Microsoft and Tech Data: Outsourcing Skills Tracking to Distributors

June 4, 2019

10 minute read

The move to the cloud has had a transformational impact on the relationship between vendor and distributor. Microsoft now envisions a new role for traditional distributors such as Tech Data: to have a deep understanding of vendor products and keep track of relevant skills within the channel.

Learn why this shift has happened and what this means for vendors, distributors and partners in the future.

Changing roles in the IT industry

 
Changing the IT distribution model Tech Data
 
In recent years, vendors have started to rethink the role and responsibilities of technology distributors in a cloud-first world. Perhaps the clearest example, is the changing economics in the relationship between Microsoft and Tech Data.

Traditionally, distributors have been rewarded on the basis of their licensing activities for vendor products. That is, reselling and renewing licensing agreements with end customers, on behalf of vendors such as Microsoft. Distributors were specialists in licensing. It was complex to calculate all the sums of the licenses and how much they cost. Distributors had expertise in price calculation and inventory management, both complex tasks that vendors were happy to outsource.

Another key part of the distributor’s role used to be compliance, otherwise known as Software Asset Management (SAM). Enforcing that the right number of people in a customer organization had enough software licenses to cover their usage. The contracts themselves were different too. Within one contract many products would be bundled into one agreement – e.g. Office, Sharepoint, a server product – regardless of whether the end customer would use them all.

A brave new (subscription-based) world

 
Fast-forward to 2019 and many products and solutions have been transplanted to a subscription model in the cloud. When buying an Azure license is as simple as navigating to a website and entering a unique licensing key, Microsoft and other vendors no longer require the expertise of distributors to manage the process. The shift to cloud technology has forced vendors to ask distributors to re-evaluate how they can add meaningful value through the supply chain.

 
The adoption of cloud has transformed the economics of the IT industry. In J.B Wood’s book, Consumption Economics, The New Rules of Tech describes why the cloud has created a shift from a product-based industry to a services-based industry. Previously, up-front contracts meant that service providers could take the majority of revenue early on in the lifecycle of a contract. This meant the service provider took on less risk than the customer.

With a subscription model, the economics of the relationship between vendors, service providers and customers has been turned on its head. Customers now take on less risk as contracts are shorter-term, paid in years if not months. On the flipside, service providers take on more risk since customers can move to another solution provider easily. In short, buyers are no longer tied into expensive long-term contracts.

The cloud and the consumption gap

 
Microsoft cloud used on devices
 
The ‘consumption gap’ refers to the amount of features used vs. the amount of features available. The cloud allows customers to pay for the minimum amount of features they need rather than a product bundle.

As a result, the services themselves are much more important than they used be. Vendors used to be more focused on the deal itself rather than the services they provided. Yet, now services are much more important. For a vendor’s cloud platform to succeed, they need people to be building solutions on their platform. They also need their partner ecosystem to be strong in terms of skills and knowledge. This way they can provide high-quality services and support as and when they are required.

The move to cloud has seen the technology sector shift to from a product-based industry to a services-based industry. For a vendor’s cloud product to succeed, they need their partner ecosystem to be strong in terms of skills and knowledge in order to supplement their product with high-quality services and support as and when they are required.

Microsoft is investing in ISV’s and Partners to build their ecosystem. Much like Steve Ballmer’s frenzied cries for “developers, developers, developers”, the global vendor is investing millions to ensure that service providers provide solutions on their platform, Azure, rather than a competitor such as AWS or Google Cloud. The more developers there are, the more customer solutions there are.

A new compensation model

 
Phone showing Microsoft Cloud SaaS subscription
 
Microsoft is now prioritizing its commercial cloud business and expects distributors to play a new role in this framework. Distributors new role is to understand Azure services and ensure that the right skills exist in the channel to provide great solutions to customers. Fittingly, Tech Data was named recently named Microsoft partner of the year which is a testament to their work to support Microsoft’s One Commercial Partner initiative – an organization that was set up specifically to deepen the Microsoft’s engagement with their partners.

