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The $564B channel partner opportunity waiting in the cloud

Rodolpho Cardenuto Profile picture for user rodolpho.cardenuto October 19, 2016
Services partners focused only on large enterprise may be taking a digital risk. As SAP's Rodolpho Cardenuto explains, they're missing out on a market segment that represents 95 percent of all businesses.

Digital transformation has created a level of upheaval that’s forcing everyone in the software and consulting industry to change. Every week, we hear of noteworthy mergers and acquisitions within the tech community, from one-person startups to long-time brand giants. While such events are helping these tech providers restructure their business models, strengthen offering portfolios, and recognize revenue from new sources, partners are telling a different story.

Whenever I talk to a partner, the conversation inevitably touches on the difficulty of predicting order cycles, deal structures, and revenue size in this ever-evolving landscape of technology and competitors. To protect themselves from cash-flow shortages, many partners choose to close deals with businesses that generate US$1 billion in revenue or higher. At first, this may sound like a sound strategy to secure revenue and meet sales goals.

And partners can (and do) win revenue-generating opportunities to extend their products and services to organizations and subsidiaries across a large enterprise.

But what do you do after that point? Will your large enterprise customer continue to adopt new technology and digitally transform at a pace and duration that will enable your business to sustain itself and, better yet, grow?

Grow big by pursuing small

Significant IT investment growth no longer resides only within larger enterprises. In fact, there are 79 million companies that generate less than $1 billion in revenue each year. This segment represents 95 percent of all businesses in the world and employs 55 percent of the global workforce – all fundamental factors for growing and fueling the economy. And this year alone, IDC projects that they will invest $564 billion in technology. Overall IT spending in 2016 is estimated at $2.4T.

Why is this untapped revenue stream for the partner channel so large? According to The Economist Intelligence Unit report “Digitising IT,” it’s all about the digital enterprise vision of these businesses. In the study, two-thirds of organizations in the $250 million – $1 billion revenue bracket rank digital transformation of the highest or relatively high strategic priority. But more astonishing is their strong focus on transforming their operating model (35 percent) as a primary objective versus those in larger companies (29 percent).

Once you connect these statistics with IDC’s revelation that businesses in this revenue segment grow as much as four times faster than larger enterprises, it’s clear that these companies are preparing themselves for a long-term digital transformation journey that will scale with their growth and expansion.

New digital opportunities require a new approach

In this era of hyperconnected everything, digitalization is a fact of doing business. Customer segments across all demographics are more connected than ever before, with 24x7x365 access to information and brand content at their fingertips. And for every company, this means that they must act in the moment to address emerging opportunities before they evaporate.

Channel partners have a distinct advantage in this increasingly common scenario. Not only do they have the “know how” to help their customers pivot and evolve, but also the “know who” to further develop a sustainable, long-term relationship. In other words, partners have proven over and over again that they can combine the IT expertise of a software provider with their existing connections to bring their customers’ digital strategy into reality.

At the same time, channel partners are using the cloud to advance these competitive attributes and prove their value while providing the speed and cost savings their customers want. As more companies that generate $1 billion or less in revenue adopt a cloud or hybrid approach, channel partners can take advantage of these new opportunities to create a steady revenue stream from a subscription-based, pay-as-you-go business model.

With faster access to new functionality, increased control over direct IT solutions, and a streamlined support experience, the customer relationship grows while generating more revenue faster - without the added cost of acquiring a new client.

Four ways to accelerate revenue in the “$1 billion or less” segment

Traditionally, channel partners have grown revenues and maximized profitability by hiring new sales and consulting staff, cutting costs, or raising prices. However, selling cloud technology offers a new way to look differently at the organization and the opportunity each customer brings.

Here are four strategies channel partners are using to accelerate revenue in this new environment:

  1. Reimagine profit models - Each time a product or service is customized for an individual customer, it should be assessed as an opportunity for growth, retention, and delivering value. With this mindset, channel partners are not just helping one customer cross the digital divide with a customized offering – you are improving or enhancing capabilities that your existing client base may need as well.
  2. Create opportunities for specialization - If everything is a priority, then nothing is a priority. It’s important to focus on one thing that will make the partner’s business most successful – whether it’s accelerating growth, increasing market share, or raising profit margins – and align it to strategies and innovation initiatives. This mindfulness towards the ideal state makes decision making simpler and ensure already-limited time, money, and resources are not wasted on activities that do not move the partner’s business forward or add value to the customer.
  3. Deliver engagements with predictable outcomes - Inside every organization is a steady flow of best practices and innovations that are rarely tapped. By turning pockets of intellect into collective wisdom, sales, support, and services staff can get a better sense of what outcomes are possible for the client and how to achieve them in a meaningful, yet predictable, way.
  4. Fine-tune solutions specifically for businesses that are not considered larger or multinational - This piece of advice may be hard to accept, but it’s worth considering. Once sales opportunities are aligned with their priorities, expertise, and offerings, channel partners will realize the greatest potential for growth. By turning away the wrong opportunities, they can free themselves to pursue existing and prospective customers that would benefit most from offerings that are already available. The key is becoming astute at separating good opportunities – no matter the contract size – from the great ones that will expand the business without pulling away resources needed to serve existing customers.

The cloud - the answer channel partners are seeking

At its core, technology is not – nor has it ever been – static. Channel partners that thrive in this never-complete environment are the ones that know how to seize the tremendous opportunity ahead. They evolve and adapt to the changing needs of the channel, but, perhaps more important, they keep an eye on the future to anticipate and capitalize on emerging shifts.

In embracing the cloud, channel partners are leading the way to business model innovation as well as their customers’ digital transformation.

End note: for more context on digital transformation in the field, check out my colleague Tony Evans' Five signs your business is ready for digital transformation.

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