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The definition of insanity, telecom industry edition

August 7, 2012 / Gary Coben

Einstein said the definition of insanity is doing the same thing over and over again and expecting a different result. Look around the telecom industry channel, and you’ll see a lot of organizations living by Einstein’s definition.

The telecom industry is changing, and agents are under a lot of pressure. It’s not just that the world is being transformed by IP and cloud computing — which it is — but that the traditional value chain that linked providers, channel partners, and end users is coming apart.

But this breakdown in the value chain can be an opportunity for savvy sub-agents who understand what’s really happening, and adapt their business processes to capitalize on several important industry trends.

Trend 1: Applications Now Drive the Business

A few years ago, most telecom channel resellers were successful at playing Monty Hall’s game, “Let’s Make a Deal.” Customers were offered their choice of the circuit cost from Door Number 1, the circuit cost from Door Number 2, or the circuit cost from Door Number 3. As long as the customer picked one of those doors, the reseller made money.

It doesn’t work that way anymore. The telecom, data, storage, and security services now being provided are IP-centric and, as a result, are no longer as commoditized as they once were. Clients across the board have real business problems they need help solving, and that business problem is not that they need three T1 quotes. The telecom channel is no longer about a commodity. It’s about applications.

The sad fact is that most Master Agents don’t have the subject matter expertise to deal at the application level. They end up leaning on the vendors for that. And this is where the traditional “get three quotes” approach to the telecom channel really starts to unravel.

For example, vendor X invests time and energy understanding the specific business application, and designs a custom solution that meets the requirement of Sub-Agent Z’s client. Vendor X is really not pleased to hear the Sub-Agent say, “Thanks! Now we have to go get the second and third bid on the services, because that’s the way we’ve always done things.”

This is creating a growing level of distrust between the vendors and Sub-Agents. So it shouldn’t come as any surprise that we are seeing vendors and Master Agents pushing for exclusive relationships with their Sub-Agents.

The future is all about understanding the end customer’s application requirement, and meeting that application need with one specific vendor partner. It’s time to board-up Door Number 2 and Door Number 3.

Trend 2: The Customer Is Changing

Big changes are happening on the customer side of the equation as well. There are three forces at work. The first is that every customer organization is striving to do more with less.

Five years ago, a small- to medium-sized business (SMB) with 100 employees probably had two to three people in the IT department, and an outside Data VAR. But because of recent economic changes, these same companies have reduced their internal IT staff to one person — if they’re lucky. The economy alone has reduced the amount of available resources to support the end users.

The second force at work: senior management at SMBs are pressuring IT to become a profit center through e-commerce, social media, or other digital means. Hacks, security breaches, performance issues, and downtime are now measured in dollars of revenue lost. IT is no longer measured solely by its ability to deploy servers, desktops, and apps; or run around fixing problems all day.

The CEO wants to drive business through the use of these alternative sources, and is pushing the CIO to marshal their limited resources to generate revenue. And yet the over-stretched IT staff still has to deal with the ongoing task of managing the same day to day issues they have always had to manage.

The third force: The CFO is under pressure to limit capital expenses on items that have a fairly short shelf life (PBX’s, servers, desktop and laptop PC’s). So, do more with less. Grow revenue. Limit capex. It’s a triple-threat that the traditional telecom channel value chain simply doesn’t link-up with.

Trend 3: The Market is Consolidating

Given their limited and still-shrinking IT resources, the end customer doesn’t want, nor can they afford to, manage multiple vendor relationships. They are looking for one vendor who can handle it all: voice, data, server, storage, and desktop. They want one throat to choke.

A recent survey by Microsoft on cloud usage found companies that have deployed one or more services to the cloud are the most likely to deploy more business processes to the cloud.

The follow-up to that finding was that as companies move more processes to the cloud, they want to do it with the same provider. 56 percent of respondents preferred a single source for their cloud IT including the alignment of both application and infrastructure with a single provider.

That speaks volumes about what we’re doing here at Evolve IP. There’s no shortage of companies selling hosted telephony services. There are hundreds that sell virtual servers, and a growing crop selling virtual desktops. There are myriad vertical industry cloud solutions.

But there is only one company that gives the end customer one throat to choke: Evolve IP, the only single-source cloud services company in America. Check me on that, and write to me if you can find any other channel partner who can help you deliver this contemporary approach to your customers.

Our CTO Scott Kinka was a panelist at a New York event for one of the largest Master Agents in the country. It was part of a simulcast from one of Polycom’s technology centers. Scott’s closing question to the audience pointed out the failure of the specialist reseller: “You’re a standalone hosted PBX company? What else do you do? How else can you help me?”

Specialist resellers do one thing very well. But that’s the end of it. And the end of their era is near. Customers today want, need, and are looking for more. The telecom reseller channel must evolve to serve this new customer, or risk being left behind.

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