Cover Story
 Time to Choose
The domestic IT services market is expected to reach $13 billion by 2013, so partners are being wooed by vendors to resell services. Should partners resell?
Or should they build a services portfolio of their own?
By Ramdas S
The domestic IT services market is all set to boom, and almost every vendor is eyeing the large Indian market. Since the SMB sector is expected to drive the growth, vendors are increasingly looking at taking the channel route to tap the market. They are gearing at productizing their services offering so that partners can easily take it and sell it in the market.
According to a report by Springboard Research, the domestic IT services market is estimated to grow from $5.7 billion in 2008 to $13 billion in 2013, a CAGR of 18.6 percent.
“With many industries stepping up their IT spending, the appeal of the Indian domestic market has grown tremendously, and is drawing the attention of domestic and MNC IT service providers (SPs),” says Phil Hassey, Vice President, Services Research, Springboard.
One of the biggest drivers for the services market is the tangible shift in the mindset of the typical Indian customer. “Post-recession, the Indian CIO is increasingly under pressure to reduce costs, show returns on investment and avoid capital expenditure wherever possible. You will increasingly see customers preferring to take the Opex route, hence they may opt to buy a solution as a service rather than buy a product,” opines Diptarup Chakraborti, Principal Analyst, Gartner India.
Players in the ring
To address this opportunity, almost every vendor is plotting new strategies, and channels are definitely on everyone’s mind. “It’s true that most of the vendors, including traditional product and technology vendors such as EMC and Microsoft, are adapting to the changing customer demand and eyeing the services pie. At EMC we are quite clear that we will grow the services business in this country through channels,” says Anil Zachariah, Director, Customer Support, EMC India and Saarc.
For channels, the days ahead are interesting. They are already seeing a change in the way the vendors are looking at doing business. IBM is increasingly investing in IT services capabilities, HP has acquired and integrated EDS, and Dell has acquired Perot Systems. Even a traditional product vendor such as Xerox is reinventing itself as a large printing service vendor.
“There’s a shift in the industry. Many of the traditional solutions which are presently being sold as products, and then deployed at a customer’s premises, will be offered as services. The shift will not happen overnight, but it’s time partners begin to adapt to the new business dynamics. As in previous instances of such changing market conditions, we will see some companies losing steam and even perishing,” forecasts Chakraborti.
The shift toward services will not be easy for the average Indian reseller who is more attuned to doing transaction-oriented business. This is one of the biggest challenges facing vendors who are targeting the channels to reach more customers for their services business.
However, some vendors are seeing this as an opportunity and are productizing services offerings that are customized for partners to sell.
“We understand that it may not be easy for some of our partners to sell services, or even offer services.
Yet IBM is the biggest services vendor globally, hence we are trying to productize several of our services and make it easier for partners to sell,” says Anoop Nambiar, Country Manager, Business Partner Organization, IBM India.
“Selling services through channels is one of our key focus areas for the year. We are seeing major traction especially from partners in B and C-class cities who are keen to enter the services business,” Nambiar adds.
Dell is yet another vendor which has strengthened its services portfolio with a range of Software-as-a-Service (SaaS) offerings such as messaging, client device management, remote infrastructure monitoring, compliance and continuity. While the company has not announced a channel strategy specifically for services, PA Sathyaseelan, Senior Director, Enterprise Solutions, Dell India informs, “One of the ideas we are toying with is white labeling some of our services and taking them to the market with other vendors and partners so that we can leverage on each other’s strengths.”
HP has also thrown its hat into the services arena. Apart from integrating the erstwhile EDS to form HP Enterprise Services, the IT major has carved out a new division called HP Technology Services that is working with over 100 partners to reach services to customers.
“Our partners are facing competition from Dell and IBM, and we are launching services that will help partners compete and win. We have launched a program called Co Sell Co Deliver, where we take the delivery and sales capabilities of partners and go to the market offering a multitude of services,” explains Poonacha PT, Channel Manager, Technology Services, HP.
Sify is another vendor which has set up a business model which uses channels. The company offers connectivity, storage, security, messaging, application hosting and documentation services. “We have managed to build a strong portfolio of services backed by strong SLAs that will help partners to resell our services easily. Our business model is purely bottomline-oriented. The entire responsibility of delivering the service lies with Sify, while the partner needs to just maintain the relationship with the customer,” says Anil Pant, Vice President, Channel Sales, Sify India.
Sify does not bill through partners but bills directly to customers. Partners get an ORC which is 8-9 percent of all revenues during the acquisition year of the business, and an average of 4 percent for the subsequent years of the business. “As a partner you need not invest a single rupee, yet we have small partners who end up earning around Rs 10 lakh in ORC every year,” says Pant.
Badri BR, partner in the Bengaluru-based Webkraft, a partner of Sify, agrees. “For a small company like ours, this business model is perfect. There’s assured margins in the business, and the revenues are consistent. We also do not finance the business, unlike a typical product-based business, where in case of a delay in payment we need to finance the total cost of the project and make payments to the vendor.”
White label vs branded
While some partners have shown interest in reselling the services offered by vendors, there are others who are quite apprehensive about the idea of reselling services.
