Peter Radizeski is Founder and President of RAD-INFO INC. He is an accomplished blogalyst, speaker, author and consultant. He has helped many service providers with sales training, marketing, channel development and business strategy. He is a trusted source of knowledge about the telecom sector. His honest and direct approach make him a refreshing speaker.

Look for his innovative ideas and analysis of current technology on his blogs.

Meet him at one of the many conferences he attends and speaks at.

Hire RAD-INFO today!

Are SPIFFs Necessary?

In the indirect channel, there is a frequent debate about MDF and SPIFF. MDF is the marketing funds that vendors give partners for events, advertising, lead gen, collateral printing or other marketing needs that will be a benefit for the vendor specifically from the partner.

The SPIFF is the bonus money given for sales – and sometimes just for registered leads. In place of – or in addition to – SPIFFs vendors have sponsored President’s Club for partners who are sales leaders or held contests for trips, electronics or the lease on a Tesla (like NICE INContact is currently doing and Spectrum VoIP did a few years ago.)

It has been debated that after the pandemic, vendors will pull back on MDF. MDF has gone towards event marketing in the past, but in 2020 there weren’t events. The monies got re-directed to other ways to market to partners. However, with Zoom fatigue being a real thing, webinars, virtual conferences and anything that can appear unnecessary/unproductive/no ROI*, has had limited attendance.

When things open back up, the flow of MDF will resume into in-person events. By all accounts, the indirect channel brought in a ton of revenue in 2020. For vendors that pull back on MDF, another vendor (competitor) will send in the check and take the attention away.

On SPIFFs, there is a discussion going on LinkedIn: What if technology vendors/suppliers stopped offering SPIFFs? Most partners don’t choose by SPIFF. They try to choose the best solution to make a lifetime, happy customer. There are various factors that are considered including price, service delivery, features and vendor’s ability to deliver. There is also the demo and sales process of the vendor. I can tell you from Secret Shopping providers that it varies greatly!

That being said, this is a business. The sales commission and bonuses are used to keep the lights on, payroll, and more. It is a tough spot to be in.

I know partners who have been influenced by SPIFFs. Yet I can tell you that in all likelihood the vendor chosen was going to help the customer. (If you can distinguish the differences between the CCaaS or UCaaS providers, please write an article doing so for the rest of us!)

Why do we see SPIFFs so much today? Incentive! And they work! Commissions are low. Even 20% of $1000 is just $200 per month. VARs, MSPs, and other non-telecom agent partners come from a different business model. An inter-connect (PBX partner) has a legacy business model wrapped around selling a big box for $50K, installing and maintaining that PBX, fees for MAC/Ds, and maybe a referral fee on the PRI. The 4% maintenance fee is off the $50K. The partner business has technicians on payroll to maintain customers and equipment. These partners also need to keep their vendor status to continue to service legacy customers. All of this will not work when you sell a $500 (that is the average ARPU of a UCaaS deal) per month deal at 20% commission. How do you even pay the sales rep on the $100 commission? How do you cash flow the business on $100 commission you get AFTER you did all the project management? And let’s not think for a second that the partner doesn’t have pre-sale and post-sale project work to do — all paid by the commission!

Mitel mentions the obvious: “The days of large, upfront payments from capital expenditure investments have largely disappeared. In their place came recurring revenue, smaller amounts that would take time – years, even – to amount to the commission on a one-time deal.” And there in lies the problem for cloud providers.

And that is why SPIFFs are needed. Heck, network operators should be paying SPIFFs since telecom is so broken that it takes 500 emails to get one 10MB pipe to work!!!!

SIDE NOTES:

*By the way, master agencies fib about the number of partners [HERE] – which doesn’t help the MDF ROI for vendors. With 2700 or 4000 agents, the $20K is about $7 or $5 of marketing expense per partner. When the number of agents getting checks from the master is more like 270 or 400, that $20K is $74 and $50 per agent. A little different.

