V.R.Murralinath - stock.adobe.co
“It’s turned into a very good year.” Not exactly the words you’d expect to hear during a global pandemic, although there are a number of people and organisations that occupy the strange position of being able to utter them.
The good news, from a channel perspective, is that Canalys CEO Steve Brazier used those words about IT partners at a recent channel forum, although, sensibly, he qualified it by adding “and we couldn’t have predicted that”.
After describing 2020 as “the most profitable year ever for the channel – and a very healthy channel we are too”, he forecast that “the opportunities are enormous” for 2021.
Taking Brazier’s remarks further, Canalys senior analyst Robin Ody says remote working requirements drove a wave of demand that had “never been seen in this timeframe, and the channel model was absolutely vital in delivering this”. He points to a similar story in other areas, such as cyber security, cloud applications and infrastructure, along with virtual desktop technology.
For Ody, the success alluded to by Brazier provides clear validation of the channel’s role. “Through better times and challenges, the channel showed it is a trusted advisor and a key worker,” he says, predicting a “slow process of recovery” in 2021. “Demand for technology continues because a fragmented workforce and population need even more complex solutions than are sometimes delivered in a consolidated office environment,” he adds.
Ody says the SME infrastructure hardware market has faced difficulty in 2020, but Canalys expects it to recover a little in 2021, with sales of on-premise servers, storage and networking picking up throughout the fourth quarter of 2020 and into next year.
Robin Ody, Canalys
The big proviso in all of this is what happens at a macro-economic level, and the effect this has on the businesses and people at the country level.
“The channel has done a great job in helping customers to manage the crisis, and the effect on business culture has been quite positive as the relationships within and between businesses have been much more personalised,” he says.
Adapting to challenges of Covid-19
David Watts, managing director of Tech Data UK and Ireland, agrees with Brazier. “The channel has responded amazingly well to the situation around the Covid-19 pandemic,” he says. “Channel companies have demonstrated their adaptability and resilience, and also shown that they genuinely care about their customers, partners and their own people.”
But it hasn’t all been plain sailing. “The number of trading customers is down in the UK and Europe by around 10%, according to data from Context,” says Watts. “And while corporate resellers had a great first half, the second half of 2020 has been more challenging.”
Nevertheless, he believes the outlook is positive for 2021. Large infrastructure projects are coming back online and many organisations have been reviewing their cloud strategies and making investments in that direction. He says they have also been revisiting and updating their security posture now they have moved to remote and hybrid working practices. There are real challenges and opportunities here and around the management of data.
“The potential that existed before the pandemic arrived – in cloud and security, and in emerging technologies such as IoT [internet of things] and analytics – is still there,” says Watts.
Alex Tatham, managing director of Westcoast, says it isn’t immediately apparent why the channel should have proven to be the best model and to have performed so well. “Perhaps it’s the speed of response, the intimacy of resellers to their customers, or perhaps it’s because distribution had stocking models that suited the situation,” he muses. “Nevertheless, Westcoast has had a spectacular year. Not every category has performed well, but the supply of home working mobile devices has been the shining light.”
Tatham argues that an agile channel has shown up vendors’ direct models and this is a habit that is unlikely to change. Looking to the future, he accepts that the effects of Covid and Brexit “will require speed of change as we enter 2021, but opportunities exist everywhere and the channel’s ability to bend to market demands will drive 2021 as well as ever-increasing demand for devices”.
Alex Tatham, Westcoast
Tatham reels off a long list of growth opportunities in areas such as automation, health products, 5G, consumer fulfilment, cyber security and home entertainment, “but overriding it all will be the move from direct towards a two-tier channel”.
Most of the technologies that declined in 2020 will show some growth in 2021, such as print. Like Watts, Tatham predicts that “infrastructure projects that were delayed as senior management waited to see how the pandemic played out will recommence as demands on company datacentres change and increase”. with the “one exception [being] that the desktop market will maintain a decline”.
Digital transformation stepped up a gear
Offering a vendor’s perspective, George Hope, worldwide head of partner sales at Hewlett Packard Enterprise (HPE), says 2020 has been a good year for the channel “and we expect 2021 will be even better”. He praises channel partners for stepping up to the challenge of responding quickly to customers’ needs in the face of the pandemic “even with the added burden of adapting their own businesses”.
He believes 2020 accelerated digital transformation journeys, putting many companies far ahead of schedule. “This has instilled resiliency in our partners and we’ve seen many of them quickly expand their expertise, double-down on focus areas and redefine the meaning of partnership with their customers,” adds Hope.
Looking further into 2021, he suggests that the SME and mid-market segments should also be a big focus for channel partners in the next year, claiming that those which expand their footprint with SME and mid-market customers will see growth in 2021.
It’s an interesting take when you consider that the SME market has struggled in 2020, compared with the enterprise segment, because many smaller businesses closed their operations and reduced spending as a result of the pandemic.
Rob Tomlin, vice-president for UK channel at rival vendor Dell Technologies, predicts that 2021 will bring more significant change for the channel, but admits what the future has in store for the UK and how this could affect the channel is still uncertain. “What is evident, however, is that digitisation is not slowing down and will continue to remain central to the UK’s growth,” he says.
Tomlin predicts that edge computing will be the primary driver of channel sales over the next 12 months and beyond. “The most innovative technologies like AI [artificial intelligence], IoT and 5G require high levels of computational power and data processing close to the source of data creation,” he says. “With an estimated market growth of $120bn over the next three to four years, it is safe to say that edge computing holds the most potential for the channel, especially considering that a chain of partners is required to roll out these services.”
