We’ve been witnessing consolidation in the channel for many years now, but never at the pace at which it is happening today. Private equity remains more active in the space than ever, while many larger VARs and Integrators are looking to pick up the smaller players, and in many cases a combination of the two are happening. My previous company, Trace3, was acquired by a private equity firm in 2017 and the same firm has added three more channel businesses in as many years, building the portfolio in an attempt to create a super-VAR.
What’s really driving all this? Sometimes it’s very simple: owners who have built a business for a number of years are ready for an exit. It’s their time to get some meaningful liquidity and there’s buy-side demand to satisfy it. More often though, companies are trying to maintain relevance through acquisition. Don’t have a legitimate core competency in security and an internal dedicated practice to back it up? Good luck getting any CXO of a Fortune1000 company to give a crap about your business. Don’t have services operation that you can lead with or at least use to augment all of your other offerings in a meaningful way? You’re totally expendable in the eyes of most or all of your clients. Don’t have offices and full-time staff around the country? How do you plan to service the insurance company headquartered in Chicago with a data center in Seattle? Or the entertainment client headquartered Los Angeles with teams and execs in New York?
As if that weren’t enough, the accelerant on top of this consolidation brush fire is the fact that the industry is littered with businesses that simply do not have the chops to keep up, and make the turn on their own. The rate of change in technology today was difficult to imagine 10 or 20 years ago. Even 5 years ago! Digital transformation, cloud, AI & ML, next-gen infrastructure, remote workforces, highly sophisticated cyber threats… It is a new tech world we are living in and not all channel companies are ready, or ever will be. That doesn’t mean they’re worthless; they have something of value (subject matter experts, client relationships, infrastructure, or a specific core competency), just not the whole package required to carry the day as a standalone business.
The consolidation is also creating a massive shift of leverage and influence in favor of the now fewer, but more powerful partners. Less choice for customers (who they partner with and buy products/services from) and startups (their indirect routes to market) means gives the remaining channel businesses the upper hand. These partners now have a diminished threat of a smaller player coming along with a unique offering to unseat them in an account. They are giving customers fewer reasons to look outside the relationship. And this all puts them largely in the driver’s seat with new tech relationships. “Want to get your products into a particular region, industry vertical, or specific account? There’s an easy way and a hard way…” The good news is this doesn’t have to result in customers and startups losing out accordingly.
Savvy customers with the right relationships usually have many ways to keep partners in check and in service of their needs at the highest levels. On top of that, the industry ecosystem tends to have a way of being unmerciful in its delivering of consequences to partners who are not providing real value – it’s one of the main reasons we’re seeing all this consolidation in the first place.
Finally, emerging tech startups looking for faster, indirect routes to market should also be ok – they just have to be ever-sharper with their messaging, product quality, use cases, and value proposition. This will help them remain on at least equal footing when doing the age-old industry dance with the channel: who needs who more? Channel partners need emerging tech relationships earlier now in order to maintain relevance and credibility with clients. And startups need channel partners earlier to help them outpace their competitors. IF the relationships are a good match, and that is a massive IF, when either party veers too far from a mindset of mutual value and need, it’s usually just a matter of time before a course correction is called for.