XChange Panel: Strategic Service Provider Model Is Reshaping The Channel Landscape

The shift to the strategic service provider model is reshaping the channel landscape -- leading to deeper relationships with customers focused on business outcomes.

That was the message Thursday from four partner superstars on the panel "State of the Channel 2016: Welcome to the Strategic Service Provider Era" hosted by The Channel Company CEO Robert Faletra at the XChange Solution Provider 2016 at the JW Marriott in Los Angeles.

Faletra told the crowd of several hundred partners that the strategic service provider model marks the fourth major paradigm shift in the channel over the past 34 years -- evolving from resellers to VARs to solution providers, and now, to strategic service providers.

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A panel of service providers weighs in on how to find new business at XChange Solution Provider 2016.

"The strategic service provider is a result of so much of the business now being services-led, with services dragging in technology," he said. "The strategic service provider is a strategic adviser that sits atop all of the other services players (communications services providers, application service providers, platform providers)."

The minimum criteria to meet The Channel Co. strategic service provider research benchmark is 20 percent of annual engagements from business problem-solving rather than procurement, 34 percent of overall revenue from services rather than products, and 55 percent of total services sales from recurring revenue rather than IT project-based services, according to The Channel Co research. "At the end of the day, that's really what it is all about now: business outcomes," said Faletra.

Presidio, No. 21 on the CRN 2015 Solution Provider 500 and which recently acquired cloud consulting company Sequoia Worldwide, is aggressively shifting to a services-led, strategic service provider model, said Rollen Roberson, the former chief technology officer of Sequoia who is now vice president of consulting for Presidio.

[Related: Strategic Service Provider Era Is Here: 10 Changes Solution Providers Need To Start Making Now]

That business-outcome, services-led model even includes investing jointly with customers on transformational services engagements and getting paid based on the business outcome or cost savings, said Roberson. "Sometimes a full cloud or business transformation story is a very expensive proposition," he said. "We really put ourselves behind it and co-invest with our clients, creating a true partnership."

That kind of skin in the game -- with a service focus on reducing operating and capital expenses for customers -- provides a strong incentive to showcase the savings or competitive advantage back to the customers, because that is "going to be our paycheck," said Roberson.

An increasing number of Presidio engagements are focused first and foremost on business outcomes, said Roberson. "It's about, 'How can we actually improve the business model they have? How can we help transform the business, make it more profitable and more efficient, provide new areas of revenue that they didn't have previously?' " he said. "All of that is underpinned by technology. But we start the conversation on the business side."

Presidio has added high-level C-suite executives to the team to help large customers make strategic decisions aimed at transforming the business, said Roberson.

10th Magnitude -- a 5-year-old, born-in-the-cloud provider that does not provide any on-premise solutions -- is driving 80 percent annual sales growth with the strategic service provider business model, said Jason Rook, vice president of alliances for Chicago-based 10th Magnitude.

One of the company's fastest-growing markets is the Internet of Things, where 10th Magnitude is driving business outcomes based on sensor technology, said Rook. A street sweeper company, for example, with sensors on its fleet has teamed with 10th Magnitude to conserve water in Los Angeles, where there are constraints on water use because of California's multiyear drought.

"Our client has to report to the county how much water they use on a daily basis to clean the streets," he said. "They are grabbing that data and reporting it back to the municipalities on a timely basis. That is something the line of business is really excited about -- more so than IT."

Some of 10th Magnitude's best customers are millennial-driven companies investing heavily in cutting-edge technology as part of their business model. "They love the idea of spending a lot of money on technology," said Rook. "They have no idea of what it is going to do, but they are going to do it. It is an entirely different mindset than the traditional IT sale."

Novacoast, a $55 million Santa Barbara, Calif.-based company that is growing its recurring revenue at a 20 percent clip, is staking out the strategic service provider high ground with a sharp focus on providing security services for its financial services and health-care clients, said Novacoast Chief Operating Officer Janice Newlon. "Security is the No. 1 concern for them," she said.

Novacoast recently placed an interim chief security officer at a customer that had a data breach, said Newlon. "We have been very successful helping them mature their organization, modernizing their security operations and compliance with [federal health privacy rules under] HIPAA," she said. "We are a really trusted adviser for them."

Novacoast has placed security experts on-premise for a number of customers and it is driving additional security projects as a result, said Newlon. "All of a sudden they cannot get enough Novacoast engineers," she said.

Novacoast has even invested in its own security operations center (SOC), which is driving deeper, more strategic ties with customers, said Newlon.

WBM Office Systems, a $55 million, Saskatoon, Saskatchewan-based partner, has driven double-digit sales growth in recurring revenue for the past seven years by adopting the strategic service provider focus on business outcomes, said Chief Technology Officer Travis Weber. Recurring revenue now accounts for 44 percent of WBM's sales, said Weber.

WBM is selling "business outcomes" -- not technology, said Weber. For example, he said, the company works with a uranium company with the focus on conservation and trees saved as a strategic driver for the business, he said. "There are printers and servers going out the door," he said. "But that is not going into the annual report. It is about how many trees they saved, their environmental profile and how they appear to the public."

Ultimately, Weber said, partners now must be a strategic service provider to be successful. "We are vendor-agnostic and don't have a data center," he said. "All our bets are being placed on our relationship with our clients, making sure we are doing strategic business planning and helping them work backwards toward the technology that is going to solve their business problem."