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How has 2023 gone so far?

Before we all gear up for the busy end of the year, some of the great and the good across the channel review the progress made so far in 2023

This article can also be found in the Premium Editorial Download: MicroScope: MicroScope: Channel pushes on against the odds

With the halfway point for 2023 having passed by, it’s worth pausing to take stock of what the year has delivered and what to expect in the second half.

At the end of 2022, the CompTIA IT industry outlook 2023 annual report found that over half of channel companies were optimistic about their prospects for 2023. Only 23% were uneasy about it. More than a quarter (27%) expected revenue and profitability numbers to outperform 2022 if the IT sector performed well, but the biggest group (45%) expected results on a par with the previous year.

In May this year, Carolyn April, CompTIA senior director of industry analysis, stated: “The channel is healthy and evolving with new technology solutions, new players, new rules of engagement and new customer habits. The majority of firms feel good about business prospects, whether theyre competing in the traditional arenas of reselling and infrastructure, focusing on consulting and services, or representing new and adjacent channel types.”

Considering what has happened so far in 2023, that could be seen as a heartening perspective.

Rachel Rothwell, senior regional director at Zyxel Networks UK, is in accordance with that view. At the end of 2022, she had claimed to be “really looking forward to 2023”, adding: “I think our partners are as well…at the moment, we can see no dip in momentum. Based on our customer forecast and feedback, we can only see the positive trend continuing into 2023.”

Judging by what Rothwell has to say today, it looks as though she was right. “For us, it has been a fairly positive first half of the year,” she says. “Of course, the wider economic situation is having an impact on everyone, but every challenge does bring opportunities.

“Moving into managed services has been and remains the biggest opportunity for partners. The skills shortage and economic pressures are driving customers of all sizes to look at outsourcing management of networks and security to third-party experts,” she adds.

Before properly looking at macroeconomic factors, however, it’s worth addressing the biggest story of 2023 – one that, while years in the prophesying, erupted across the headlines and discussions for the first six months of this year: generative AI.

As Edel Creely, non-executive director at Auxilion, puts it, artificial intelligence (AI) and machine learning (ML) suddenly “burst to life as a reality and not a what-if”.

“Businesses quite literally overnight had to have a position, a strategy, a contingency plan and seriously reassess their technology, people and process roadmaps within the context of AI. More than ever, businesses were trying to figure out how to optimise their processes and future-proof them for their evolving realities,” he says.

Howard Malloy, Ensono senior vice-president and managing director for Europe, describes the generative AI “explosion” as the most significant development of 2023, adding: “Businesses of all sizes and across all industries [are] seeking ways to fold AI into their business operations.”

This puts pressure on channel partners because, as Malloy notes, these types of rapid technological advancements “require channel partners to stay ahead of the curve and continually update their skillsets to meet evolving client needs”.

Macroeconomic effects

Generative AI has been the big story so far, but it hasn’t been the only one. Macroeconomic factors have not exactly been beneficial in 2023. As Erik Nicolai, CEO at Workspace 365 puts it, there have been a number of major macroeconomic factors at play, leading to declining investment in tech firms, the collapse of the Silicon Valley Bank, and mass layoffs at major global tech companies.

“The knock-on effect of these struggles for the channel is tightening budgets and reducing IT spend, so illustrating value-add and impact must be a key priority for resellers,” he says. But Nicolai believes this also represents an opportunity. “With layoffs and budgetary constraints comes demand for improved productivity from the remaining resource, so I see the challenge for the channel becoming the opportunity here, too.”

He adds that resellers that can provide simple yet innovative solutions to the productivity issues affecting businesses in the current climate “are the ones that will thrive in the second half of the year”.

Celine Cazali, SAP’s UK chief partner officer, agrees that macroeconomic factors are having an effect. “Were finding that customers need to ensure that they can prove the business case for IT transformation and deliver return on investment faster than ever – the gap between time and value has narrowed significantly,” she says. “As a result, were seeing a real shift from our partners to deliver projects at speed and help customers adopt and manage the change, as opposed to build customisation like they did in the past.”

Samantha Sene, channel leader for Northern Europe and Iberia at A10 Networks, points to the effect of a tightening in customer budgets as organisations are under “increased pressure to prove they are delivering value”.

“It is imperative that vendors find new ways to add value in the channel,” she says. “For example, vendors should be working with partners to deliver technical and product training, working with distributors, resellers and value-added resellers to share their product-specific skills. This is especially important in helping to close ongoing cyber skills gap.”

Holding onto existing customers has been a significant challenge for the channel this year, according to Charles Damerell, SolarWinds UK&I senior director.

“By adopting a consultative approach, the channel can position itself as a trusted adviser and efficient problem-solver”
Charles Damerell, SolarWinds

“[But the channel has] a great opportunity to lead with a consultative approach. With the ever-evolving business landscape, customers are seeking tailored solutions. By adopting a consultative approach, the channel can position itself as a trusted adviser and efficient problem-solver,” he adds.

He singles out inflation as a major factor affecting the channel. The increase in the cost of goods and services can put pressure on channel partners to increase their prices, in turn affecting customers. “Higher prices may lead to reduced demand and lower sales for channel partners, ultimately impacting their customers’ purchasing power,” he says, highlighting that interest rates are another critical factor.

John Pagliuca, CEO at N-able, describes adapting to the ever-changing nature of the macro environment as “the new normal” in the market for the vendor and its managed service provider (MSP) partners.