*Except for sales meetings, prospecting calls, QBRs and one on ones, attendance is down because the ROI of these Zoom calls is low. It is mainly vendors and master agency personnel yakking. It is hardly ever a partner discussing the steps to close business. It is theory and pundits — and people so far removed from a sale as to be irrelevant. The sales process & buyer’s journey has changed a lot in the last 14 months. What we sell, to who and what we sell have changed. The #1 rule of a Zoom call should be: what one take-away can the attendee have that will produce results for him/her?

Who’s Winning?

Charter’s CEO says that customers “reached an average of about 700 GB per month. He added nearly 20% of its non-video internet customers are now using a terabyte or more of data per month.” Altice USA says, “broadband usage at Altice USA “continues to climb with average use over 600 gig/mo.”” That is why they want caps.

Charter’s CFO says, “While projects like the one it’s undertaking for RDOF have a higher cost per passing and a longer payback period, they can also create “additional building opportunities on the edge of those networks.””

Charter added 355,000 total internet customers in Q1. Consolidated revenue of $12.5 billion was up nearly 7% year on year from $11.7 billion, with net income of $807 million up from $396 million. Internet revenue increased 15% to $5.1 billion. Charter added 2.1 million residential Internet customers in 2020, up from 1.3 million added in 2019. Fourth quarter 2020 residential ARPU (excluding mobile) totaled $111.85

AT&T, Charter and Comcast are losing TV subscribers by the bushel. (see numbers here). It’s okay! In 2020, Charter added 1.3 million mobile lines. Comcast mobile just topped 3.1 Million subscribers. Charter mobile revenue in just 4Q was $428M. Comcast says at 3M the wireless business is now break even.

Comcast also added 461,000 broadbands subs in 1Q2021. Comcast quarterly “broadband revenue grew 12% to $5.6 billion, business services increased 6% to $2.2 billion.”

Commercial revenue increased by 1.0% year-over-year to $1.6 billion, driven by SMB and enterprise revenue growth of 1.1% and 0.9% year-over-year, respectively. [source]

Altice USA passed 1M with FTTH, which is about 20% of its region (Cablevision and Suddenlink). Despite that, not many customers are happy in the Suddenlink territory.

Cable is winning. Period.

Windstream, Fusion and Frontier – all bankrupt. Windstream came out of BK, but its revenue is declining. Frontier is coming out of BK, after cutting “$11 billion in debt and obtained a liquidity of about $1.3 billion. Quarterly revenue came in at $1.68 million, which was down 6.3% from the year-ago quarter.” It is due to a lack of execution AND a poor network design.

Frontier currently has 11.8 million locations that can be served by DSL, and 1.5 million DSL customers. Frontier has 1.3 million existing fiber subscribers (old VZ FiOS mostly in FL, TX and CA) with passing 3.4 million homes and businesses with FTTH. Frontier fiber penetration is currently 41.5%, with a goal to achieve 50% in 2021. [telecomp]

FTR reported 319,000 commercial customers; that fell from 360,000 in Q1 2020; 120K are business fiber broadband customers (low ARPU).

FTR sold its Northwest assets to WaveCapital for $1.3B, which operates it today as Ziply Fiber.

TDS is third in fiber with 307K fiber broadband subscribers [telecomp]

Meanwhile, 2800 WISPs in the US have 6.9 million subs, according to a study by WISPA. Revenues are about $4.4B. That’s about 2500 subs per WISP – with $637 in annual revenue per account and $53 per month.

Last thought: Microsoft Teams now has 145 million daily active users. Many UC providers offer dial-tone to that via Direct Routing or some integration. There isn’t much value in that. It is dial-tone and SMS. Microsoft has Azure CPaaS and Azure for Operators. Some day when they need $500M per month in top line revenue, they will turn on CPaaS for Teams at $6 per month – and take $500 or more million dollars per month away from Calltower, 8×8, RNG, Vonage and the other UC providers who haven’t realized that they are Netscape.

