Is the Australian channel better together?
- 22 September, 2016 07:46
As talk fills the industry with the need to partner up to increase profitability, ARN tests the theory with resellers, assessing the pros and cons of channel collaboration.
The term collaboration is ambiguous in its definition, meaning many things to many businesses.
For some partners, collaboration can be used to access specific capabilities required to complete specific projects, while others view it as an on-going business asset to further growth.
Yet amongst the crowded channel in Australia, resellers remain who wouldn’t dream of joining forces with potential competitors, for fear of losing out on future deals.
But perhaps it’s a game for the younger generation of businesses, with Sydney-based systems integrator (SI) and consultancy firm, NK2IT, open to bringing in technical expertise to deliver specific solutions to customers.
“Partnering is vital because without that particular capability or personnel we would not be able to get that project across the line,” NK2IT managing director, Nitin Kuchara, explained.
In leading a company four years of age, Kuchara said during the early stages of the business, finding the right partners to provide these capabilities proved to difficult undertaking, but as relationships were built, the barriers to collaboration dropped.
“Initially I had to work with vendors and distributors who are a great resource because they know which partners play in a particular space,” he recalled.
Kuchara said at this stage in the life of the business, he would prefer to engage other partners when the need arises rather than trying to bring these skills in house.
“At this stage I am not looking to bring those capabilities in house because it will add extra cost and I feel that it may adversely affect our core business,” he adds.
While this can have a positive impact for young guns such as NK2IT, at the more mature end of town, certain resellers do not view it in the same way as they look to bring capabilities in house.
As an Australian company with roots in the virtualisation, BEarena has walked the collaboration path when necessary, but now looks to take on projects it can complete using internal capability rather than partnering.
For BEarena managing director, Darren Ashley, however, tapping into like minded companies with similar experiences and skill sets proved a key factor when joining forces.
“During the early days I was fortunate enough to engage at a managing director level with a number of other resellers who were flexible enough to want to partner,” he said.
“But there is a big trust issue. I would say in 90 percent of the cases partnering was successful but for the other 10 percent, once the first project was complete there was the question of who was priming the deal.
“It’s crucial for both parties to feel they are getting the value out of the engagement.”
Ashley explained that in the circumstances where deals were unsuccessful, typically the other party had felt they had carried out the majority of the work and therefore, any subsequent engagements should be directed towards them.
Unsurprisingly, this caused tension because as Ashley puts it, BEarena “always puts the customer relationship first”, yet this not always the case for other partners.
In the vast majority of cases however, this worked in BEarena’s favour, and remains a crucial component in growing the business to the point it has reached today.
“That is how our business started,” he recalled. “We were purely a white-label professional services organisation and used to work with a number of companies.“It was beneficial for us because they didn’t have a professional services organisation and we were able to deliver that so it was a win win scenario.”
Citing a few select cases, Ashley said BEarena engaged with the channel on deals where they brought the relationship, and the external partner brought the expertise.
“But it’s all about the personalities involved and honouring commitments,” he explained.
“When you are trying to grow a business, any opportunity is attractive. What we have found in the process of growing our business is the most profitable engagements are the ones that we are proficient in.
“For the ones that don’t, we’re not as profitable because we spend a lot of time learning how to engage with another partner and how to manage that relationship.”
During previous engagements, Ashley said the company has walked away from such opportunities when sufficient business presented itself, and for those areas of value, the organisation has now acquired in-house skills.
“What we really want is the right outcome for the customer and even if they want to deal with us exclusively, we encourage them to contact another provider,” he added. “We have become a lot more focussed on what we do and what we don’t do.”
While Ashley’s notion of meeting customer requirements sounds cliched, for most partners in Australia, collaboration is a business consideration fuelled by such a requirement or demand in the market.
NTT sales director, Joseph Vijay - in housing a strong customer-centric strategy - said the decision to work with another partner in certain circumstances is nothing new, with the IT provider recognising that combining capabilities helps create new revenue streams, lower costs and minimise risk.
“We have always chosen to collaborate with partners who are able to help us deliver outcomes for our customers, so collaboration between partners is not a new concept,” he said.
