Community Call – March 15, 2022

RECAP: Examining Tech Industry Withdrawal From Russia; Highlighting Findings From the 2022 Channel Forecast

By Alice Gunther

Channelnomics is going public.
No, Channelnomics isn’t filing an IPO. It is, however, opening up its monthly Community Calls to all tech leaders who work in go-to-market roles – channel sales teams, marketing personnel, and partner program leaders, for example.

The move is in direct response to requests to make the calls accessible outside of a CiQ subscription. Previously, attendees had to register in advance to join calls with CiQ subscribers.

March 15 marked the first open CCC, which featured a lively discussion on Russia’s invasion of Ukraine. The crisis weighs heavily on the minds of everyone in the channel as they ponder how it will affect their business.

T.C. Doyle, vice president of strategic content at Channelnomics, led the call. He was joined by Larry Walsh, CEO and chief analyst.

Doyle opened by speaking about the “great exodus” from Russia, which has seen technology companies withdraw their business from the region. One key point of discussion is what exactly it means to “withdraw.” Euphemistic phrases such as “suspending transactions” and “ceasing business activities” mean different things to different companies, whether a complete abandonment of the marketplace or a partial withdrawal of business with continued support to existing installations.

Walsh described the situation in Eastern Europe as “quite fluid” and explained how Channelnomics is keeping up with events as they unfold, staying in close touch with economic partners in the region and monitoring activities in terms of impact on markets and supply chains. Walsh, anticipating disruptions to those supply chains and slowdowns in certain markets, cautioned that further economic uncertainty is inevitable as China heads back into pandemic lockdown.

As Doyle pointed out, much of the North American technology industry does little business in Russia and will survive the loss of Russia as a market. The downstream effects of the conflict on the greater global economy are a more immediate concern. The Conference Board, an economic think tank and close collaborator of Channelnomics, predicts that the cost of sanctions and other disruptions caused by the Russia-Ukraine conflict will cause the GDP in North America to fall about 1%. Europe, meanwhile, risks going into a recession.

Disruption of supplier relationships with China, inflation caused by spiking European energy costs, and increased costs of transportation as flight patterns avoid Ukraine and Russia will also have repercussions.

To help navigate your way through the crisis, Channelnomics has prepared a series of assets that are available to CiQ subscribers, including a situational overview from Walsh, an infographic that shows which tech companies have suspended operations in Russia, and an analyst note by Doyle on the practical and legal ramifications of leaving Russia. (See a list of available and upcoming CiQ assets below.)

After discussing the conflict in Ukraine, Doyle shared insights from Channelnomics’ 2022 Channel Forecast report, starting with this discovery: Revenue expectations fell short in 2021, with 65% of partners reporting meaningful growth of more than 5% – just shy of the 70% growth expectation. Among respondents, 72% – nearly three-quarters – are now projecting meaningful revenue growth in 2022. Walsh called these kinds of predictions “a barometer of expectations and confidence,” interpreting the statistic as one of “cautious optimism.”

Other statistics from the report:
As a share of revenue, combined cloud and managed services will remain stagnant and well below pre-pandemic levels. But hardware and software sales continue to trend positively in response to continued demand for remote services.
Partners report that more than half of end customers lost in 2021 had their businesses disrupted or eliminated by the global pandemic. That number is down 10% from the previous year.

Partners plan to reinvest less revenue in their businesses in 2022 than they did in 2021, and much of what they do reinvest will go toward increasing sales and marketing capacities. While increasing sales capacities (61%) and marketing capacities (45%) are the leading revenue reinvestment strategies for 2022, 40% of partners say they’re expanding technical capabilities, and 24% are expanding their portfolio offerings.

Most partners looking to expand are moving into adjacent segments, new geographies, and horizontal tech markets, not vertical spaces, which would cost partners in the way of hiring more talent, among other things.

Doyle shared some statistics on popular investments for 2022:

Partnership Investments
-48% are partnering with service providers to deliver cloud and application services, a proposition Doyle described as somewhat aspirational.
-45% are partnering with hosting providers for cloud services.
-44% are partnering with application vendors and service providers.
-41% are partnering with non-technology companies to enable smart devices and systems.

Portfolio Investments
-46% are developing new or expanded hosting services.
-45% are developing products independently of vendors and service providers.
-42% are adopting more vendor hardware and software products for resale.
-42% are creating branded products with vendor products as components.
-40% are creating services with vendor products as components.

Strategic Investments
-59% are expanding sales/marketing of existing products and services.
-45% are expanding into new geographies and markets.
-31% are establishing or expanding marketplace or e-commerce sales.
-30% are de-emphasizing product sales in favor of professional services.

Doyle also shared statistics on anticipated revenue sources for partners surveyed:
-30%: managed and cloud services
-23%: software sales
-18%: hardware sales
-15%: professional services
-9%: referrals
-5%: other

As usual, Walsh reminded participants that CiQ is fueled by requests for information and guidance. He encouraged members to check out new and upcoming content at the CiQ portal.

TOOLS/RESOURCES
–Insights on Ukraine (Available Now): Tech companies everywhere are expressing outrage over Russia’s unprovoked attack on Ukraine, suspending and/or ceasing business operations in the region. To help tech vendors make informed decisions in the weeks ahead, Channelnomics has created a list of trusted information resources on Ukraine. We’ll amend this list as developments arise and insights emerge.
–Exodus From Russia: Pressured by customers and/or investors, compelled by their own conscience, or simply concerned about their risk exposure in Russia, tech companies everywhere are moving quickly to withdraw from the world’s largest country. This infographic visualizes the growing list of global companies that are changing their commitments in the 11th-largest economy. While some companies are conspicuously absent, the list of those taking action changes almost daily. Channelnomics will keep you updated.

ANALYST NOTES
–The Great Tech Exodus From Russia: While the world has almost universally sided with Ukraine in the conflict with Russia, the tech company “exodus” from the latter is neither straightforward nor comprehensive. This analyst note offers insights into the history of Western technology operations in Russia, the complexities of starting (and stopping) business in the region, and what we mean when we talk about “suspending operations.”
–Getting Comfortable Asking Uncomfortable Questions Regarding War: The rhetorical phrase “get comfortable being uncomfortable” is often used as a prerequisite for success amid change. It’s taking on new meaning in light of the war in Ukraine and the prospect of potential escalation. Channelnomics’ Walsh discusses likely disruptions to the technology industry and how the channel will need to embrace discomfort if it wants to think ahead.
-Simplification Takes Center Stage: Channelnomics has long advocated for ease of doing business (EODB) as a critical means of improving channel performance. As the IT channel navigates the complexities of 2022, we’re seeing more vendors take definite steps to simplify their partner programs. Even giants like Dell Technologies are seeking to lower the amount of programmatic friction that inhibits their channel revenue growth and increases partner dissatisfaction. This analyst note highlights just a few of the steps they’re taking.

CASE STUDY – Channelnomics Success Story: Poly Redefines the Value of Technology (Available Now): With workers returning to the office, more IT and business leaders face the challenge of what to do with older equipment as they modernize the workplace. Sensing an opportunity, Poly developed a voucher program that’s accelerating new sales and accommodating older equipment with great success. Here’s how.

PRIMER – Crossing the X-Chasm (Available SOON): Transitioning to subscriptions is an immense undertaking for the channel that involves deep operational, organizational, and financial challenges. Organizations making the switch must navigate their way through a tough period when revenue from traditional sources often drops precipitously before revenue from new streams replaces it – the so-called X-Chasm. This primer examines the X-Chasm in depth, including what conditions create it, which companies experience it, and what must be done to pass through it.