Are Technology Service Providers Prepared for the Channel Eclipse?

What will channel partners do when direct players begin taking market share from them?

Every industry evolves. Companies that prepare prosper, those that don’t perish. Take the office products industry (OPI), which used to be highly fragmented with thousands of independent stationers throughout the country selling supplies to businesses. Then, in 1986, Staples created the office supply superstore. By the time I got to Staples in 2006, twenty years after its inception, they were the biggest, most profitable of the major players including Office Depot, OfficeMax and Corporate Express. In those twenty years, four companies had essentially consolidated an industry. Today, the evolution of the office products industry continues, with Amazon becoming a major threat.

By now you’re asking yourself, what does any of this mean to me as a technology service provider?  On the surface, not a lot, but look deeper. This is a cautionary tale. Thousands of smaller independent companies losing market share to big direct companies. Market consolidation. The evolution of the channel will continue and every MSP and VAR in the channel can learn from what happened in the office products industry.

I am taking about a concept called Channel Eclipse, a phenomena where large direct players are taking market share from MSPs and VARS. It started with Hosted Exchange. Remember when it was lucrative for a service provider to install and maintain Exchange? I do! It was a gravy train. But not anymore. The gravy train has been derailed and replaced by hosted Exchange which yields tiny margins and resembles table scraps instead of a profit feast. Now, with the proliferation of hosted apps, file/sync/share solutions and hosted servers, it’s becoming more difficult for MSPs and VARs to make good margins in other areas of their business as well.

This is about survival of the fittest. The service providers who will succeed are ones who acknowledge the impending eclipse and prepare for it. MSPs and VARs have to change the economics of their business so they can compete in the future. Channel Eclipse won’t happen overnight, but it is happening. Don’t make the mistake of saying it won’t happen to your business or in our industry.

Email me at jimlippie”at” for my “Five Easy Tips to Stop the Eclipse.”

Is your business already being affected by the Channel Eclipse? How are you preparing to handle this phenomena?

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