You have to add Value. Or you have to overlay features on Teams. Or you have to replace Teams.

What Consolidation Means to the (Sub) Agent

In this Channel Futures article, there are quite a few good points.

One point that gets made twice is that the bigger, improved masters will have more tools for the agent to leverage. No one specifies which tools agents will find useful. Isn’t there data on what tools these masters have that agents are in fact utilizing? Because repeating “tools” over and over doesn’t make it so.

Agents leverage master agencies for vendor contracts and commissions. Commissions being the operative word here as the real value that master agencies bring to the table. Agents only get paid when they sell services and count on that recurring commission to pay rent and buy food and diapers. Every agent that has been in the business longer than ten years has been screwed on commission at least once. They count on the masters to fight for their commissions, since they get a piece of that too.

Agents also spread the wealth around to around five different master agencies in order to not have all the eggs in one basket. Why give one master all that influence over your revenue?

Vendor consolidation has been rough. In the wake of the Duopoly – Comcast, Charter, AT&T, Verizon and CenturyLink – getting so big (and so bogged down with debt!), the landscape for partners and buyers has changed. The world of the CLEC has mainly disappeared. At least, two former CLECs have cut commissions on network sales. It doesn’t leave much choice for the customer or partner, as Christopher Scott of StratoNet commented.

In the CF article, there is speculation about masters buying out agents. Let me clear this up: it is happening! Investment programs and base rolls are happening as I write this. One reason is to lock in partners for exclusivity to one master. It is revenue driven. There are ventures that are buying up top partners. It seems that the MRR model of partners is attracting venture money. We see it at the national level with master agencies and with regional partners.

JG Wentworth has come for the channel!

Capital is looking for a return. The stock market is up. Real estate prices are climbing. There are so many Boomers with retirement funds. These funds have to go somewhere to get returns on investment. MRR models are attractive.

It comes at a time when partners are looking to retire too. After the recession and now a pandemic, not many partners want to re-build their practice. Also, not many partners want to learn new technology or deal with cloud services. They have spent over 15 years making a decent living selling voice and network and now it is time to leave the table and cash out some chips. The game is changing.

When pundits say the channel is dying they are wrong. They expect other business models – like ISVs or affiliates or affinity groups – to replace the current crop of partners. That may add to the partner world, but it isn’t replacing them entirely. Partners had to pivot a little to add project management, but some of that is due as much to telecom being broken as being necessary for the many moving parts of cloud communications installations.

When channel execs talk about more opportunity, it usually means that they want partners to shift. Shift what they sell and who they sell to – neither of which is easy to do for so many reasons. Just look at hardware vendors to showcase the challenges in migrating from a hardware business to a cloud business. It takes time, focus, adjustment, re-adjustment, layoffs, slumps and maybe, just maybe, a win.

Another neglected data point is that customer billing is down. Zoom’s $10 per seat phone is driving down prices again. A 20 seat deal can be as low as $200, which provides for $40 or so in commission. The 100MB pipe is under $900 and the commissions on that are low. A partner has to generate a lot of sales in order to survive today. It is harder to generate the volume of sales because every sale involves hundreds of emails, phone calls and project management for deployment. No idea what tools masters have to improve that!

It was much more profitable to be a partner in the early 2000’s, before vendor consolidation hit. It will be even less profitable to be a partner with M&A in the channel.

For years, channel personnel have double-dipped – by that I mean that many channel managers and other titles had their own agency on the side. Partners didn’t know then they were working with a competitor. More than a few master agencies sell direct – not many partners are aware of that. The vendor quotas drive that kind of activity. Survival drives that. It will only get worse with investment programs.

My big concern is when a master agency goes public or gets bought by a PE firm – and the best way to instant profit is to stop paying the commissions. Lawsuits may work in the long run, but it is a long (and expensive) road.

The channel is about relationships. It is also built on trust. M&A doesn’t lead to trust.

