Automated Services Dominate the Channel

The line of demarcation between managed and cloud services is blurring fast – and is virtually invisible already on solution provider balance sheets.

By Larry Walsh

The IT industry and channel is hung up on labels. Vendors want to segment partners into neat columns of like characteristics and base programs around common attributes. Partners cling to their business-model monikers as if a customer could tell the difference between a VAR and a systems integrator. (Many can’t and most don’t care.) And channel pundits endlessly debate the definitions of these different labels.

As far as I’m concerned, it’s time to retire two labels for channel business models – managed and cloud services – and introduce a new one called “automated services.”

Automated services include anything that requires no limited on-premises infrastructure and little to no on-site management. Basically, automated services are those that scale across multitudes of customers and are delivered by a vendor or partner with limited human resources.

While retiring the two labels is a practical impossibility, as they’re technically different in their foundations and somewhat different in their delivery, The 2112 Group’s latest research finds partners aren’t necessarily making that distinction where it counts – namely, on their balance sheets.

[ctt tweet=”#AutomatedServices scale across multitudes of customers & delivered with limited human resources.” coverup=”feP2H”]

According to 2112’s 2016 Midyear Channel Performance Report, the average partner earns 43 percent of its revenue through the sale of hardware and software products. Nearly four in 10 partners earn more than 50 percent of their gross revenue through managed and cloud services. And the balance is typically made up of professional and consultative services.

Partners aren’t necessarily differentiating between managed services revenue and cloud services revenue, as the two categories are quickly consolidating in the channel. Customers aren’t just looking for hosted infrastructure and cloud-based applications; they want third parties with the competencies and scalable resources to manage those things for them. In some respects, this consolidation is an evolution of how managed services replaced break/fix services.

Already, managed services tool vendors such as Continuum, Autotask, and ConnectWise are bolstering their remote monitoring and management tools with capabilities for managing cloud resources. New vendors such as Unigma are enabling partners to reach directly into clouds to provision, configure, and manage resources as a service. And, of course, partners are learning quickly how to parlay service offerings such as Office 365 into professional services that resemble managed services.

[ctt tweet=”4 in 10 partners earn more than 50% of their gross revenue through managed & cloud services.” coverup=”rl1bg”]

All of this adds up to recurring revenue from highly automated services that aren’t necessarily dependent on a hardware or software product sale. In fact, partners report to 2112 that cloud, managed, and professional service sales are expanding rapidly in 2016, while hardware sales are either static or declining. This means the product side of the partner ledger will come under increasing pressure and shrink further over time.

Automated services won’t mean an end to product sales through the channel. If anything, those services will facilitate the expansion of sales under the Internet of Things (IoT) umbrella. Billions of devices coming online will require monitoring, management, security, and data refinement. IoT will open more business models falling under automated services that only the channel can sell and support.

For some time, vendors and partners will need to remain aware of the distinct revenue sources – managed vs. cloud. But as services mature and partners expand their offerings to meet customers’ needs, managed and cloud will become as seamless as their recurring revenue is today.

Larry Walsh, The 2112 Group

Larry Walsh is the founder, CEO and chief analyst of The 2112 Group. Follow him on social media channels: Twitter, Facebook, LinkedIn.