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The IT industry and UK channel partners faced a range of obstacles in 2022, including supply chain issues, soaring inflation, massive spikes in energy prices, the lingering after-effects of the pandemic and the continuing effects of Brexit. As they prepare to enter the first quarter of 2023, what do vendors, distributors and partners expect from the first three months of the new year?
According to CompTIA, the non-profit association for the IT industry and workforce, the general feeling seems to be relatively optimistic, judging by the results of its IT industry outlook 2023 annual report. With UK businesses rating the health of the IT sector at 6.4 out of 10, it suggests the industry is in “a robust and confident mood”.
According to the report, 53% of channel companies were optimistic about their prospects for 2023. Only 23% were uneasy about the year ahead. Over a quarter of them (27%), expected revenue and profitability numbers to outperform 2022 if the IT sector performed well, while a more cautious 45% expected results on a par with the previous year. A more pessimistic 24% said they still expected a decline in revenue and profitability even if the IT industry performed well.
A hope for growth
Commenting on the figures, William Remes, vice-president of Europe, Middle East and Africa (EMEA) at CompTIA, said: “It was great to see businesses working in the sector are feeling largely hopeful and optimistic for the year ahead. This is not to say that there aren’t still difficulties to overcome, as the report shows. However, we are confident that through working together and learning lessons from what we’ve been through, the industry and those in it can continue to grow and thrive in 2023 and beyond.”
David Watts, TD Synnex UK and Ireland (UK&I) managing director, is one of those in the positive camp, citing research from Context that suggests there will be growth in the mid-single digits in the coming year, something he believes most resellers appear to be in agreement with.
“Technology remains an important part of the response to the challenges that businesses face – it is the enabler for greater efficiency, productivity and transformation. For that reason, I think we will continue to see moderate growth across the market for the year as a whole,” he says.
As to what will drive that growth, he lists cyber security, the migration to cloud and hybrid working, smart collaboration and meeting rooms and increased adoption of the internet of things (IoT), analytics and AI.
David Watts, TD Synnex
“As we’ve seen in the past few years, we can’t always predict what might happen to change market dynamics, but I think that as long as we have a period of relative stability, we will see some growth coming through in 2023,” Watts adds.
Paul Flannery, Epicor vice-president of international channel sales, acknowledges that the current economic climate means appetite for risk is extremely low. Despite this, businesses know they need to continue to innovate and digitise if they are to survive, and this involves staying at the forefront of technology. “The role of channel businesses is to position themselves as consultants, as buyers look for experts to provide validation and confirmation, which de-risks their technology purchases,” he says.
Terry Storrar, managing director at Leaseweb UK, says: “The key focus for channel partners into 2023 is stability. The gloomy economic outlook and the myriad of global uncertainties we are all facing has introduced a fear factor of change into the market.” This means there has not been much movement in the channel over the past few months.
“Churn numbers are low and the longevity of the sales cycle has increased,” he adds. “[Customers] are choosing to batten down the hatches and consolidate existing partnerships, driven largely by more need for security and concerns around the high costs of moving”.
He describes this as “a prime opportunity” for channel specialists to strengthen partnerships with their customers. “It tallies well with the finding in recent research that 84% of IT pros would like to gain more value from their channel advisers. In this economic climate, providers cannot offer significant savings, so channel partners need to look at other ways to invest in customers’ businesses,” he says, adding that he believes the “conservative and cautious approach in the market” will continue into next year.
Rob Bolton, EMEA vice-president at Versa Networks, agrees that partners will concentrate on “getting very close to their customer base ensuring high levels of satisfaction as well as expansion of more value-add services to become stickier and increase the value they are providing”.
He argues that the fulfilment of backlog orders as the supply chain loosens could cause “a natural tailwind for bookings”. In addition, by anticipating the challenges facing their customers and developing solutions to solve them, partners will “open new sources of revenue and driving innovation”.
