As businesses move their communications solutions to the cloud, and premises-based equipment sales slow down, telephony resellers and interconnects are looking for new opportunities to remain competitive and sustain growth. The good news is that hosted/cloud communications providers need partners to achieve scale and ensure implementation success.
It is a fallacy to assume that cloud solutions do not require any premises-based expertise. Quite the opposite, a successful cloud telephony and unified communications as a service (UCaaS) deployment requires local and wide-area network (LAN and WAN) audit and frequent upgrades, endpoints installation, and various additional services related to customer premises equipment (CPE) installation, integration, customer training, and support.
Cloud Communications Providers Lean on the Channel to Deliver Greater Customer Value
Hosted/cloud providers are using a variety of partners including master agents (e.g., TBI, Intelisys, etc.), distributors (e.g., Ingram Micro), various traditional telecom system dealers and services resellers, data VARs, systems integrators, IT services providers, and consultants, and even moving companies and other businesses that act as agents. Business models vary from white-label relationships to simple resale, value-added services, commission-based agents, and so on.
Depending on how you count, between one-quarter and one-third of hosted IP telephony and UCaaS sales go through a channel, including white-label, wholesale, and other resale arrangements. Individual provider strategies vary widely. Some providers such as Alianza, BluIP, and CoreDial, as well as vendors such as BroadSoft and GENBAND, only sell through wholesale partners. Most other providers generate between 10% and 100% (e.g., Star2Star) of total annual revenue through a channel.
Few providers (e.g., C-Spire) choose to sell only directly to end-user organizations. With most providers aspiring to grow their channel business, the percentage of new sales generated from partners is significantly larger than the percentage of partner-generated revenue of total annual revenue.
Reseller Channel Make-up Varies and is Constantly Evolving
Relatively small local resellers with IP telephony expertise, strong focus on customer service and existing customer relationships have been most effective in selling hosted IP telephony and UCaaS to small businesses. Typically, their customers include businesses that require greater attention and support, but offer relatively low monthly customer revenues to earn a direct relationship with the cloud communications provider. Most providers, therefore, have established relationships with multiple local interconnects, with the typical number of partners varying from a dozen to a couple of thousand.
The majority of partner-centric providers report about 500 to 1,000 partners. Typically, only 30 to 50 percent of all signed resellers are active and account for a considerable portion of service provider revenue. Most hosted providers also have partnerships with master agencies and distributors (e.g., Intelisys, TBI), which then use their own partner networks to reach end users. This helps scale the business faster and more economically. The majority of hosted services are still offered by traditional telecom resellers, primarily those that have embraced the cloud model and recognize its value propositions. Successful partners are those that employ a more consultative approach whereby they truly understand customer needs and propose options that best meet them. This model is distinct from one-time traditional equipment sales involving little beyond a sales pitch based on features and price, which used to be common practice among some resellers.
Data VARs, systems integrators and IT-oriented companies are increasingly tapping into this market. They often still lack certain skills required to properly implement and manage real-time communications solutions, but some are investing in training and operational restructuring to add and successfully support voice and UCC as part of their services portfolio.
PBX/premises-based UC vendors have certain advantages in the hosted communications market due to their established relationship with various resellers. For example, Toshiba and NEC’s cloud communications strategies are focused on leveraging existing dealer networks to effectively identify and serve customers looking to migrate to the new cloud solutions. Mitel and Cisco are also seeing success with VARs and other resellers that are already familiar with their respective technologies and have an existing customer base to migrate to cloud or hybrid communication solutions.
Business Models Must Adapt to Changing Market Requirements
However, vendors are reporting challenges in educating and training their partners to effectively promote cloud solutions. Slower-than-expected growth in the first couple of years after some of these services were launched have prompted vendors to simplify their solution packaging and pricing; further automate quoting and provisioning processes; enhance customer IT admin and partner portals; and introduce various incentives for resellers to ease their transition to services-based technology delivery models.
Service provider approaches to their channel networks vary. Some are looking to acquire and entice partners through generous commissions and revenue sharing. Others are focusing on education, marketing collateral, and assistance with lead generation.
Overall, most providers are looking to expand their channel as an effective way to grow and grab market share in an extremely fragmented and still nascent market. Some providers, however, are focusing less on the number of providers and more on the quality of the channel—the specific partner mix and capabilities. The wholesale model has delivered varying success to vendors and service providers.
BroadSoft and Mitel have been particularly effective with their wholesale offerings and are seeing rapid growth with several of their resellers (e.g., Frontier, Verizon, XO). The wholesale and white-label model allows vendors to leverage their technology expertise to most effectively manage and operate the hosted communications platforms and allow service providers to more rapidly and cost-effectively launch next-generation services. This model is perceived as most viable for tier-2 and tier-3 providers that are lacking the resources and/or expertise to manage cloud solutions on their own networks.
The model is less effective if the provider hosting the platform is paying license fees to a third-party vendor and is dependent on that vendor for feature and functionality development. Tier-1 providers are using this model to quickly launch and trial new services, but once a certain scale is reached, they are likely to consider bringing the platform in house. As the market becomes more competitive and profit margins shrink, the opportunity for wholesale services delivery will be limited to a small set of providers that can most cost-effectively support reseller partners.
Going forward, access to a competent and loyal channel network will become a critical success factor for hosted IP telephony and UCaaS providers. Partner relationships and capabilities will play a key role in both accelerating customer acquisition and improving customer support, which can help increase customer satisfaction and reduce churn. Partners must also evolve their skill sets to better meet cloud solution customer requirements. Voice and data service expertise, multi-vendor technology familiarity, ability to integrate communications with other software, and a consultative approach will be critical for partners to remain competitive in the cloud communications market.