I covered much of this earlier in my post “Is the Channel Dying“. But yesterday at Cloud Communications Alliance event, I have never heard someone spout so much incorrect information. As someone said, it is opinion, but it is wrong.

The Channel is many business models. If you treat MSPs like Agents or like ISVs, you will miss the boat.

The Channel does not supply Demand. It fulfills demand. The demand is created by the vendors.

The channel for the most part supplies SMB. Not SME. Not Enterprise. For most of my 25+ years in the Channel as a VAR, Agent and Consultant, Mid-Market and Enterprise were mainly protected accounts – by AT&T, Verizon, Lumen, Cisco, Microsoft, Dell, Xerox, etc.

The MSP will win. This might have been the only thing she said that was true, but even that is subject to how much PE and M&A enter that space. There are 62K MSPs. Go look at the CompTIA data. 85% of them do under $5M in revenue and service the small business!!!  OH! And they bill monthly. What do you think Datto, Kaseya and ConnectWise systems do? They bill monthly for RMM.

I got to hear Janet say the Agent was dying again. One day she may be correct. So far she is wrong.

Are we aging out? Yes. Is the recurring commission model dying? No.

Will Agents become influencers? I don’t see too many successful affiliate programs, so doubtful. People have zero memory of the Linkshare-CJ days, so we will probably repeat those mistakes soon.

Telarus, Avant. TD Synnex, Ingram Micro, CDW and D&H are not the same. At all.

Ingram Micro, Scansource and TD Synnex are VADs. They are in the warehouse game. They are true distributors of software licenses and hardware. Ingram and TD have divisions that are brokerages and cloud marketplaces. Neither of those divisions approach what they make on the VAD side yet, despite years of trying. For TD, Advanced Solutions encompasses cloud and brokerage — or their recurring business.

Scansource is more like Ingram than like Telarus. Scansource may do $300M in commissions on telecom recurring services, but they do $3B in moving hardware and licenses. TD Synnex moves $14B per quarter. TD does $8B in the US.

“TD SYNNEX’s 23,000 co-workers are dedicated to uniting compelling IT products, services and solutions from 2,500+ best-in-class technology vendors. Our edge-to-cloud portfolio is anchored in some of the highest-growth technology segments including cloud, cybersecurity, big data/analytics, AI, IoT, mobility and everything as a service.” That’s the brokerage and cloud marketplace – the recurring EaaS. TD and Ingram bill VARs and MSPs (and other partner types). They do not bill the end user. Neither does Scansource, because the brokerage does not bill for services either! The vendors bill the end users and pay a commission to the brokerage.

CDW and D&H sell direct. That is the difference. Period. They were like Sears and Service Merchandise – they had catalog sales.

Scansource did screw up the NewCo announcement. I wrote about that HERE. All of the brokerages have bought bases in one way or another. Do the TSBs have a problem? Yes.

700 vendors have entered the channel in the last 5 years. Even if they gave $1000 to each TSB, that would still be a lot of money.  TD has more than 2500 vendors to pay for the privilege of distro.

Will commissions get cut? Already have. 8×8 and Dialpad lowered commissions on new sales two years ago. There were probably others.

Will AT&T and Verizon shutter their channel? They have waffled on the channel, but they have not closed it. The channel is a significant piece of the SMB pie. There are a lot of intricacies of the channel at a giant. Some years they co-sell. Some years they don’t. Is there abuse of that? Yes. Does the abuse outweigh the good? No. I only know of a handful of agencies that have been shut off from VZ and AT&T.

She forgot to mention Bluewave and Upstack. But Bluewave, Upstack and Bridgepointe are a different vehicle from Telarus and Avant. They are rolling up agencies for a direct play. Telarus and Avant are still largely brokerages.

The TSB only has 2 revenue streams – MDF from vendors and commissions from sales (which they pay out at from 50-95% to partners). They are looking for other revenue streams to pay back the loans from PE.

While they all look alike, they are all vehicles – but some are sedans, some SUVs and some crossovers.

Marketplaces. TD, AppDirect, Ingram and Pax8. Pax8 is a pure play. They are at $1B in ARR. How much do you think they get to keep of that? You get pennies from the vendor that you share with VARs, MSPs and other partner types. The marketplaces have to pay for developers, billing and security.