Richard Eglon, marketing director at Agilitas, says Covid-19 has “made it increasingly difficult for those channel businesses that were already operating on wafer-thin margins and struggling to generate cash through recurring revenue streams”. And while resellers and distributors “experienced a spike of product sales” at the beginning of the pandemic, “this has since dropped”.
He warns that although the channel has been “effective and productive” in supporting existing customers through the pandemic, it seems increasingly difficult for many to win new business as clients retain an element of caution. “Although there will be a bounce-back in 2021, it will only be the channel firms with relevant services and business models that will succeed,” warns Eglon.
Continued growth won’t come easy
Matthieu Brignone, Europe, Middle East and Africa (EMEA) vice-president for channel business at Pure Storage, agrees with Canalys’s Brazier that 2020 has been a successful year for the channel, but argues that much of the growth is the result of sales and new partnerships born in 2019, not 2020.
“Comparing the first half of 2020 to the second, we can see a slightly different story play out which will, no doubt, continue into 2021. Next year will see many customers looking to consolidate their costs, which will find the channel competing over fewer inbound sales opportunities. For resellers, this presents both an opportunity and a challenge,” he says.
“It is difficult to predict what the next 12 months could look like as the business landscape changes every week, so stable growth will be reliant upon creativity, strong customer relationships and being business savvy,” adds Brignone.
Scott Murphy, director of cloud, cyber and unified communications and collaboration (UCC) at Ingram Micro UK, says Covid-19 has bolstered growth in those areas. “Enabling clients to work securely and remotely is a key requirement and all these areas along with associated devices, services and financing have shown strong performance,” he comments. “I expect 2021 to continue the pace of 2020, all in all.”
Michael O’Hara, managing director of Data Solutions, is slightly more circumspect. He quotes Gartner’s forecast that IT spending will fall by 5.4% in 2020 compared with 2019, to give perspective to a projected increase of 4% in 2021. The pandemic and prolonged lockdowns are having a significant impact on industries such as entertainment, air travel and high street retail. “Across the board, a sizeable number of businesses have closed or curtailed major segments of their businesses and have significantly reduced IT spend.”
IT a saviour for many businesses
There have been success stories among “digital-ready” companies such as Amazon and Netflix, even down to smaller businesses with an online presence such as O’Hara’s local garden centre.
Michael O’Hara, Data Solutions
Data Solutions has seen strong growth in its HPE Aruba networking business, with corporates, schools and colleges taking advantage of the lockdown to upgrade their networks while their premises were empty. Cloud adoption has also increased because the technology was tested by Covid-19 and it worked.
“IT was one of the heroes of the pandemic,” O’Hara claims. “It helped ensure that many businesses could continue to trade, albeit remotely and digitally.”
Nevertheless, he says there are still “plenty of challenges”, and “the biggest one I foresee is a sustained period in lockdown due to the pandemic and the current recession”, which would affect the viability of more businesses and reduce funds available to invest in IT.
Paul Bryan, UK and Ireland managing director for Exertis, says the picture for the channel is positive overall, but the spike in lockdown-related device sales cannot carry on forever, despite reported inventory backlog for certain sectors.
He highlights cloud and unified communications (UC) as growth opportunities, but also gives mention to gaming as “a great success story”. Looking forward, Bryan says there could be more emphasis on moving computing off-premise to the cloud and businesses preserving cashflow by opting to pay monthly for the cloud server space they use or deciding to rent or lease devices such as smartphones.
He warns that potential trading barriers and tariffs between the European Union (EU) and the UK in 2021 could temper overall demand if the recovery from Covid-19 is slow, both in the short and long term. “That said, KPMG is forecasting technology, and most especially logistical services and distribution, will be very important, regardless of any deal struck between Westminster and Brussels – and [the prime minister’s chief adviser Dominic] Cummings has an ambitious agenda for UK tech and digital,” says Bryan.
Reasons to be positive
Understandably, Rene Klein, senior vice-president of Westcon Europe, maintains that it is difficult to predict exactly where 2021 will take us. He believes the channel can be “cautiously optimistic” about the year ahead “building on the successes we have achieved while being as prepared as possible for similar scale disruption to the channel”.
But he warns that despite the spike in investments during the first wave of the pandemic, “it’s best to prepare for a number of economic scenarios over the next 12 months, with a view to enabling customers to achieve value and focus on overall business outcomes, as opposed to end products”.
Frank Vitigliano, GTDC
The rise of remote working and the movement to subscription models has resulted in a faster-than-anticipated decline in demand for traditional infrastructure. “Ultimately, recurring revenues will become more dominant in the overall revenue stream. For any partner to be successful in the channel, they must help their customers achieve their business outcomes and generate value. This year, more than ever before, we are seeing a huge focus on driving verticals and technology solutions to justify IT spending.”
Frank Vitagliano, CEO at the Global Technology Distribution Council (GTDC), notes that the channel spent a tremendous amount of time helping customers acquire and integrate the tools they need to do business in “the new normal” in 2020, such as laptops, collaboration software and security services. “I expect the channel will spend a lot of time in 2021 helping customers put those tools to work,” he says.
Vitagliano predicts that cloud, security and emerging technologies will command a great deal of attention from customers in 2021 and believes it could be a breakout year for AI, 5G, edge computing and virtual reality. He accepts that a global economic downturn or “a never-ending pandemic” could hurt the industry, but adds: “There are good reasons for optimism.”
Distribution has so far done a good job during the pandemic in keeping the global supply chain for IT products and services running efficiently. “Distributors transformed their own businesses to provide more financial and technical support and they continued to make huge investments in technologies that support digital transformation,” he argues. “Could 2021 turn out to be a stinker? Sure. But I like what I see as we head into the new year.”