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Are Technology Suppliers Being Consumed by Consumption Economics?

By | January 27, 2020 | 4 minute read

The introduction of consumption economics has turned the technology industry on its head, and both original equipment manufacturers (OEMs) and their channel partners are facing unprecedented pressure to transform their business models.


Consumption Economics and Everything-as-a-Service (XaaS)

After groundbreaking “as-a-service” pioneers — such as — proved that customers would pay for technology by subscription, the entire industry shifted. OEMs began planning migrations to consumption-ready technology in order to align with evolving consumption economics. As the market has embraced XaaS across nearly every sector, customers expect their technology providers — including resellers — to keep up with the way they want to consume technology. However, it’s not easy to do when you’re a well-capitalized OEM, and it’s even harder when you’re a smaller firm managing competing priorities across your technology suppliers.


How OEMs Compete in the Consumption Economy

Resellers often represent the vendor and serve as trusted advisers to customers in the field, so it’s incumbent upon vendors to make their portfolio of offerings and programs attractive and easy to sell, which ultimately helps partners manage the very real impact of the XaaS transition on their own businesses. Cash flow implications notwithstanding, in a transition from project- to subscription-based solutions, there remains the fact that the sale is different; therefore, the skills are different, the services that surround the sale are different and the customer experience is different. The investment and energy required to account for all of these changes at both the OEM and the individual partner firm is a challenge shared by virtually every executive in the channel.

Exacerbating the issue, all distributors and most reseller partners represent multiple vendors, and so aligning with one vendor’s strategy may mean that smaller, specialized resellers are unable to align with another vendor’s strategy. After all, there’s only so much investment to go around and only so much change that can be implemented at once. The question is, how can OEMs help ensure that their channel partner: 

  1. Traverses this changing landscape in lockstep with them? 
  2. Can continue to build brand preference for the vendor’s new XaaS offerings while also shoring up their own?

There’s no singular or simple answer. Our research suggests that the OEM transformation has many facets, and channel alignment is just one. What we do know about growth and consumption economics is that everyone wants to move faster. In order to do that, it’s tempting to view a channel partner as an outlet for nonstrategic workloads such as product support services, or to invite partners to invest in infrastructure to support customer success functions. In practice, however, this can further dilute a partner’s efforts to align strategically for the long haul with those vendors who are not only helping them learn, sell and support new offerings, but are also supporting their journey of discovery, strategy and implementation in this new “as-a-service” world.

Cited by 56 percent of OEMs in our research, an alternative approach in working with channel partners is to employ new partnering strategies altogether, leaving resellers free to gain market share for their vendors’ XaaS offerings. Using a partner who can help create, optimize and recapture value — irrespective of product or solution flows, be they through direct or indirect routes to market — is an option many OEMs are considering.

Another important finding in our research is that OEMs need these partnerships globally. Is such a partner a unicorn? I invite OEMs to think again about some of their existing partnerships. Which ones are best leveraged for market reach, end-user relationships and product/solution placement? Which ones can scale noncore business processes such as product and customer lifecycle services globally? By choosing the right partner for the right job, OEMs can be assured that their customers are supported as they migrate from legacy data center environments to XaaS and cloud-based offerings, while the OEM earns the mindshare and market share that comes from helping reseller partners join them on their transformation journey.

Consumption economics has changed procurement and technology usage forever. Be sure your company is ready to handle the demand. With the right resources in place and partners by your side, you can rest assured that your brand and ecosystem will be unscathed by the changing market dynamics.

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About the Author

Eileen (1)Eileen Gibson serves as vice president of Market Management & Strategy for Global Lifecycle Management, a specialized solutions business within Tech Data. She is responsible for strategic and go-to-market planning, including segment identification and management, route-to-market selection, sales and channel enablement, portfolio and offerings management, innovation and investment processes, and marketing. Gibson joined Tech Data in February 2017 upon Tech Data’s acquisition of Avnet’s Technology Solutions division. An industry veteran, she holds more than 30 years of experience in strategy, sales and marketing — bringing vision to life for leaders and organizations alike.