Intermedia Chief Revenue Officer Martorano On The Big Unite UCaaS Opportunity, Private Labeling, The D&H Deal And Overcoming The Channel 'Fear' Factor

Private Labeling Driving Big Margins

Intermedia Chief Revenue Officer Eric Martorano says the company's Unite UCaaS private-label product for partners is driving 25 percent to 50 percent margins for the channel.

"About 70 percent of our partners private-label," said Martorano in an interview at the XChange Solution Provider 2018 conference in Orlando, Fla. "Partners can set their own margin. There is not another vendor out there in our market that can say that. What value are you going to add? Our average partner margin ranges between 25-30 percent, with some partners as high as 50 percent."

That margin opportunity is in sharp contrast to the agent commission model provided by many vendors, said Martorano.

"Nobody is making any money reselling Office 365, for example," said Martorano, a former top Microsoft channel executive. "We learned that ourselves. There is money to be made in adding value on top of it. There is no money to be made in being a reseller of cloud services for things like Office 365. When you can take advantage of a private-label model like we offer, you are not bound by list price. You can determine what the market will bear. A lot of our partners are wrapping services around UCaaS and it is all under their brand.

What is the big difference between the Intermedia you joined 18 months ago and the Intermedia of today?

When you asked people who Intermedia was 18 months ago they thought of us a hosted Exchange provider. That is the legacy of what we built. We were pioneers in that area and we delivered a remarkable product for a number of years. People didn't look at us at that time as having a voice solution or being in UCaaS [Unified Communciations as a Service].

Last year we educated the market on the new Intermedia. Intermedia is a unified communications and collaboration company. That is the company's vision going forward. We have a very, very solid hosted Exchange business and partners that have done extremely well. We are going to continue to invest in and support that.

What is the genesis of the Intermedia Unite UCaaS product?

Four years ago, we acquired a company called Accessline. We saw an opportunity in the area of unified communications. With that acquisition we made a little over four years ago we spent a lot of time thinking through how we could deliver an industry-leading [SMB UCaaS] product. We have spent a lot of time developing the Unite product, which we just launched. We took the Accessline product, acquired AnyMeeting last year, which is video and web conferencing, then we brought all of that together with our SecuriSync file and share product. We spent a lot of time bringing all of that together into one UCaaS offering that we launched under Unite.

There has been a lot of pent-up excitement about this product. It is bringing enterprise-level communications to the SMB. A lot of our competitors are focused on enterprise. We are focused on SMB.

How big a game-changer is Unite?

For partners, this is significant. They have been asking for this for a very long time. What we have is a cloud PBX offering, a file sync and share offering, a video and web conferencing offering and we brought it all together. We have finally been able to package it up and bring partners an integrated offering that can truly meet the needs of the SMB customer. This product is not upmarket. It is not an enterprise solution. It is catered and built for the SMB. Even though it has a lot of the capabilities that enterprises need, it was built with the SMB in mind. The sweet spot for this product is under 100 users.

Most companies are not building product for the SMB. They build products for the enterprise and SMB is an after-thought. For us, SMB is our priority. We have built a product that is catered to that SMB market. We have also built an infrastructure and support organization that supports that focus as well.

How big an opportunity is UCaaS for SMB solution providers?

The UCaaS market is going to be north of a $14 billion market by the year 2023. Right now it is about $3.5 billion. Over the next five years the market is going to grow by $10 billion. It is obviously a significantly growing market. For partners looking to increase their share of wallet with their customers, this is an easy choice.

Our competition is the channel community's fear of getting into this market opportunity. They think it is too expensive. It is almost like they don't believe they can get into it. There is a fear and uncertainty around things like voice taxes, which we take on for them. We are here at XChange to educate and help partners understand that there is nothing to be afraid of, and we are here to learn from the channel too. We are here to learn as much as the channel is here to learn from us. It is a two-way street.

How would you compare the fear you see with regard to partners getting into UCaaS with the fear partners had getting into the cloud market several years ago?