“I feel many partners are a bit confused about the right strategy, about whether to align with vendors offering services or to build their own services portfolio. There’s also the imminent threat from telco vendors and hosting companies which have delivery models to offer services over the cloud,” comments Vasant Vartak, CEO, Kalyx Infotech, Mumbai.
“We have been in discussions with a couple of our vendors to resell their services. While they are definitely offering healthy margins of around 10-15 percent, it’s unlikely that we’ll align with them because we feel that for our longer sustenance and growth it’s important to build our own services portfolio,” says L Ashok, Managing Director of the Chennai-based Futurenet Technologies.
Some industry watchers see conflict when it comes to the business of reselling services. “We are going to see a classical debate in the days ahead—whether a partner should align with a vendor and resell the vendor’s services, or whether he must build a services portfolio and compete with the vendor and the vendor’s partners,” predicts Girish Krishnamurthy, Managing Director of Kaseya India.
He points out that both options have their own pros and cons. “Building a services portfolio is not very easy for the average partner. From our experience of trying to help the top few hundred channel partners to take the services route over the past two years, I can tell you that though it’s not the easiest option it’s the right model to opt for.” At the same time, Krishnamurthy sees that there’s no other choice for large vendors who need to grow their services business portfolio. “In India, if any vendor needs to tap the SMB market, it’s impossible to do so without aligning with channels.”
Another scenario which channel partners foresee is that they could be reduced to being pure-ORC earners if they take on the role of being just feet on the street for large services vendors.
“There is a debate among SPs like Sify, and among partners, on the possibility of having a transfer price on some of the services. However, since most of the responsibility for the delivery of services likes with the vendor, we feel this is the best business model at this point of time,” says Pant of Sify.
Both IBM and HP are quick to clarify that they do not compete head-on-head with their partners.
“We know there are several partners who have delivery capabilities. We tend to address cases where the partners do not have some of the delivery capabilities, and we merely help them deliver through our expertise,” says Poonacha.
Nambiar of IBM also clarifies, “The idea is never to compete with partners. Most services we offer through channels are services where partners do not have capabilities. We now have cases in small cities and towns where the partners take care of break-fixes at the customer site while IBM NOC takes care of remote infrastructure support. It’s a win-win situation.”
Two other vendors, EMC and NetApp, say that their model is to invest in partners and make them strong services vendors.
“NetApp believes in being a strong product and technology vendor. We have trained and certified around 60 authorized professional service partners who provide services to our customers and other partners,” says Surajit Sen, Director, Channels Marketing and Alliances, NetApp India. “Instead of growing our own services portfolio, we will strengthen our partners who’ll grow their business. If your customer is looking at buying IT as a service there are two choices for partners—either be an SP or lose the customer.”
Sen advises partners to take the tougher route of becoming SPs themselves. “We see some of the
competition wooing channels to resell services, and these vendors have a mandate to grow their services business portfolio. However, partners must think twice before making the choice.”
Sandeep Menon, Country Director of Novell India, is more forthcoming. “Last year Novell took a call not to grow the services portfolio, and to take a strong channel route. We are scaling down our own professional services team. We are also working on a unique proposition for our channel partners who can commit a certain amount of revenues for the year, with unlimited back-to-back support from Novell to grow their enterprise business.”
Both Menon of Novell and Sen of NetApp say that their partner engagement models allow other resellers to avail services which are delivered by their respective authorized services partner network.
Seeing that many of the services partners are also resellers themselves, and wanting to ensure that there is no conflict of interest within its partner network, EMC has devised a two-pronged strategy. “We have a strong deal registration and rules of engagement policy which does not allow a services partner to pitch into another partner’s account,” explains Zachariah. “We also have Tata Elxsi as an independent third-party SP—with absolutely no interest in doing product business—that’s been roped in for cases where the partner selling the product or handling the account is not in a position to support the account. The terms with Tata Elxsi are that once the partner becomes certified and is in a position to support the customer, the Tata Elxsi technical team will mentor the partner engineer.”
The right mix
There’s also growing concern among channel partners about the potential of cloud computing to become not just a game changer but also a potential channel killer. Chakraborti of Gartner has a different take: “Channels must look at the cloud as an opportunity and not see it as competition.”
Ashok of Futurenet agrees that cloud computing represents an opportunity. “The way major SaaS players are positioning themselves, there’s also the possibility of some partners being reduced to pure commission earners. We must look at strategies to create a differentiator and then go to the market.”
That’s where white labeling may help. Vendors such as Sify and SaaS platform vendors such as Jamcracker have white labeled solutions that partners can brand and sell, and even create solutions packages around.
“We are seeing the emergence of a new breed of IT consultants, those who influence the purchase decisions at IT-strapped small businesses,” notes Lakshmi Narayan Rao, Director, Jamcracker. “This is the trend that will become the de facto key influencer for software decisions.”
As channel partners are being offered a number of options from reselling services to jumping on to the services route through SaaS, there’s opinion that a hybrid route is likely to be the best option for most partners.
“In all likelihood, what would be best for a partner would be to resell some critical services from a vendor. Use the SaaS option in some cases where expertise is not available, but at the same time take the services route to be as close as possible to customers and rake in the larger moolah,” advises Krishnamurthy of Kaseya. |