And one thing that is certain in telecom: Bigger is never better. Ever.

Predictions: Channel Dying (Still)

I think since the keynote in Boston in 2015, every pundit has predicted the demise of the channel partner. Some day they may be right. I can see why the CCA would predict that Affinity Programs will work better than traditional partners in driving traffic to cloud marketplaces. Truthfully, those marketplaces have been around a long while and have sucked. Not user friendly. Not SEO enabled. Not anything but an Aldi like experience.

The prediction now is that businesses are ready to self-serve on all manner of cloud. If that were true, what is stopping them? You can self-serve Office365, Google, CRM, Slack and so many other apps. Why do they think that if some partner drives traffic to a cloud marketplace all of the sudden sales explode?

The one thing that gets lost is how much a partner guides a customer. The other thing is how much of IT and telecom is not user friendly. It is not plug and play. It is not intuitive. Heck, even buying Office365 from Microsoft is a HUGE mess especially if you are keeping your own domain for email. It is all manner of WTF.

How many businesses rush to buy telecom services? Hardly any unless the PBX is smoking. That’s how much they enjoy dealing with the archaic process of telecom.

If it was greenfield – they never had a domain, an email, a CRM – if they were starting fresh – sure, a marketplace might work – if the buyer didn’t want to just go direct.

How many software projects fail? Most of them. Why? It isn’t easy or pretty. Data is in silos. Data is only easy to get to if you are Facebook or LinkedIn, then any hacker can have a buffet of data. But for the average business, connecting all of the data from the billing, ordering, servicing and CRM systems is not just a matter of a password and username.

To get to the point of one call close at a call center or to stand up an intelligent IVR with chatbot, many components have to be stitched together like menus, FAQs, recordings, data and more. This is resembles a Calm puzzle more than plug-and-play.

Pundits (and analysts) may see a pattern emerging of traditional partners being less involved in cloud projects, but that is due to a few factors. One is that traditional partners are sales agents only – like in the insurance business. Another factor is that the traditional channel partner is aging out, which brings us to the current crop of M&A transactions whereby MSPs, masters and agents are merging or selling off bases. With that level of M&A activity, the partners are spending more time cleaning up their business for an exit than learning how to get involved in a cloud marketplace.

I will add that the cloud marketplaces I have dealt with have done a really poor job of explaining what is involved and what they really offer. It is often pictured as Affiliate Marketing from the early 2000’s when everyone had a CJ and Linkshare account. Anyone who is an Amazon affiliate will tell you how much that has paid out over the years.

When I read the pundits predictions, I look at the investor filings of the cloud communications providers and see that over half the big deals are coming from the channel – and realize pundits just talk to hear their own voices. Thanks and have a nice day.

The (Sales) Conversation

When a prospect calls you to say that they are replacing their PBX, that sets the stage for a conversation. Most of those conversations will be about a cloud PBX (UCaaS) replacement service. That might be the wrong way to go.

It would be better for the Buyer and the Partner if the conversation were about a clean slate. Design the communications system from scratch.

What are they using now? Not just what PBX and options, but what apps.

  • Are they using Zoom, Webex, or Slack?
  • Are they a Microsoft shop?
  • What CRM do you use?
  • What other software runs their business? ServiceNow? Zendesk? etc.
  • How do they hold meetings?
  • Do they want a meeting transcript?
  • What messaging or chat do employees use?
  • Do they have an audio bridge?
  • Do they utilize Dropbox or other file share?
  • How do they sync and backup files?
  • How do they collaborate on files with team members?
  • How do they engage their customers? IVR? Web chat?
  • Are they looking for some self-service options?
  • Are social networks in play (omni-channel)?
  • Do they have a call center?
  • Is there a department that receives a lot of calls or makes a lot of calls?

If you start from scratch and build a system, the solution will be better for the Buyer. It doesn’t become “Here are 3 very similar UCaaS offers, which price do you like?” It becomes about outcomes.