The 2112 Group’s 2014 Channel Forecast Report Reveals Significant Channel Contraction

Fundamental Shifts Will Reshape the Reseller, Service Provider and Professional Services Landscape


PORT WASHINGTON, NY – Jan. 14, 2014 – The channel is contracting and will continue to do so in 2014, according to the newest report from business strategy firm and channel expert The 2112 Group.

While many observers and industry experts attribute high levels of M&A activity as the cause, the 2014 Channel Forecast shows this acceleration is due to the rapidly declining rate of new channel startups.

Only 8.5 percent of channel companies have been born in the last five years – a third of the number that opened their doors during the channel’s 1999-2003 birthrate peak. Indicators show this trend will continue as the combination of complex technology and delivery systems, high capital costs, increasing competition and high capital expenses dampen the channel’s attractiveness to entrepreneurs.

“The advent of the PC, the Internet and initial business automation tools came with low barriers to entry,” said Lawrence M. Walsh, CEO and chief analyst of The 2112 Group. “The technology acumen and available talent made business formation straightforward and inexpensive. Conversely, more recent trends including the services model, mobility and business analytics come with higher technology and investment requirements. This higher barrier to entry is causing shrinkage. It takes more capital, talent and business acumen to thrive, thus fewer solution providers are forming and many existing ones are failing.”

The “Shrinking Channel” phenomenon is the conclusion of the 2014 Channel Forecast, which surveyed 263 solution providers – mostly from North America – and includes value-added resellers (VARs), managed services providers (MSPs), systems integrators, application developers, consultants and professional services organizations, telephony agents and cloud brokers.

“A smaller channel is not necessarily a bad thing,” said Walsh. “There are fewer partners for vendors to support, more opportunity as supply is constrained and greater price stability for more predictable revenue and profits for all businesses in the value chain.”

The 2014 Channel Forecast, the latest in The 2112 Group’s Quarter Channel Review series, provides detailed insights into the “Shrinking Channel” phenomenon, including contributing factors such as the economic performance of the channel over the past year, defining the qualities of high- and low-potential solution providers, and the shifts that will lead to a smaller channel. The report includes the following:

  • Channel Revenue & Profit Trends
  • Solution Provider Growth Potential
  • Shifting Business Models & Value Propositions
  • Increasing Channel Focus on Sales & Marketing
  • Challenges to Solution Provider Growth
  • Sales Cycles & Competition Trends

A complimentary summary of the 2014 Channel Forecast is available at The 2112 Group Web site. Full reports and 2112 research subscriptions are available for purchase.

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