It’s no secret that specialized skill sets are required to provide great solutions for customers. Just take a look at the security skills gap. For cloud vendors to be successful, partners must have specific skills to deliver solutions to complex problems. Tech Data’s cloud academy provides training for cloud-based Microsoft solutions such as Azure or Office 365.

What it shows is that the way vendors such as Microsoft are rewarding distributors is fundamentally changing. Traditionally, Microsoft used to reward Tech Data on the basis of the value of the product they shipped. But with changing business models, new cloud products no longer require added value through logistics and delivery, but instead through the quality of services delivered.

Why does Microsoft outsource skills tracking?

 

 
While large vendors like Microsoft, Amazon or IBM are financially powerful enough to invest in the infrastructure and resources necessary to offer global cloud platforms like Azure, AWS or IBM Cloud, it’s still challenging to track skills within their channels – across multiple locations, cultures, specializations and industries.

It is easier for Microsoft to outsource this task of educating partners to distributors like Tech Data, who sit in the ‘middle’ of the IT ecosystem. They have strong partnerships with vendors and already have established communities of partners in place. These relationships and communities represent global networks that span multiple geographies and competencies. It’s for those reasons that distributors are well-positioned to ensure that the right expertise exists to supplement vendor products when they reach the end customer.

Another important aspect of this role is to ensure that project opportunities are allocated to the partners who are best-equipped to deliver the right solutions to customers. Their existing and extensive connections with the channel give them an access to and understanding of partners that is difficult to replicate by vendors alone. For a vendor ecosystem, the more successful projects the stronger the ecosystem becomes.

How are distributors managing their innovation?

 
Tech Data’s acquisition of Avnet Technology Solutions from one of their biggest competitors shows how redrawing their business model is a fundamental change in direction for the distributor. The business is now offering more services and value adds for partner solutions. For example, being able to offer AI as a service to partners as IoT grows is clearly valuable to partners, and indirectly vendors.

Former Tech Data CEO Bob Dutkowsky described the company as ‘the Switzerland of technology’ to refer to the company’s uniquely neutral market position and its ability to work with multiple vendors. It’s true that Tech Data represents many major cloud businesses such as Amazon Web Services, IBM and Azure. This unbiased vantage point means that distributors are uniquely positioned to see market changes – regardless of product – and instruct channel partners to react accordingly.

The challenge is finding a way to effectively track and monitor skills of the partners in their communities. It’s the reason Tech Data is partnering with solutions such as Dynasource. To make sure partners can deliver necessary solutions now and in the future is a core part of ensuring the profitability and longevity of their new business activities. Having an overview of the expertise that exists within their communities is not just important, it is crucial.

 

What does it mean for technology services providers?

 
Whether it’s Uber providing driver ratings or Airbnb’s property reviews, many of the most successful cloud businesses are founded on transparency. The IT industry is moving towards a model where this same kind of visibility on capabilities and experience is necessary.

This change on the way that vendors and distributors do business has an effect on partners too: they need to be visible for what they’re good at. Microsoft’s new emphasis on partner differentiation represents part of a broader push. As cloud technologies evolve at breakneck speed – partly fueled by open-source software – specialization has become more important. Whether it is a particular skill or industry experience, partners who can show others why they are good matters.

From an internal point of view too, being able to track skills within an organization more effectively, is one way that partners can understand what their identity is in the market – and where they need to allocate funding for training. For partners, being transparent about what you have in-house helps to show why you are the right partner for a particular job. It’s now more important than ever.

Going forward

 
– Distributors have taken on a new role as skills managers in the channel. They will ensure that the right skills are available for vendor products to be successful.

– Distributors will also play a role in allocating leads to partners. Partners who want the best opportunities should be transparent about their expertise.

– The rapid pace of change means specialization is becoming increasingly important. Partners who can differentiate successfully and can prove they have specific capabilities for specific challenges are more likely succeed.

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