“It’s important for NTT to be prepared to address new requirements so we are always proactive with identifying and investing in the right partnerships.”
Through ironing out a customer-driven decision strategy, Vijay acknowledged that whilst there may be an overlap in capability with a partner, the customer leads the way in choosing the best solution and relationship for specific needs.
“Collaboration with the right partner can result in a more efficient route to market and can often mitigate one’s exposure to risk,” he added.
“Easier access to technology and telecommunications has increased market competition, but there is greater opportunity to build new revenue streams, feeding the urgency to get to market early.”
Often, there exists a fine line between collaboration and competition in terms of potential customer or skills exposure.
For Brennan IT executive general manager, Simon Barlow, the channel has been working together for a number of years and collaboration between resellers has been apart of the company’s strategy for some time.
Yet the decision for Brennan to collaborate with the greater market is based on the proviso of the delivery of customer requirements, in line with NTT.
“There are occasions where we have won new business and will need to work with another reseller on the transition for our clients,” he added.
“It is important to form those relationships to ensure a smooth transition for the customer.”
Despite also sitting at the larger end of town, competing daily against the big players in the Australian market, collaboration for Logicalis remains a foreign concept, “simply not an option” in the face of ongoing competition.
“The last two years I have seen more acquisitions of smaller partners by businesses such as Logicalis and Telstra, than I have in the previous ten years,” Logicalis CEO, Basil Reilly, observed.
Fresh from acquiring the managed services capabilities of Thomas Duryea Consulting, Reilly believes market growth can only be achieved through internal investments in skills and strategy, or through acquisition.
“We all compete against each other and with regards to our more direct competitors, we do not partner,” he added. “Rather, the trends I have seen are huge acquisitions and people going out of business.
“I have seen lots of partners going bankrupt because the margins in the traditional reseller system integrator business are disappearing and everybody is trying to develop new business models and find new business that have margin within them.”
Consequently, Reilly is looking to build new business models as the old ones disappear.
“We’ve now started Backup-as-a-Service and Infrastructure-as-a-Service and have gone from zero dollars to 20 million per year in a three-year period,” he explained.
“We’ve never heard of those businesses before, so we’ve had to invent them, spend millions of dollars to build them and then go out and sell them to customers.”
As one of the country’s leading managed services providers, Brennan acknowledges the grey area of partner to partner, understanding the varied opinions of key players within the market.
“If you partner with a reseller with a very similar solution set or a similar market to one that you service, the line between who takes ownership of a customer can be blurred,” Barlow added.
“For example, who owns the relationship or the service? This in turn can affect the client relationship and cause bottlenecks in the service.”
In recognising particular issues that could go awry, Barlow said Brennan tries ensure a single point of accountability to combat the blurred line of partnering.
“The key at the end of the day is the end-to-end client service experience that is received,” he added.
For some partners, and in alluding to Reilly’s strategy at Logicalis, when building intellectual property and differentiating within the business, acquiring or building internal skills rather than collaborating can often be the answer.
According to Barlow, Brennan’s initial strategy is based upon the business’ existing capability, commoditisation and intellectual property.
Barlow said the business questions whether it needs the intellectual property internally in order to deliver on customer experience and questions the potential value-add to its IP by extending its in-house capabilities.
“If the product is a commodity, why not buy it at the best value in the market, integrate it into the wider service offering in order to get the right service at the right price for the customer?” he asked.
In line with Barlow, Vijay highlighted that at NTT, the decision to buy vs build a skill is made on a case by case basis.
“The choice to acquire or build a skill really depends on the opportunity but we are quite open to partnering with organisations with similar values if it means a better and more efficient outcome for us and our customer,” he added.
Despite maintaining a combative approach, O’Reilly admitted in some cases, Logicalis collaborates with smaller subcontractors or international partners, rather than with direct competitors across the trans-Tasman region.
“My competitors here would never collaborate with me because they want to take business off me and I want to take it off them,” he added.
“I can’t see having the conversation with them, I can’t go near them. They are my competitors. It would be like asking Telstra how its collaboration with Optus is going. They would think you had lost your mind.”