Standing out from the competition
Nick Offin, head of sales, marketing and operations at Dynabook GmbH Europe, believes there will be pressure on businesses to differentiate themselves to stand out from rivals in the market. “This presents an interesting opportunity over the next year for channel partners to grow and diversify,” he says, “supporting customers to incorporate new and updated IT solutions and services into their business models, including upgraded mobile devices, cloud computing integration and security technologies.”
These developments will play a crucial role in accelerating the importance of channel partners in the industry, says Offin, adding: “2023 will prove a key time for channel partners to support customers on this journey to adapt to new ways of working.”
Erik Nicola, CEO and co-founder of Workspace 365, is unequivocal: “The world will be a very different place on 1 January 2023 compared to how it was just 12 months previously. MSPs will need to embrace how the world has changed in the past year by making themselves distinct from all their competitors in a market that is in danger of saturation.”
For businesses dealing with soaring inflation and the huge increase in the cost of living, every penny spent will need to count. It will be “imperative for an MSP’s survival” to highlight its uniqueness and specific value proposition. “Although times will undoubtedly be tough, there’s also a key opportunity within the same margin – they can define and provide a service that is outstanding,” he says.
Nicola predicts that the successful MSPs in 2023 will be those who take on more of the role of a guide. “[MSPs] will add value for their clients by always being there to guide users through the adoption and usage of the tech as it beds into the workplace. Their reputations will be far more positive than those of MSPs that install new technology but leave it up to users to figure out how it works,” he adds.
Erik Nicola, Workspace 365
Ed Baker, Trellix vice-president global channel sales, argues that the economic uncertainty could be a perfect time for vendors, distributors and partners to take market share and grow.
“In 2023, the channel should focus on attaining greater customer intimacy and understanding of their specific challenges to help unlock opportunities and drive positive customer outcomes,” he says, adding that customers may seek to “double down on their core business” next year, offering MSPs an opportunity “to step in and help with new business models”.
Christina Walker, global director of channel sales and programmes at Blancco, makes a similar point: “Increased inflation and higher borrowing costs will see many customers become more risk averse.”
However, she says this could be an opportunity for partners and vendors focused on addressing customer priorities “to turn a seemingly frustrating situation to their advantage”, adding: “Successful channel partners will home in on more managed services in 2023, tunnelling into more holistic solutions built into an entire policy or platform.
“[Expect more] of a shift towards consultancy offerings, something that poses a financial benefit that prevents the need to make initial long-term hires in an unpredictable economic climate. Channel partners should also recognise that end-point security and sustainability are key areas that customers will not defer from,” adds Walker.
Ricardo Diniz, WSo2 vice-president and general manager for UK and Southern Europe, observes that the world we live in is filled with uncertainty. He cites the cost-of-living crisis, the impact of Brexit, the prospect of a Scottish referendum, a recession on the horizon and a new Covid wave as reasons. “Where there is uncertainty, there is often caution, and caution leads to projects being reviewed, delayed and – in some cases – cancelled entirely,” he warns.
This caution may cause the channel to review its performance and forecasts and possibly reduce targets. “Though very few will plan for anything other than growth, whether they achieve this or not is debatable,” he says.
Laurent Gentil, EMEA channel director at Wallix, takes a moment to reflect on 2022. “For me, the biggest channel moment in 2022 was the continuous efforts made by channel partners to meet growing customer demands in a post-Covid world,” he says. “The pandemic significantly disrupted how channel partners support their customers, and seeing how resilient channel partners have become in quickly adapting their processes to support their customers has been fantastic.”
He argues that the relationship between vendors and partners must change: “[Vendors should] support our channel partners in the way they intend to grow and execute their business, instead of trying to force them to do business the way we want to. Vendors can introduce new partner programmes that give partners the autonomy to decide how things are done – for example, if a partner decides not to focus on the technical side, vendors can support them with sales and customer advice instead.”
Vendors need to understand that “channel partners are engaging in challenging work, and that through our collaboration we should seek to provide a helping hand that results in mutual business growth”, he adds.
A look at strategy
Scott Walker, EMEA channel sales director at Illumio, expects the economic climate and reduced business spending to accelerate the broadening of channel portfolios.
