Channels are increasingly looking for new margin opportunities, a solution that can deliver them greater customer contact and stickiness, differentiate them from others and enable them to wrap their own billable services around the vendors offering to maximize their own value to the client and the margins they retain. Cloud has muddied these waters, worrying resellers about account control, margins, cannibalization of existing renewals and where they can differentiate themselves and drive services revenues ensuring a focus on the V(alue) in VAR as a opposed to the R(eseller). Distribution is also changing, building out from its traditional stocking and finance line values to deliver more wrap around services and differentiation to both the vendors and the channels serviced. The IT Supply chain as we have all known it for the past 20 years has to change with more solutions capable of web delivery, many vendors pressured with new competition and legacy business processes and cost bases, and the customer buying approach growing more educated and more fickle.
Cloud CRM is an example of an area that is growing rapidly and has strong service capabilities for a channel to drive its own value from. (Gartner Analysis cites that CRM is ascending rapidly in the priorities of CIOs in 2012; moving from 18th place to eighth place. It was also cited by Gartner that CEOs see CRM as their number 1 technology-enabled investment in 2012 and reports indicate that cloud CRM represented over 34% of worldwide CRM spend in 2011).
In the mass market SMB sector, where the channel provides great value to cloud vendors in reach and relationship, we have a sector where both cloud growth and CRM adoption can bring strong business benefits and empowerment, and the combination of the two can compound this. Pierre Audoin Consultants (PAC) recently reported that SMBs spent almost £1.6bn on business application software and SaaS in 2011, and that this is set to grow to more than £2.1bn by 2015 – faster than the enterprise segment! The analyst also revealed that key areas of investment were cited as including CRM, analytics, mobility and industry-specific software.
With such a breadth of customers to migrate from legacy systems into the world of a beneficial and usable CRM, there is a large opportunity for resale partners to step-up and enjoy growth in sales and margins for years to come. Getting a good CRM outcome involves selling a solution and not a technology, understanding a customer’s business needs and processes with focus placed on a solution outcome and not a technical specification or an installation goal.
If you look at a variety of customer reports from recent years, survey data on customers reveals an average of 46.3% of failed CRM projects. Industry analysts like Gartner, Forrester and Butler suggest that 50% to 70% of CRM projects are sub-optimal and do not deliver a return on investment or fail altogether.
With this in mind it is critical that this growth sector is serviced well, with a focus on outcome delivery and not technology sales, and that partners engage to deliver a fully wrapped solution; not simply selling product which will likely leave the customer disappointed. CRM is about an outcome involving process and people, not an installation of backend technology. It is a solution that touches users visibly in their daily work life and must be aligned to deliver true business value. With this comes a channel opportunity for a strong services wraparound and close customer engagement.
There are already resellers providing CRM to their clients with their own services wrapped around it, but looking at the number of focused CRM resale partners truly capable of delivering a business aligned solution sell in comparison to those selling for example security, networking or infrastructure, reveals there are relatively few. This is an opportunity for the channel to embrace both the cloud and a service led solution; where strong margins can be achieved as well as close customer engagement and relationship building, but it does require commitment and investment and not a toe in the water approach.
The question is whether this is a technology that merits broad line distribution or does it require a specialist business sale with a more focused approach to retain margins. Putting in place large supply-to-market channels may at face value seem attractive to a vendor, but do these channels deliver value to the reseller who invests time in a CRM solution sale only to find others around them mass discounting what is a business-value based sale? Will a distribution partner be able to enable a channel to sell and deliver a business application and not simply resell a technology application?
We have already seen Sugar CRM sign Ingram Micro to distribute their CRM solution in the traditional 2 tier model, in contrast to Salesforce who sell directly with all services provided by specialist third party consultancies, leaving the traditional channel on the side lines. There is a place for channel routes to market for CRM, but it is more specialized than traditional solutions and requires, if any distribution, a niche VAD approach it not a direct to channel model.
With a high proportion of CRM implementations leaving customers lacking the desired outcome result, going broad with a traditional distribution strategy could greatly increase the number of partners supplying CRM to customers, but is this a good thing for those partners willing to make the investment in skills required to deliver a rounded implementation and provide customer success? Will margins be eroded as products are broadly distributed? Will corners be cut by channel providers who are not CRM enabled and skilled and yet keen to make a sale? And importantly, will partners signing up through a 2 tier channel be mentored and trained to deliver a successful CRM outcome for clients? All of this can be done, but diligence and work has to be inherent in the model to ensure both the value to the channel and the value to the customer is explicit in CRM delivery channel.
Resellers wanting to successfully progress in this rapidly changing IT world will need to adapt and adopt cloud solution sets around which they continue to add customer value, hold a customer relationship, retain margins and differentiate themselves.
I believe this is a market that is not mature enough for a wide distribution model, but needs careful selection of focused niche value based regional sales and delivery partners, who can expand customer reach whilst retaining the value and solution based proposition required to make CRM successful.