“Uncertainty elongates buying decisions as companies tend to measure twice before beginning a new project or committing to a large purchase,” he says. “For many in IT and IT services, the cooling economy, layoffs in the tech sector, the IT talent shortage, increased security issues and constant regulatory changes have created increased uncertainty, and they do pose headwinds.”

But MSPs have the opportunity to help small and medium-sized enterprises (SMEs) that require more resources and expertise to keep up with the “unprecedented” pace of change. They can “meet the challenge, speed up, and be the certainty once again”, says Pagliuca.

Carlos Blanco, vice-president of channels and alliances at Jamf, says macroeconomic concerns have been a driving force in the tech market. Organisations have been under pressure to focus on optimising their resources, thereby doing more with less. “Longer sales cycles and consolidation of products/vendor lines is a common theme today throughout the tech market,” he notes.

Blanco says collaboration and alignment between vendors and channel partners can be a challenge. Vendors need to ensure their partner programmes, incentives and support structures are well-defined, transparent and mutually beneficial.

“[Channel partners need to] adapt to evolving business models, including subscription-based services, as-a-service offerings and recurring revenue models. This transition requires the channel to reshape operations, revenue streams and customer engagement approaches,” says Blanco.

Richard Farrell, CTO at Netcall, makes an interesting point about vendors and their messaging. “With broadening product portfolios and similar messaging, it can be really difficult to understand the differences between vendor propositions,” he says. “Too often, non-core solutions are weak and detract from the overall offering. The channel has a challenge to cut through the marketing noise to really understand whats best for customers.”

A game of two halves

Adam Williamson, sales director at Exclusive Networks UK, describes 2023 as a game of two halves.

“The first three months were strong, but we have certainly seen the bigger deals become harder to forecast. It feels like there is so much scrutiny on any spend, with increased levels of sign-off and due diligence from end users, that it makes the channel’s job hard to predict,” he says.

Looking ahead, Williamson believes the rest of the year is going to be a challenge. “There will still be scrutiny on deals, and the cycles and negotiations will be tougher. However, in these tougher times, it’s important that the channel leans in and supports partners and vendors. It’s not the time to sit back and batten down the hatches – we need to help create pipeline and promote financial facilities that can help bring deals forward to make sure they close in 2023,” he says.

Back in 2022, Scott Walker, EMEA channel sales director at Illumio, told MicroScope that the economic climate would accelerate the broadening of channel portfolios, adding: “As end-user organisations continue to scrutinise budgets and drive down prices, it will be the channel that will be hit hardest.”

Today, he says macroeconomic factors have, understandably, led to a greater focus on return on investment. “Companies dont mind spending money, but before they do, they want to guarantee that they will get a good return on their investment,” says Walker. “This doesnt just mean financial benefits – it could be risk reduction, reduced downtime, or improvements in operational efficiency.”

Rob Mackle, director and co-founder at Assured Data Protection, says: “Channel players are struggling to facilitate what their customers want due to the ever-changing landscape and speed of adoption into the cloud.”

While this brings opportunities for service providers and integrators that can deliver those demands, he adds that there has been “a large increase in white labelling, which is the only effective way to go to market, from a time, skill and cost basis”.

Looking forward, Mackle predicts more of the same: “The market is challenging, but there is huge opportunity for channel partners, and collaboration with special service providers is vital.”

The MSP possibility

Greg Jones, EMEA vice-president of business development at Kaseya, believes that despite the difficult economic situation, the market for managed service providers remains buoyant. “This is still a golden age for MSPs. Their expert support becomes even more important to clients when the going gets tough,” he says. For example, as trusted partners, they can help SMEs to automate and improve their processes to be more productive and profitable.

But things are more complicated than they were. “The challenge for MSPs is having the right conversation at the right level and at the right time,” says Jones. “Yes, budgets are tighter, but technology has become much more integral to business and plays a key role in a wide range of business functions. This means budget for new solutions could come from almost any department and isnt limited to IT anymore.”

“The challenge for MSPs is having the right conversation at the right level and at the right time”
Greg Jones, Kaseya

James Bradley, Okta vice-president of EMEA partners and alliances, echoes that view, stating that the big issue IT companies faces is in ensuring relevance for new audiences. “When we sell technology now, were no longer talking to a purely tech audience. We need to address the interests, needs and challenges of a much broader set of buyers than ever before,” he says.

“Youre just as likely to be selling to the CMO as the CTO or an IT team, which means conversations will now be about usability and experience rather than the tech itself. This is having a significant impact on the channel as they must ensure they invest in the right people with the right skillset to have these conversations.”

Spencer Starkey, SonicWall vice-president of EMEA, says customers are looking for value from a solution or service – and if they can’t find it, they’ll go somewhere else. This presents yet another argument in favour of MSPs.

“Why is that so different?” he asks. “Because the managed service aspect is becoming increasingly relevant. Customers can now pay monthly, rather than spend large amounts of capital on a purchase/licence upfront. Managed services help customers manage their budgets, even as security spending is increasing.”

Starkey also believes there are more job cuts to come. “We’ve seen our fair share of job cuts in 2023 in the industry and I don’t think we’ve seen the back of it either. I imagine there to be more refinement, particularly from the vendor side, especially as they become increasingly reliant on the partner,” he says.

At the end of 2022, Ed Baker, Trellix vice-president of global channel sales, argued the economic uncertainty could be a perfect time for vendors, distributors and partners to take market share and grow, adding: “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.”

Today, he accepts that it is difficult to predict whether the economy will improve or worsen. “But the channel always finds ways to adapt and remain resilient in uncertain times,” he concludes.

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