Gartner is predicting more than half of today's global channel companies will not exist by the end of 2008. Group vice-president and lead analyst for business and IT marketing strategies, Craig Baty, made the dire forecast during a presentation at last week's Gartner Symposium ITxpo in Sydney. "Not all of these companies will go out of business, but many will have changed form," he said. "We've seen this trend already in the car industry, in airlines, even in the ISP and ASP markets.
"Those that will succeed will have a narrower focus, stronger financial and business management, a changed sales and partnering model, better marketing and improved leverage of targeted vendor and distributor relationships." Baty's presentation was designed to help IT suppliers transition into solution selling. He said convergence of business and IT, as well as telcos and service providers, was driving a dramatic shift in the way technology was viewed.
"The market is very murky and confused. This is causing paradigms," Baty said. "For example, software and hardware used to be separate sales. Now these can be part of a multi-faceted sale.
"We are still at the stage where IT products are being sold as a service. The next point will be where IT products are invisible. It's starting to happen but it's very difficult to achieve. Services and contact will become the product."
To prove the point, Baty pointed to Gartner statistics that showed gross margins in hardware maintenance, software, IT outsourcing and transaction processing were falling. Areas on the rise were applications management and business process outsourcing.
"The focus of sales is starting to change too: we're moving towards selling relationships based on trust, partner community, value and shared view of the future," he said. "The market is under extreme pressure to find higher margins. People are moving from acquiring to accessing assets. The industry is crowded, and it will consolidate. To stay in it, you need to make the transition [into services] and keep evolving."
Baty said there were two ways to play the services game: become an end-to-end large services provider, or focus on niche specialisations. Channel players who did not pick a side risked falling into the black hole.
"Big and small companies need to define where they sit and where they are going to be going forward," he said. "The people in the middle have no control of their destiny. They are dependent on the right or left."
Baty predicted five major global providers would emerge within the next five years. These companies were striving to adopt a business aggregator role encompassing the entire IT value chain.
He used IBM's purchase of consultancy house, PricewaterhouseCoopers, as an example of its need to reach the CEO, not just the IT department.
"If you don't have a relationship in their business, then you won't be a part of the value chain," he said. "All of these big providers are going to need partners, alliances and business best practices as well as domain expertise.
"The future of partners is assured in this model, as long as you actively decide where you will sit. There is always room for somebody to be a major or niche provider to them."