Microsoft talked about wanting Agents to sell Phone licenses. This is as screwy as everything I heard during the session at CCA24. If you do not understand the Channel – its vehicles, the partners, the business models – then please go sell direct.

If you think an unpaid sales force shouldn’t get recurring commissions as long as the customer is paying you, then have a different partner agreement (and see how that works).

If I heard one more person talk about partners sitting on yachts, I would have screamed.  Most partners who sold their business are back selling. Most did not get yacht money. Even Ian and Drew aren’t sitting on a yacht. When you make these comments, it shows contempt for the people you are hoping will “partner” with you and represent your company and services to the market. If you feel this way, go sell direct.

On SPIFFs: No one is forcing you to pay SPIFFs. If you think you have a unique service offering or bundle or widget, by all means take it to the market with a different payment plan to the channel and see how that works.

When people don’t understand the channel, and they believe the stuff that was being thrown out yesterday, THAT is why your partner program is lagging.

You can find me on twitter/X @radinfo or call me at 813-963-5884 todiscuss this with me.

“The traditional channel is in decline, Telecom certainly is.” – a message I received today.

Telecom revenues are certainly declining – and UCaaS revenues, but the telecom industry itself is strong. There are $65B in government dollars being put toward building fiber to every doorstop. That is being accompanied by $30B in PE money.

The telecom industry is going strong right now.

There will be a lot of M&A in the ISP/telecom space in the next 4 years.

There has been a lot of M&A in the partner space – both agencies and MSPs. That will continue as well since many partners have been at it 15+ years and are ready to retire.

That is why the channel itself is in flux – and pundits believe that the channel is dying. It is changing, but it isn’t dying.

Many believe marketplaces will replace the partner for some percentage of sales. I say that will happen for a small fraction of sales. The value partners bring to a technology sale can’t be found in a marketplace.

Are new partners entering the channel? The TSBs say so.

Are “retired” or cashed out partners coming back to sell? Hell yes. For a variety of reasons.

Is there too much channel conflict?  Not really. Just most of the hush-hush stuff is now out in the open. That TBI had a call center; and that most TSBs own a base of customers that hopefully they are farming.

The real two problems: (1) can the PE-backed TSBs survive? And if not how badly do the partners get hurt.

(2) With everyone farming, who is hunting? Vendors want new logos. They are leaning hard on the channel for new logos. Many vendors complain that there aren’t enough new logos coming in.

Some of that is that there are less selling agencies now than pre-pandemic. Some of it is that with the diminishing network and UCaaS revenues and renewals – and the demise of MPLS – partners are focused mainly on survival. We have to sell twice as much as we did 5 or 6 years ago. A lot of that is going to be transactional sales.

Also, as agencies start selling CX and Cyber-Sec and whatever, the traditional vendors won’t see that revenue. So sales are happening, just the Enormous 10 don’t see it. It goes elsewhere.

It’s like MPLS money. Infrequently was an MPLS network replaced. It was renewed. Until it is replaced with SD-WAN. And that is likely not going to AT&T or VZ (or Lumen). It is going to Masergy/Comcast, Aryaka, Cato, and others.

Telecom’s biggest issue is the declining revenue. And Comcast Business is the largest CLEC they have ever faced.

But back to the initial Q: is the channel or telecom dying? NO!

Does it look different? Yes.

It is in flux? Definitely. Probably more risk being an Agent than at any time in the last 25 years.

Truthfully, all the noise around NewCo is a little much. Upstack, Bluewave, Bridgepointe, Amplix, and Clarus all have direct selling teams as well as sub-agents. TBI had a call center that sold direct.

This announcement about NewCo’s agency was a PR disaster. Scansource dropped the ball on this announcement. It is all about the story telling.  This was also another sign that Greenville does not understand the Intelisys business and the difference between the VAD and the TSB. THIS is the problem, not NewCo.

For those that don’t know, TD Synnex, Arrow, Scansource and Ingram Micro are VADs – value added Distributors.  They are actual distributors, unlike the formerly named master agencies that only distribute commission checks. The way the VADs work consists of a VAR or partner getting credit from them to purchase hardware and software licenses. A VAR would login to a VAD’s portal to find out if teh VAD has inventory close to the client location. This isn’t Amazon; shipping is not free. A VAR would buy from two or more VADs depending on line cards and availability. The bill comes from the VAD. If I procure a Cisco router or a HP printer or an IBM license from TD, TD bills my company. A brokerage doesn’t bill. The vendor does. One big difference.

