The channel future is now: Channel Partners Expo and MSP Summit 2023—key takeaways

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Summary

To say the Channel Partners Conference & Expo and MSP Summit were a huge success would be an understatement. In its 26th year, the event set a new attendance record after more than 8,000 attendees from across the globe descended on Las Vegas, Nevada, between May 1–4. There were approximately 350 sponsors and exhibitors on-site (which was also an Expo record), and the expo hall was packed with co-mingling suppliers and partners.

Business-agnostic content for partners of all shapes and sizes

These attendance records are a testament to how participants are hungry for independent points of view on products and services that can be packaged into solutions for customers of all sizes. Given the size and scope of this event, it competes for time and attention from other vendor conferences, distributor events, and research-company gatherings, which makes the attendance records even more impressive. One of the biggest surprises of the event was the announcement of Omdia’s new Channel Research and Consulting Practice, led by Devan Adams (Principal Analyst) and Debbie Kane (Principal Consultant) (more details on this news later).

The MSP Summit is held on the front end of the event—appealing to managed service providers (MSPs) and IT service providers—before opening up to the telco channel represented by agents and technology advisors who, for the most part, sell the communications and collaboration solutions from the large service providers and network services organizations. The event acts as both a thought-leadership and networking catalyst. It is the only channel event that spans the entire channel partner ecosystem from commission-based providers of telecoms services, to partners who generate recurring revenue from IT-managed services. The significance of this event is that those partners represented sell to small businesses, midmarket, enterprise, and industry-specific customer markets, including the public sector, healthcare, and financial services. As an Informa event, its value for attendees is the vendor- and platform-neutral content environment, which allows partners to meet and share best practices and engage with a wide range of suppliers.

Throughout the event, one thing was abundantly clear: all the channel partners have one thing in common, they are hyper-focused on their survival and planning for the future. As evident in the keynotes and sessions, those plans have started today because they realize their future is now. As Joe Batista, Chief Creatologist (formerly at Dell), wisely said, “We can’t use yesterday’s logic to address today’s challenges.” In other words, for channel companies to capitalize on the next wave of opportunities (i.e., security (managed security, cybersecurity, network security), AI (ChatGPT), mergers & acquisitions (M&As), etc.), they must adapt their services to customers current and future needs, or risk losing to their rivals in the very competitive channel market.

Figure 1: 2023 Channel Partners Expo and MSP Summit topics Source: Omdia

Industry-driven topics of interest

There wasn’t a shortage of subjects covered during the Channel Partners Conference & Expo and MSP Summit. But, if I had to give my top three topics during the event, based on how often they were discussed and how well attended their keynotes and sessions were, they would be:

• Security (managed security, cybersecurity, network security).
• AI (ChatGPT).
• Competitive market: M&A, limited skilled talent.

Or maybe these were just the topics I was most interested in, so I exuded some selective hearing. Either way, below are my takeaways from each of these key topics.

All aboard the security wave

As the adage goes, it’s not a question of “if” you’ll be a target of ransomware but “when.” To kick off the discussion on security, Kelly Danziger​, General Manager, VP Channel​, and Robert DeMarzo​, VP, Channel Content​, shared some notable stats from the recent Informa Tech’s MSP 501 Quarterly Survey, which stated security-related sales were driving 41% of MSP growth. In a similar report, cybersecurity was stated as driving 25% of technology advisor growth (see Figure 1). Unless you’ve been living under a rock, you know that cybersecurity is one of the hottest topics across multiple industries, and channels is no exception.

Figure 2: State of the channel Source: Channel Futures (an Informa Tech company)

Cybersecurity was discussed by numerous channel ecosystem players during the event:

• IBM’s Tamer Osman stated that there was a 40% increase in malicious security breaches in 2020, based on research from Omdia (an Informa Tech business).
• HacWare’s Tiffany Ricks said that 90% of ransomware attacks begin with phishing.
• Lochbox’s Jim Christensen stressed the importance of securing live communications (chat, social media), which was a key concern their Department of Defense (DoD) clients have, largely because instant communications increases security risks due to the lack of time to detect and respond to threats.

To help partners address cybersecurity demands, a lot of good advice was shared on which partners should apply to their business to limit both their and their end-users' risk:

• Make security more personal to end-users by highlighting the negative impact (outcome) it can have on their business (i.e., the latest data breaches, reputation loss, and financial impact (bankruptcy)).
• Establish cyber insurance as a standard requirement, especially given the impact it can have on MSPs whom the US government is beginning to make more liable for security breaches and whose reputations are also negatively affected when customers get breached.
• Create partnerships with other channel businesses who have more security skills and expertise vs. trying to be a one-stop-shop and do everything on your own.

Design a risk assessment process that outlines key security requirements (i.e., security audits, penetration testing, multi-factor authentication (MFA)) that customers must adhere to before contracting with them to better understand their vulnerabilities.

Generative AI and ChatGPT: The channel industry’s gift and curse

These days, you can’t turn on the TV, search the internet, or operate a mobile device without hearing about or interacting with AI, with the latest craze being ChatGPT. According to Omdia’s Artificial Intelligence Software Market Forecasts – 2H22 Analysis, AI software revenue is expected to increase from $37bn in 2021 to $142bn by 2027, a 2021–27 CAGR of 25%. With growth like this, it’s no surprise that the topic was heavily explored during the Expo and Summit.

Figure 3: AI software revenue forecast Source: Omdia

Generative AI can bring many benefits to the industry in the form of automation, efficiency, and lower opex due to the reduced need for hiring certain workers to perform repetitive or minute tasks, for example:

• IBM’s Tamer Osman stated that 56% of manufacturers run AI-driven automation.
• Dell’s Eric Townsend highlighted how the farming industry—yes, agricultural farming—is evolving via the rising adoption of advanced AI technologies being used to improve efficiency and production.

