SMBs are looking for best solution packages tailored to their business processes and integrated seamlessly into existing operations. In fact, share gains in the SMB market will increasingly accrue to distribution channels that efficiently and effectively deliver new value in areas related to solution customization, one-stop sourcing, on-site demonstrations, small-scale pilot testing, non-disruptive and affordable installation, enhanced adoption training, easy upgrade, and lower total adoption costs. And more.
Superb technical expertise is no longer adequate. SMB technology sales are evolving from one-off, pick-and-pack hardware and software licensing sales into persisting cloud-based subscription services. As hardware and software products become less stand-alone and more like component parts in a larger on-premise or off-premise cloud solution, physical product adoption and distribution services are taking a back seat to more consultative approaches to solving vertical- and user-specific business challenges.
Many sophisticated solution providers understand this shift and are attempting to ramp up the skill sets of their 3rd-party distribution partners. From a practical standpoint, this requires clear and actionable answers to two closely related questions:
What specific channel behaviors will move market share? and,
How do we incent desired channel behaviors?
For example, What steps should be followed to educate SMBs about their technology design and delivery options, in terms they find clear and compelling? What are the best ways to demonstrate tailored web-based solutions? What concrete channel activities are needed to maximize ease of adoption and use for SMBs? How can channel players best collaborate to ensure one-stop process integration and make upgrades effort-free for the SMB? Is this SMB’s business security best guarded through on-premise or off-premise cloud solutions? How can the channel help reduce an SMB’s all-in cost of adoption?
While major technology solution providers have largely figured out the product and price side of new offline and online technology offerings, many of the biggest players have yet to pin down a distribution-based competitive advantage. And while Gartner estimates that over the next five years companies will spend $112 billion cumulatively on cloud-based solutions, the road to SMB adoption has been bumpy.
SAP, for example, recently acknowledged that poor downstream value-added meant that over the past three years adoption rates of its internet-enabled offering ran barely 1% of target. IBM is finding that barely 20% of its partners are driving meaningful results in their local markets.
In the end, better results for all technology providers and their distribution partners will take detailed, customer-based understanding of the market combined with disciplined execution in the heart of the channel system – in other words, the what and the how.