Rather, O’Reilly said he would rather leverage the overseas market.
“We work with technology providers from Israel or Ireland or wherever we are trying to bring in new technologies and start new businesses in Australia like Seccuna or Improvata,” he added.
“We have brought them into Australia and are using their technologies to offer new services to customers.”
O’Reilly said Logicalis uses specific subcontractors to fill in-house capability shortages, but that is as far as the company’s collaboration goes.
“We have about 25 small companies who we use as subcontractors as specialist companies that are around 20 million or under 10 million,” he added.
“We use them for skills we don't have or geographies that we aren’t in, for example cabling services, desktop support in regional parts of Australia or Oracle database skills.”
A vital strategy
While collaboration works for many partners on a case by case basis, there are those who view it as an on going business asset and a vital part of their strategy, such as Adelaide-based managed service provider, Geek.
Geek belongs to a global organisation called HTG, a peer mentoring group for MSPs with a large presence in the US and Europe, alongside a burgeoning community in Australia.
Geek consultant, Jon Paior, said there are currently four, soon to be five, groups within Australia, each consisting of between 10-12 companies that meet quarterly.
Paior said the group works collaboratively to help members tackle the challenges and opportunities that effect its members, by sharing combined business practices and knowledge.
“There are certainly examples where there is business level collaboration,” he added. “Certainly the most prevalent way we would do that is to be able to cover geographic spread.”
“If I am going to pitch to a client that has a branch office in Western Australia, I will have a conversation with one of the other members of HTG about collaborating on that deal, but it has more to do with geographic region than collaborating across spaces.”
As to be expected, different partners have different specialties.
“We may be working with a client that has some Sharepoint requirements and there will be HTG members that have more capabilities in that regard so we build on each other’s strengths,” he said.
In short, Paior said the charter of HTG is to learn from each other’s experience, and to not necessarily to collaborate on special deals.
Yet for Paior, such collaboration occurs naturally based upon the trust developed between members of the organisation.
“We maintain the highest level of trust and confidence,” he said. “Confidentiality is the cornerstone of the trust you build within HTG. Without that trust, none of this would work. You have to be completely open and honest.”
Paior said most companies maintain membership for at least five years and it is usually not until the first year that they begin realise tangible benefits - it takes at least that long to get financials in line with HTG’s systems.
“You come to the meetings initially to build your business, but you keep coming because of the relationships you build,” he added.
While collaboration serves a purpose, it usually remains a stop gap for those looking to grow businesses and for partners uncomfortable with engaging would be competitors.
As a result, certain distributors can provide relief.
Through offering Desktop-as-a-Service (DaaS), Hosted Network managing director, Ben Town, said that many of his partners may be comfortable managing an environment but call on the company for their skills, particularly in standing up projects.
“One of the reasons we exist is to provide that support as a real value add,” he said.
“If one of our partners is going after a particular deal and they lack the technical skill set, that is when they call on us. We require our partners to bring in the deals but in return, they expect that they can leverage us in that regard as well so they don’t have to hire the technical skills required.”
In this sense, Town said Hosted Network goes further than a lot of distributors and in many cases, the company will stand up an environment and the partner will provide professional services.
“We will provide the pre-sales support similar to a distributor, but we will also stand it up if the partner needs us to and build out the solution so that they can win the deal,” he added.
“Particularly when we start to talk about bigger deals, it is a growth path for many of our smaller partners. It allows them to take on deals that they would not necessarily be able to get into and by the same token it allows us to get into deals we would not necessarily be able to get into.”
Town echoed Ashley’s earlier sentiment that this was simply a natural progression and as partners mature, they develop more and more in house capability.
“If that is the case, we support them because we understand that it is part of building that relationship,” he added.
“For some of our partners, they don’t want to do that. They would prefer to leverage our expertise on specific deals rather than committing a full time resource to something that may not be a continual need.
“They may be comfortable with supporting a deployment but may not have the technical skills or resources to support it. In that case we can architect a solution for them, stand it up side by side with their engineers to get the job done and then it’s a win win.”
This article originally appeared in the August issue of ARN magazine - to subscribe, please click here