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How building Industry Ecosystems can drive partners’ recurring revenues via ESA

Aug 27, 2020 9:57:20 AM Jonathan Head Channel Partners, Recurring Revenue, Ecosystem, Contract

Over the past 3 years the business model for IT distribution and the channel community has been evolving.

 

As channel partners put distribution under more pressure to release more margin and the distributors put pressure back on the vendors, we are in danger of having a race to the bottom. Sustaining the current partner model becomes increasingly difficult as distribution loses the ability to invest in its channel and vendors no longer have the resources to directly engage.

 

So, we need to find ways to break the downward spiral of margin and increase the channel’s profitability.

 

ESA, (Embedded Solution Agreement) as part of the wider Tech Data Ecosystem programme, provides an opportunity for everyone in the IT supply chain to do this.

 

At an MSP (Managed Services Provider) event in London prior to lockdown, we discussed the challenge facing many partners looking to transition to a recurring revenue model or a hybrid model, that can support their business, whilst keeping the transaction engine running to buy enough time to achieve this.

 

Part of the challenge for partners in this transition is taking their sales teams with them, as revenue recognition moves to the right. This is in contrast to the opportunity for business owners looking to create a recurring revenue stream with a 10:1 business valuation as opposed to a 5:1 valuation for a transactional business, if they can make it. (Other valuations are available!)

 

A key measurement of success in the current climate is how many months can a business trade without needing to sell anything new? In these days of uncertainty with supply chains shutting down around the world, knowing you can survive 6 months without adding a new customer provides a significant confidence boost for both staff and customers. Moving from a transactional business model to a recurring revenue model helps build that robustness.

 

One of the compelling reasons for building a solution under an IBM ESA contract is that it allows a partner to deliver their solution with embedded IBM technology either as a paid upfront contract or on a recurring revenue contract basis.

 

We have recent examples where a contract has been sold for the first 3 years as an up-front contract, but the ongoing renewal has changed to a recurring model. Same customer, same software and same solution but now billed on an as-a-service model. This enables the transition to a recurring revenue model without changing the solution or the customers.

 

So why Tech Data for your ESA contracts?

 

Well firstly we have a great team with vast experience of  IBM Software licensing and ESA. With over 100 ESA Partner contracts under management covering a wide range of different solutions, we are uniquely placed to advise partners on developing their ESA offering.

 

One trend we are seeing is partners developing ESA solutions which may form part of a wider solution offered by other partners. This is where the Tech Data Ecosystem programme adds new opportunity, providing a showcase for partner innovations to be shared across the wider Tech Data partner community.

 

Through this initiative we are changing the way we add value to our partners. With 3000 partners in the UK across a hundred vendors and all industries, we have an opportunity to build valuable ecosystems whereby we can help change the way partner solutions come to market. The year on year growth in ESA contracts and revenues, even in today’s business climate, indicates that this is being seen as a major opportunity within the channel community.

 

Having launched Industry Ecosystems in Health, Life Sciences, Retail and Manufacturing, we have recently launched a cross-industry Red Hat Ecosystem. This pulls together the specialist and enterprise partners along with a range of developers and early adopters.

 

We are also engaged in campaigns generating real end user leads which are going back into the partners in these ecosystems.

 

So if you are interested in developing industry vertical solutions, building in IBM technologies as part of an ESA, believe that partnering increases your chances of success and want help in moving your business to a recurring revenue model, then please get in touch with the Tech Data team.

Jonathan Head

Written by Jonathan Head

Jonathan Head is Business Development Manager at Tech Data Advanced Solutions UK

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