I am so proud of the channel as a whole for the progress with cloud. I remember being on stage nine years ago when I was at Microsoft pitching the cloud opportunity and seeing nervous and dark stares in the audience. At that time, partners feared that vendors would compete against them. It took a number of years to prove to the channel community that this is an opportunity that we were in with them. Now I look back and see how far the channel has come embracing the cloud. I am excited.

When I look now at the area of UCaaS, there are some partners who have just totally gone all in. They are doing great. But the vast majority of the channel is still sitting on the sidelines with UCaaS. Some are turning their heads because they don't even want to look at this.

What is the risk for partners that are paralyzed by fear and do not make the UCaaS move?

The risk is loss of opportunity. What those partners are doing is opening the door for their competitors to come in and take more share of wallet.

What partners need to be asking is: What are they doing to increase their share of wallet and to protect their relationship with those customers? If they are not investing in building out their offering and value, there will be someone else that does it. SMB customers are going to be asking about UCaaS. Demand is coming. Are you going to be the one that is going to serve the needs of that customer or is your competitor going to do it?

What is the difference between Intermedia and its competitors?

We are a channel-focused company. Eighty-plus percent of our business goes through the channel. Ninety percent of my sales and marketing budget is focused on the channel. I have built an organization over the last 18 months that is holistically structured to enable and activate and grow our channel partners' business. You can't look at another competitor out there that is doing the same thing. We have industry-leading programs and an organization that is industry-leading with sales engineers focused specifically on channel development. We have a field sales organization that is 100 percent focused on co-selling with channel partners. We have an inside sales organization that is specifically designed for partner account management and development. We have readiness and training programs 100 percent focused on preparing our channels. We have marketing programs for our partners. I can go on and on. We have a partner concierge desk to help partners transition to the cloud.

Talk about D&H Distributing's decision recently to name Intermedia as its Preferred UCaaS provider.

I really love what D&H does for the channel. They provide a service that is extremely unique. D&H's roots are SMB and channel and that is where we focus. We focus on the same area that D&H does. I see this flourishing into a really incredible partnership.

D&H takes their time. They are patient, they wait, they see it all out there. They did a lot of research and ultimately they chose us. We earned it. We talked to them about what we could do for their partners and they were impressed. I think the D&H deal sends a message that UCaaS is ready for the SMB market. D&H has the reach that we don't.

What is the private branding/white label opportunity that Intermedia offers partners?

Most of our competitors provide agent commissions. That is not a true partnership. That is not an investment. That is compensation you give a sales rep. That is what most vendors out there are doing to support their channel. We go way beyond the commission. We give partners the ability to private-label their own products. About 70 percent of our partners private-label.

Partners can set their own margin. There is not another vendor out there in our market that can say that. What value are you going to add? Our average partner margin ranges between 25-30 percent, with some partners as high as 50 percent.

What is the margin opportunity that you saw in cloud years ago versus the UCaaS opportunity?

Nobody is making any money reselling Office 365, for example. We learned that ourselves. There is money to be made in adding value on top of it. There is no money to be made in being a reseller of cloud services for things like Office 365. When you can take advantage of a private-label model like we offer, you are not bound by list price. You can determine what the market will bear. A lot of our partners are wrapping services around UCaaS and it is all under their brand.

How is Intermedia changing the financial picture of partners with the private-labeling model?

I have been a channel guy for 24 years and one of the things that has been constant is the channel has sometimes struggled to find ways to increase their profitability. I feel truly blessed to work for a company that puts 100 percent of its focus on the channel and thinking channel-first when it comes to building product.

Think about our go-to-market model. The number one thing we think about is our channel. We think about how they can grow with us and in order to do that they have to be profitable and make money. Other companies I have worked at haven't done that. They are leading channel companies -- which I think is awesome -- but there have been a lot of decisions made where channel wasn't the first thing thought of. At Intermedia the channel is our most strategic asset.