Anyone in the recurring revenue business that tells you they are 100% channel-only is mistaken. Friends, family, legacy start-up customers, end-users of resellers that have gone bust – even the most exclusive of channel suppliers has them. This doesn’t mean they’re not to be trusted. There are companies, like Jola, that were set-up specifically to serve the channel and there are others that started with direct customers and decided later on to sweat their assets and build volume through wholesale. Most companies that understand and are ‘invested’ in the channel are unlikely to deliberately or carelessly allow their channel credentials and reputation to be questioned.
Others, through indifference or ignorance, do it all the time. In 2006 I recall having lunch with a friend who was the head of channel for a well-known carrier. He showed me a letter they had sent that morning to all their UK resellers telling them they were shutting down their channel arm and the end users would have to contract directly with them or find an alternative supplier. He said wasn’t sure how that affected his position but found out when we tried to re-enter the building after lunch and his pass didn’t work.
This may seem like old news but there are two very recent situations where either the change of management in a telco or the change of ownership have been negative for the channel. In one instance all the channel contracts were terminated and end users taken direct. In the other the new owners gave licence to the direct sales force to discount heavily where they could win business direct if it was going to a reseller. Where direct and indirect channels in a company share the same CRM system it is not uncommon for the direct sales teams to use the order processing system as a prospecting tool. The MD of a very well-known carrier was adamant this was not happening on his watch until I forwarded the email the end user had received. He was embarrassed and apologetic and the practice stopped until he was replaced six months later. It often comes down to doing your homework, both in terms of the contract and the companies you intend to buy from.
Competitive conflict is not the only potential problem when you deal with suppliers that have a bias towards direct sales. Soon after I became part of a management team in an ISP they won a very large government contract that had extremely onerous penalties should delivery dates be missed. Consequently, and despite the fact we were doing 200 leased lines through channel a month, the entire provisioning team was re-purposed to deliver this one direct contract. Partner’s orders were ignored, dates slipped, business was lost and the channel business never recovered.
Often the one positive aspect of buying from the wholesale arm of a direct business is that they are cheap. Particularly where you are buying products based on common infrastructure like a network or switches, where the majority of the cost of ownership is fixed. For example a 10 Gbit/s network costs the same to run whether utilisation is at 60% or 80%. If direct customers are taking up the 60% then whatever they can get the channel to pay for the additional 20% could be viewed as 100% margin.
In the last 12 months 99% of Jola’s new business has come through Partners and only 3% of Jola’s end user customers were not sold by or are not managed in conjunction with a channel Partner. We do not intervene on the very rare occasions that Jola Partners meet each other in the market. We find that the Partner with the strongest customer relationship tends to prevail.
