5 Positive Channel Trends for 2018

The market is full of bad news and talk of challenges ahead. In reality, 2112’s research finds ample reason for optimism among vendors and partners alike. Here are five positive trends happening in the channel this year.

By Larry Walsh

Bad news is everywhere.

Looming trade wars. Unstable markets. Technology vendors laying off staff. Pressure on legacy business models. Tension between nations around the globe. Streams of violent weather systems pounding the landscape. And, of course, the sour political climate.

You can’t open your browser or e-mail, or turn on the radio or television, without getting bombarded by some report about a dire situation related to the topic du jour.

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But in truth, the world isn’t as bad off as it seems. The market isn’t turning negative. And the technology market and channel are actually in pretty decent shape.

Every year, The 2112 Group does its Channel Forecast study, in which we measure partners’ prior-year sales performance and current-year sales expectations. The study also captures partner sentiment regarding market conditions. This year, we introduced a parallel study, Channel Chief Outlook, which measures the experiences and perceptions of vendor channel executives.

Guess what? Both studies are full of good news. Despite the talk about layoffs, budget cuts, and shifting priorities, channel executives and partners express a fair amount of confidence and optimism about the market and where their respective businesses are headed.

Here are five things that are going right in the channel.

1. The Channel Is Growing

Running a business and closing sales is never easy, and success is never a certainty. However, technology vendors and partners report doing quite well. Growth is real in the channel. In 2017, channel partners increased gross sales 11 percent to 15 percent, on average. The compound annual growth rate (CAGR) for the channel in the past three years is 16 percent. Eight percent of channel partners expect their sales to increase in 2018, and 89 percent of vendor channel executives expect positive growth of their indirect sales. When you consider that the IT market is growing at a rate of only 3 to 5 percent annually, these growth numbers are outstanding.

2. Transformation Is Happening

Channel chiefs say getting partners to adopt new technologies and business models is their biggest challenge, but partners are investing in their future. Six out of 10 partners are making investments in expanding their cloud computing capabilities. The average partner doubled its cloud computing sales, as a percentage of gross revenue, in 2017. And more partners see growth opportunities in the Internet of Things (IoT), mobile technologies, cloud infrastructure, and blockchain. To put it simply, partners aren’t sitting tight on legacy technologies and business models.

3. Managed Services Are Winning

Managed services are an increasing source of revenue for vendors and partners alike. The average partner earns the majority of its profit from managed and professional services, which are often intertwined. Vendors are increasingly pushing their own managed services offerings and models through the channel to augment existing revenue streams and create new revenue segments. Four out of 10 vendor channel executives believe the majority of their indirect revenue will come through managed service providers by 2023. These numbers are a pretty strong reflection of the strength and value of managed services.

4. Partners Remain Relevant in Customer Relationships

Sometime in the channel past, the industry started referring to partners as trusted advisors. The idea behind the moniker is that customers will accept partners’ advice and recommendations on vendor products and services because they have strong relationships. That remains true, even in an age of automated and self-service purchasing. More than one-half of vendors are looking for partners to help expand their market share and acquire new accounts. And nearly one-half are increasing incentives and rewards to partners that bring them new logos and business. In short, the channel isn’t as much about lead generation as it is about curated relationships between partners and customers that vendors can tap into for sales.

5. The Channel Is Strong and Getting Stronger

Some people say cloud computing and new services-based business models will disrupt the channel and make it easier for vendors to go direct. In reality, two-thirds of channel partners say their vendors see the channel as the preferred or necessary route to market over direct sales. Vendors agree; in 2018, four-fifths of them are expanding the number of partners in their programs, two-thirds are increasing incentive budgets, and three-fifths are making more training programs available to partners. The channel is and will remain the irresistible route to market for the foreseeable future.

None of this is to say that the channel is devoid of challenges or bad news. Partners are challenged in identifying new opportunities and accepting the risks of investments ahead of revenue. Vendors struggle with balancing the need to develop new channel revenue with emerging technology while preserving legacy product revenue. And vendors and partners still aren’t clear on what the future holds for them in terms of market expectations, value propositions, or business models. Nevertheless, we here at 2112 find an equal – if not greater – supply of reasons to remain optimistic about the channel’s value, future performance, and long-term relevancy.

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You can get more insights and analysis of channel trends in the 2018 Channel Forecast and Channel Chief Outlook reports, available at the 2112 Library.

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.