While exploring the question of where are all of these so-called “Born in the Cloud” partners are coming from, a bigger and more complex issue surfaced. Perhaps
the competition isn’t coming from “within” the channel but somewhere else?
When Marc Andreessen wrote “Why Software is Eating the World” in the Wall Street Journal 5 years ago, a major shift was taking place
in every industry. Infrastructure was firmly in place and technology was
finally at a maturity level to start disrupting every business, across every
sector.
What Marc didn’t predict is that the center of gravity for
these decisions would fundamentally shift into the business units. In those
days, about 80% of technology decisions were researched and made in the IT
department, today it is only 28%. In fact, Gartner predicts that it could be as
low as 10% by 2020.
The BBC made quite a stir last year when it predicted that
technology could replace most workers in the next couple of decades. “Will Machines Eventually Take Every Job” walked through numerous industry segments
from truck drivers to farmers, from factory workers to service delivery, and
from knowledge workers to professional services.
If you wrap these articles together the irony is deafening:
Line of Business professionals are busy stitching together the very software
stack that will one day replace them!
I don’t subscribe to the armageddon-style
predictions, but do believe it will have one of the most profound effects on
society since the industrial revolution. Anyway, enough meandering.
The biggest threat to the IT Channel today (already 36% down
since 2008) is not the cloud. Nor is it internet of things (IoT), consumerization,
mobility, or a host of other emerging technologies. It is the changing dynamic
in how customers decide and purchase IT.
The 72% of all technology decisions that are now being made
(or highly influenced) outside of the IT department aren’t traditional IT
decisions. The Finance person isn’t buying a router. The Marketing Executive is
not implementing security protocols, the Sales leader isn’t buying new servers
for the rack. They are stitching together a software stack that drives business
value for their department.
This myopic view could grow to be dangerous as costs are accelerating,
duplication is happening across the organization, holistic security is nearing
impossible and interoperability is challenging with the permutations and
combinations of disparate solutions. However, I don’t see power shifting back
to the CIO anytime soon. In fact, a magazine focused on CIO’s was reporting a
trend where they were being demoted out of the boardroom altogether.
In the late 90’s, as PC and other hardware margins were
plummeting, the rallying cry for the channel was to verticalize. Find that
industry niche where you could get deeper into the business issues and understand
nuances such as regulations, legislation and industry solutions. By bundling
consulting, software, and focused services, more profit and customer stickiness
would result.
By the mid 00’s, managed services were all the rage where
individual hardware, software and services could be creatively bundled and profit
could be generated by remote access and economies of scale.
Fast forward to today and 90% of companies are leveraging
the cloud. In fact, 60% of companies have replaced more than 1/3 of their IT
infrastructure already (Gartner). Only about half of that was with the
assistance of some type of channel. Even
worse, over 2/3 of the current IT channel report that cloud opportunities have outstripped
their capacity.
Yes, you read that correctly - the current channel is beyond
capacity (either under-skilled or over-worked) while only touching half of the opportunity.
I reported before my feelings that “verticalization” is
being replaced by hyper-focused “vectorization”. The new line of business (LOB)
power center is creating opportunities in very specific niches across 287 sub-industries,
multiple segments, plethora of technologies and different geographies.
Traditional IT providers that have verticalized are being
beat by firms (or individuals) that focus on the 5 vectors (LOB, sub-industry, segment,
geography and technology). In many cases these aren’t “born in the cloud”
companies, but industry or LOB focused consultants, service providers and
independent contractors that have been forced into technology as the world has shifted
that way.
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Transportation logistics consultants are now
selling end-to-end technology solutions.
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Insurance compliance consultants are pitching
big data and predictive analytics.
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Healthcare advisors are now integrating EMR
solutions with customer care technologies.
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Oil and Gas consultants are leveraging
technology to recommend hydraulic fracking and horizontal drilling to change
breakeven economics.
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And there are thousands of more examples.
The difficulty is that these new technology plays leverage
very little of traditional IT hardware, software and services. Today's solution partners don’t have the relationships, experience, skills or capacity to engage at these levels.
Without these vector
skills, IT providers are on the outside of these opportunities looking in.
Traditional vendors are attempting to position themselves
for this future. It has been painful to watch IBM shrink for 16 straight
quarters, HP to split up, Dell to combine with EMC and go private, and Cisco to
struggle in core areas. The top-line revenue for these companies will be significantly
disrupted as the days of selling tons of big iron, monster software license
deals and outsourcing are numbered.
For channel partners, it is important to recognize new
battle areas for revenue growth and build, buy, partner, merge or acquire their
way to success. Standing still is also ok in the short term as none of this
will happen overnight.
Understanding the magnitude of vectors is mind-blowing – simple
math is to multiply 287 sub-industries by 10 LOBs by 6 size segments by 20
technologies and hundreds of geographic areas (states, countries, regions,
etc.) and you are dealing with 50+ million vectors.
We are nearing 100,000 SaaS vendors today and that number
will continue to rise by an order of magnitude to capture the demand. I can see
a world 20 years from now that over a million technology companies will compete
across these 50 million vectors. Many of these companies will spawn from our
current IT channel world-wide.
I do know that none of these technology companies will be
happy swimming in their own lane for long. They will look at adjacent LOBs, nearby
geographies, different sized customers or similar behaving industries for
growth. They will also look for partners in those swim lanes where they can
participate instead of reinventing the wheel each time.
Buckle your seatbelts.