Maybe someday AppDirect gets into the resell game, but right now the TSBs do not bill for services. They only hold the partner agreements.

[Note: AppDirect may bill for software off the marketplace I don’t know, but they do not bill for telecom.]

The VADs have dipped their toe in telecom; Scansource, TD and Ingram all have brokerages. You can procure 8×8 or Lumen or RingCentral through Ingram going back to before I spoke at a Trust X event for Ingram in 2018.

The VADs do not bill for the telecom services. The service provider does and pays a commission to the VAD, who then cuts a commission check to the partner.

Should a TSB sell direct? I don’t know. It does help them to fulfill contract quotas to the vendors, which would adversely affect every partner. Most contracts between brokerages and service providers have quota in the language. Miss quota and the provider can miss paying the commissions. So in some respect have a direct sales force means a small level of protection.

Most partners are worried about the TSB using their customers’ data to cut them out. Listen, the master agencies had that data for years. so do the vendors. How often has a partner lost a deal/customer that they were involved with? Once in a while/ Not very often.

My worry about the announcement isn’t the NewCo, because if Scansource manages it like they do Intelisys, it is time to short the stock. They are likely going to overpay for an agency (if there are any left to buy!) or they will need to buy Bluewave or another PE-backed agency.

One worry that the TSBs have is that with every channel transaction – like the 70+ MSP M&A deals in 2024 so far and the 30+ agency deals in the last 12 months – they lose sales activity. From partners not actively selling while doing the M&A or after the transaction, all new business moves to the TSB that invested.

Pre-PE days, there was shade thrown at the partners who shopped deals to see which master would pay better. This looks like good business sense at this time.

Speaking with one TSB owner today, I asked him to look at his own base of partners and the years of history to think about how many partners use anything but quoting tools and commissions?  A majority of the deals done in the channel are transactions. POTS replacement, Hosted PBX pretending to be UCaaS, network, broadband, 4G/5G, cell phones, SD-WAN to replace MPLS and so on.

Some of the complexity that a partner may see is a design of the TSB. Having 400+ vendors makes it complicated to choose a vendor. And who would a partner go to in order to find the best vendor choice for a customer?

All the talk of CX, AI, etc. adds unknowns, which makes a deal harder to get done — but again this is by design because everyone wants to be invited to the party. They want a partner to find a deal and then they want a partner to invite in the TSB SE and the vendors team to interface with the customer.

If vendors were better at explaining the two things they are really good at, who their Target Customer was, and without keyword stuffing explain what benefit they provide the Target Customer more business could get done with less complexity – and happier customers.

 

Quest Tech Solutions has a podcast about the NewCo deal on Spotify.

 

After Scansource’s CEO blundered the announcement of the NewCo subsidiary in Vegas last week, LinkedIn chimed in. As is often the case, most commenters did NOT read the whole article. As is always the case, a bunch of comments were just ads for one brokerage or another.

Like many brokerages, Intelisys is going to buy agencies that want out. Most of the brokerages (or TSDs or TSBs if you like those acronyms) do this as well either as an invest program or base purchase or something that looks like M&A.

Most, if not all, brokerages have a direct selling force. TBI had a call center to sell CenturyLink products in order to continue to hit quotas for that carrier. This actually benefited the agents because it solidified the agreement with CenturyLink, which rolled up Level3, TWTC, Qwest and so much more into a dysfunctional circus tent of a telco.

The PE backed firms like Bluewave, Upstack, Amplix and Bridgepoint, all acquired agencies and sell direct. Telarus and AppDirect invest in agencies. TDM/Clarus and ACS have direct selling as well as sub-agents. For a partner, hard to duck the conflict of interest.

Lucas didn’t like my opinion that Mike Bauer has become a liability to Intelisys. Most people don’t understand the difference between running a distro business and a brokerage. One is like running an Amazon store and one is like running an insurance company or a Keller Williams franchise. Mike often mentions bar codes. I get it, ScanSource sells a lot of bar code scanners, but through VARs not through Agents.