“As end-user organisations continue to scrutinise budgets and drive down prices, it will be the channel that will be hit hardest,” he says. “Traditional infrastructure tools and controls that offer single-digit margins will no longer be sustainable in the long-term, forcing channel organisations to add new, modern technologies to reclaim profit streams lost from legacy infrastructure solutions.”
Jeannette Lee-Heung, senior director of worldwide channel at Aqua Security, argues there is a “significant change” in the channel landscape driven by the shift in procurement models. Partners are acquiring and merging more than ever before. She says there will be greater consolidation and, as a result, “partners committing to and doubling down with vendors that they believe in”. Partners will need to adapt their go-to-market strategies, but Lee-Heung believes they should rely on their vendors for support.
“In tandem, the best vendors will also narrow their partner ecosystem to build smaller, stronger networks of partners. The more focused partner programmes will allow for greater investment in channel partners,” she says.
Tatenda Matinde, EMEA head of business development at Peer Software, believes the looming recession makes the market more competitive than ever, with customers more likely to shop on price, rather than stay with the same reseller. This will result in a greater focus on customer service management, instead of the volume, or number of transactions.
“Today, it’s more about how well they can support the customers and get them through the success journey that will allow them to make more of the solution itself,” he says. “In this context, the relationship between resellers and vendors is more crucial than ever, and the skills gap means that resellers are leaning more on the vendors for support.”
Matinde argues that the ability and flexibility to support channel partners is crucial for vendors as teams are downsized and resources reduced: “Through sales enablement and technical training, vendors can help channel partners ensure customers are retained after the initial sale. Ultimately, customer retention will come down to how well partners understand the solution and the use case, which is what vendors can help achieve.”
Tatenda Matinde, Peer Software
Robert Brower, senior vice-president of worldwide partners and alliances at Druva, expects macro-economic pressures, inflation and foreign exchange rate variability to contract the base for value-added resellers (VARs) over the next 18 months, so they will need to “plan ahead on other offerings and new customer acquisition to offset these compressions”.
“VARs will be less able to inventory, as will distributors, further exacerbating supply chain issues. Partners need to be more nimble than ever before in meeting customers and prospects where they are able to focus more limited personnel and capital resources,” says Brower.
Matt Brennan, vice-president of North America channel sales at SonicWall, believes the effects of supply chain disruption will continue to have an impact on 2023: “Supply chain challenges have wreaked havoc across most industries around the world. IT has been affected across the board. Because of these challenges, brand loyalty will fade. [Customers] won’t hesitate to make purchases they can get now rather than wait for a specific brand product later – fulfilment is critical, regardless of how long customers have been brand loyal.”
Brennan adds that this will lead to a shift in the market as customers learn that “staying brand loyal is not necessary to run their businesses successfully”.
Describing 2022 as “an unprecedented year for businesses”, Richard Eglon, chief marketing officer at Agilitas, agrees that supply chain issues will continue affecting the market until at least the second half of 2023. Interest rates will continue to rise and the channel will see increased pressures on businesses that have outstanding loans against their organisation. “These loan repayments are beginning to increase and as we move into 2023, less money will be available for channel leaders to invest in their people, partners or processes,” he says.
Financial investment will also become “more challenging to acquire for businesses in the sector, as financial institutions are understandably taking a more conservative approach in line with market volatility and market uncertainty”, he adds.
Rachel Rothwell, Zyxel UK&I regional director, provides one of the most optimistic perspectives: “We are really looking forward to 2023, and I think our partners are as well. While there are concerns about the economy right now, I think that as long as there is not a prolonged or deep downturn across the UK, we will see confidence gradually returning and businesses getting on with their plans. The feedback we have been getting is that a lot of businesses, resellers included, have had enough of being held back and want to move forward.”
She acknowledges that the state of the economy means that it is going to be tough for people and for businesses going into 2023, but adds: “Aat the moment, we can see no dip in momentum – and based on our customer forecast and feedback, we can only see the positive trend continuing into 2023.”