Channel Convergence: Roadblock or Opportunity?

by Christopher DiReda, OKI Data

The task of managing a business is not easy by any means. But for hard-copy channel partners, this task is further compounded by a tumultuous economic situation in the industry — including margin and revenue declines, a struggling global economy and the proliferation of mobile device usage replacing hard-copy output.

It is easy to see how these challenges become roadblocks to growth and success for hard-copy dealers who are faced with mounting overhead costs, high customer turnover rates and increased competition — all within a declining market. As a result, channel partners are in need of vendors and strategic alliances that can help mitigate their transformation costs sufficiently enough to enable an opportunity for growth and provide the capabilities to tap into alternative and expanded service offerings that help generate new and recurring revenue streams within their existing business models.

To meet these demands, more and more dealers are expanding their offerings to include new and incremental services, transitioning their businesses from the traditional dealer/solution provider model to the emerging “hybrid dealer model” of the future. A hybrid dealer is an organization that has evolved its business model beyond its original portfolio to offer a complementary suite of services that expands from hardware sales to include a wider array of IT services, document output and workflow management, business optimization and the like.

Among managed service providers (MSPs) and solution providers (SPs), interest levels are high to expand offerings in order to meet the evolving needs of new and existing customers. These needs include optimizing document output fleets and decreasing the number of vendor relationships customers must manage and support from a business integration level. The office equipment dealers (BTA dealers) are looking to modify their hardware and break/fix business model by moving beyond hard-copy output to include IT solutions and services. As the channels continue this convergence, MSPs, SPs and office equipment dealers must now face the challenge or opportunity of competing for the same share of wallet as the transition to the hybrid channel of the future accelerates.

Today, whether a midsize organization or small business, each customer is learning to embrace the managed services model where hardware initially takes a back seat to fleet consolidation, management and optimization. From printers to multifunction devices, network management, and security and data services, bundled or fully configured services are being seen as a growth engine — and an opportunity for channel success. The era of organizations working with multiple partners for the provision of hardware, software, and IT services and support is coming to an end. Today, organizations are looking for the total MSP — one that offers the complete package, meaning the expertise, resources and infrastructure to take over the entire monitoring and management of their networks, document output fleets and business data.

This evolution is already taking place, and the time is right for a company to make that transition toward becoming a hybrid dealer in order to maximize existing account penetration; secure longer-term customer retention; identify new business opportunities; and establish a recurring, secure revenue stream.

Why converge?

The rationale for converging with other channel providers is simple: profitability and opportunity. Convergence allows providers to gain the ability to expand current offerings without heavy upfront investments and realize economies of scale — all while maximizing profitability. Convergence fills the missing “business services and technology gaps” channel partners have been looking for; helps providers develop a deeper understanding of their clients’ total needs; leverages best-in-breed technology innovations, services and support capabilities to meet clients’ needs; and expands business-value-generation strategies and growth opportunities in a cost-effective way.

In today’s hard-copy industry, all partners are fighting for the same share of the customers’ wallets. This forces partners to provide a wider array of IT solutions and services, from desktop management to servers, security, help desk and support to provide companies with a differentiated and competitive advantage.

Let’s say there is only one piece of the network that a dealer is not managing because it is either too expensive or it doesn’t fit the dealer’s current business model, but the customer still needs that service. By becoming a hybrid dealer who includes systems, services, solutions and hardware, that dealer closes the gap with existing customers, gains long-term retention and reduces the risk of losing customers to the competition — all of which results in a new opportunity for that dealer’s business as well as greater profitability.

How to converge

SPs who want to keep up with this shift are increasingly partnering with MSPs or moving to the hybrid dealer business model in an effort to forge stronger and more enduring relationships with their customers. This approach can offer SPs new revenue streams while giving customers more options despite dealing with limited IT budgets. New solutions that improve customers’ business processes and increase loyalty through new communications channels and engagement methods can then be identified.

One factor driving channel convergence is that customers increasingly want to work with one provider for all resources — providing a one-stop-shop for services. Customers are continuing to look for hybrid dealers who offer a comprehensive suite of services and support options so there is just one check to write and one call to make. Those providers who can offer a single, complete package consisting of hardware, software, RMM, help desk and other support options will certainly gain more traction with organizations looking for simplicity, higher productivity and optimization of existing resources. Channel providers will be missing a key opportunity for growth if they do not incorporate total managed services into their portfolio.

Challenges

Although these partnerships present several advantages, there are still a few concerns regarding convergence, especially for MSPs and SPs. When partnering, MSPs are exposing top-tier customers to new competitors in the marketplace, such as BTA dealers. This presents a new risk for the channel since BTA dealers were not previously in touch with IT-service customers. As a result, a competitive space will eventually surface among MSPs, SPs and BTA dealers as they bid for each other’s business and encroach on each other’s customers.

Despite these concerns, partnering can be beneficial because MSPs, SPs and BTA dealers can collaborate in the same space, share the same customers and offer complementary and complete sets of services that their partners are looking to provide. If MSPs are not providing hardware services due to a lack of resources and infrastructure, then partnering would alleviate those concerns and costs. For BTA dealers who are not interested in offering managed IT services, partnering would provide the opportunity to maintain the role of trusted advisor, as these dealers could refer their customers to best-in-class alliance partners.

As channels continue to converge, the industry will evolve rapidly toward a hybrid dealer business model. Regardless of the challenges convergence may present, more streamlined and bundled services are a requirement for today’s businesses — regardless of size. The shift toward more and more channel providers sharing the same wallet will only become greater as we see MSPs, SPs and BTA dealers reaching into each other’s business share for new and incremental opportunities.

Roadblock or opportunity?

This question can only be answered by you, the partner. Channel partners who adopt the hybrid partner business model sooner rather than later will have a clear and distinct advantage over their competitors in today’s converging marketplace.

Contact Christopher DiReda at christopher.direda@okidata.com or visit www.okidata.com.

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