I see Microsoft chasing Agents. Why? Agents don’t install or support software. That would be VARs or MSPs. Another case of people not understanding that THE CHANNEL consists of many segments and business models – and one size does not fit all. (This very misunderstanding is why many channel programs flounder.)

Last year AireSpring hosted a round table of TSD leaders (see it HERE). It provided some interesting insight from the top TSD/TSB. (I dislike the acronym TSD, since these businesses do not distribute anything but commission checks. I like TSB since they are brokerages.)

Vendors and Brokerages alike have 2 big problems: (1) Partner M&A slows down sales to buyers/ end users as the partner spends months focused on the transaction instead of sales. This doesn’t drive the new logos that vendors demand. {see slide 2 in this article} And there has been a lot of partner M&A in the MSP, VAR and Agent space over the last 3 years.

(2) Most products sold via the channel are declining in revenue. VZB had to write down billions due to MPLS contracts expiring as well as copper replacement. Often the replacement services go to another carrier. VZB doesn’t sell POTS replacement.

In addition, network services renew at the same or lower rate every three years. UCaaS was $17 per seat 3 years ago; now closer to $13. Revenues are in decline. More and more has to be sold every year just to maintain the same revenue. Telcos have lived this for years. Cellular saved VZ and AT&T. UC providers are learning this. So are TSBs.

A TSB has 2 revenue sources: MDF and commissions. They pay out 70-90% of the commissions to the selling partner. Marketing funds from vendors are the only income that the TSB can control, which makes it more and more significant for the TSB. As MDF ramps up, the customer isn’t the partner; the TSB customer is the vendor!

The conundrum with having 200 to 400+ vendors is that they get lost in the crowd. What value does a TSB bring to vendor # 403?

The TSB could charge for value-added services to the partner. The TSB execs often tout their value, yet they find it challenging to explain that value. O n that round table ignored the fact that the Number 1 reason any partner uses a TSB is to collect commissions. If  carriers still allowed for hundreds of direct agreements, the TSB would be in trouble.

As the TSB needs more revenue, selling direct or helping agencies cross-sell their base becomes more important. As MDF increases, more attention is given to the vendor in place of the partner.

Like Ancestry and 23andme, the data in the systems is more valuable than services sold directly. At some point all that data accumulated will be leveraged or sold to pay back the investors.

 

Many companies are looking into the partner space, specifically for MSPs.

First off, do you know who your Target Customer is? Oh, right, everyone.

Do you have a Partner Profile? What does the ideal partner look like? Again, everyone, right?

At CP Expo, vendors are asking about partners without asking who do they sell to and how?

Alignment is more important than numbers. It is far easier to manage, assist and work with 20 aligned partners than 300 partners who signed the agreement, but do nothing.

“According to ChannelE2E, there are fewer than 20,000 successful small business MSPs in the US market.” [source]  ” In 2019, ConnectWise estimated that there are about 40,000.” [source]

“There are currently about 20,000 profitable MSPs in North America that serve SMBs. Not surprisingly, due to the sheer number of MSPs and the variety of services they offer, the industry is extremely fragmented, with companies specializing in just a few offerings.” [source]

“The MSP Alliance estimates that as many as 150,000 MSPs exist globally, while MSP Resources reports that there are 40,000 in the USA.” [source]

According to Datto:

• MSPs, on average, serve around 122 clients, with the majority (69 percent) having fewer than 100 clients.
• The sweet spot for MSPs lies in businesses with 1 to 150 employees, which constitute 60 percent of their typical client base.
• While the primary clientele for MSPs is small or micro businesses (89 percent)

A vendor will get a shot at 10-15 percent of those accounts – so 10-18 opportunities.

Is your target customer 1-150 employees?? Is small or micro business your target?

Over 90 percent of MSPs have less than 50 employees. 70-80 percent have 10 or less. Of the 10 employees, how many are sales and how many are techs?

Of the 8 techs how many are certified beyond a CCNA? Is anyone on staff or contracted a CISO or certified security pro (CCISP or other)?

There is a case in California where a law firm is suing the MSP for a data breach. Oops!

Does the MSP carry the appropriate insurance – E&O, Biz Liability and Cyber?

How can an MSP provide cybersecurity without certs and insurance?

What is the end game with working with uncertified, uninsured MSPs that are selling to small business?