But like every new technology, there is a high risk that comes along with potentially high rewards, and AI is no different. As many speakers pointed out, AI, like ChatGPT, is still considered to be in the early honeymoon phase, with more hype than practicality. Therefore, it will be important for businesses to proceed to offer services with some level of caution. Many experts advised participants not to let AI distract them from the main target outcome: improved customer experiences, whereas automation should be secondary. And as businesses increase their deployment of AI services, they shouldn’t overlook the need to invest in more employee training to ensure their staff are properly equipped to deliver the high-level of service outcomes their end-users require, because if they don’t, another partner will.

Channel consolidation is inevitable: Will you be a buyer or seller?

M&A is part of the game, and unless you operate in a restricted market (i.e., monopoly or duopoly), vertical and horizontal consolidation will naturally occur as businesses decide which route to take to increase their revenue, market share, geographical presence, etc., and the two options are usually organic or inorganic (M&A) growth.

The channel market has seen a lot of M&A activity over the past few years, especially from private equity firms. According to Channel E2E’s 2022 MSP and Technology Company Mergers and Acquisitions List—which tracks M&A deals involving private equity firms, MSPs (managed IT services providers), MSSPs (managed security services providers), IT consulting firms, and technology solutions providers (TSPs)—there were 1,000+ M&A in 2022 alone. Due to this trend, some of the speakers gave sound advice on how to prepare for a potential M&A:

Bradley Gross, owner of The Law Office of Bradley Gross, advised channel businesses to prepare for their exit starting on day 1 by operating as if their company is always for sale. This will allow companies to be better prepared to respond to any future M&A requests. Also, he advocated that all businesses have their documentation readily accessible and have a clear understanding of their company’s value—both recurring and non-recurring revenue.

• Meriplex’s Neil Medwed said that good client experiences are usually predicated on good internal company culture and stressed the importance of properly onboarding both customers and employees. Therefore, adequately investing in these often-overlooked characteristics will go a long way in showing your business’s sustainability to potential investors. This is especially true in the competitive channel market, where there is a lack of high-quality skilled workers, and companies are struggling to keep good talent while keeping up with the fast pace of technology.

The plethora of M&A is creating increased channel market fragmentation. Every partner at the event, including agents, IT consultants, MSPs, technology advisors, enterprises, independent software vendors (ISVs), solution providers, business technology providers, and others, had an opinion about the effect M&As are having on the industry. All the buzz around M&As in the channel industry is not unwarranted because the revenue potential is high and barriers to entry are low, which makes it a very competitive market. For example:

• Cisco shared some results from its own research, which stated a $113bn total addressable market (TAM) for managed services addressable by their product portfolio by 2025. This increases to $258bn when their addressable services portfolio is added.
• Intelisys shared stats from a Canalys report which said that the worldwide TAM was $4.5tn for the IT market in 2022, led by telecommunications ($1.43tn), IT services ($1.28tn), and software ($737bn).

In short, the IT channel industry is a healthy and attractive market that firms exploring M&As view as ripe for investment.

Other subjects that matter

In addition to the key topics above, there were other significant industry subjects discussed during the event:

The direct vs. indirect sales equation is changing due to direct sales to enterprise and midmarket customers diminishing as vendors and technology suppliers put more investment behind scalable indirect sales initiatives through a network of channel partners. One prominent executive who leads a distribution organization declared that direct sales is dead. That might be a bold statement, but it reflects the sentiment.

• The channel is hitting new heights inside enterprises when it comes to their primary go-to-market strategy. The C-suite and board of many companies are approving massive investments in channel partner initiatives, including such major brands as T-Mobile, IBM, HPE, Verizon, Vonage, and AT&T, which played prominent roles at the event.
• Continued investments in channel partner programs and partner recruitment by several sponsors at the event, most of whom were represented by senior-level leaders that often report to the chief research officer (CRO) or member of their C-suite.
• Opportunities in the channel are growing rapidly, while at the same time, the IT market remains volatile as new entrants arrive and older generations exit.

Final thoughts: Either change for the future or live in the past

Given all the uncertainty in the channel market caused by both micro- and macroeconomic factors, partners must act now by adapting their businesses to offer the latest technologies customers need today, or they may be out of business tomorrow. The good thing is that the channel market is growing at a reasonable pace with a large TAM thanks to the advancement of IT and trends such as cybersecurity; AI; cloud migration; and as-as-service (aaS) offerings unified communications (UCaaS), and contact center (CCaaS); backup & disaster recovery (BDR); marketplace channels; rising indirect sales; and emerging partner programs, etc. But all these factors contribute to the market’s ultra-competitiveness and will ultimately decide which partners will have the endurance to be around in the future by adapting their business models, or dwindle away due to their inability to evolve.

Call to action

To stay informed about the channel industry’s evolution, how it will impact your business, and what you’ll need to do to adapt for future success, reach out to Omdia’s new Channel Research and Consulting (contact details below). We will be covering the entire channel ecosystem from suppliers to distributors, agents, MSPs, and end-users, and we’ll be here to support you through your channel journey with thorough, unbiased channel market analysis. Stay tuned for more information on this new practice.

Appendix

Further reading

"Most Memorable Quotes from CP Expo 2023" (May 2023)

“Unlocking the Potential of Technology Services Distributors (TSDs)” (April 2023)

Artificial Intelligence Software Market Forecasts – 2H22 Analysis (November 2022)

“2022 Technology Company M&A List” (2022)

Author

Devan Adams, Senior Principal Analyst, Omdia Channel Research and Consulting

Bob DeMarzo, VP Content, Informa Tech Channels Research & Consulting

askananalyst@omdia.com