“Channel” Is a Business Term, Not a Tech One
Vendors need to broaden their interpretation of the channel and consider all of their route-to-market options.
By Larry Walsh
Technology vendors talk about “the channel” as if it were something they invented. Channel lore is full of stories about how IBM invented the channel as a means for selling early PCs to businesses. Microsoft is cited as one of the originators also, enlisting resellers to spread its software far and wide. And even further back than that, Digital Equipment Corporation (DEC), Compaq, Tandy, and Commodore used resellers and retailers to put their products into the hands of customers.
“Channel” is not a technology industry term; it’s a business term describing routes to market or how products get sold.
Think about it for a minute: Is direct sales a channel? Yes, absolutely. For many vendors, in fact, direct-sales teams are the largest source of channel revenue. Is retail a channel? Definitely. Catalog sales? Again, yes. E-commerce sites and marketplaces? Affirmative. Reseller partners? Of course. And, as Kurt Vonnegut would say, “And so it goes.”
So why does the technology industry treat the channel as if it’s something of its own creation? That’s hard to say, given that there’s so much static over the issue. Perhaps it’s because some channel leaders and media feel the need to differentiate the IT channel as something special. Channel organizations are often considered secondary routes to market, even if they produce higher revenue and sell at higher margins, because the perception is that they cost more than they’re worth.
In some quarters of our industry, “the channel” is considered unique, even though other industries have channels too. The airline industry partners with regional carriers to service secondary and tertiary markets. The auto industry partners with dealerships and after-market parts companies for car sales and vehicle customization. Industrial manufacturers partner with retailers and specialty distributors in one- and two-tier channel frameworks to bring products to market. Even the relationship between television networks and regional broadcasters is a form of the channel.
So, as you can see, the channel is neither a unique term in the technology industry nor a unique sales strategy for technology vendors.
Why Point Out the Channel as a Business Term?
Technology and market forces are evolving rapidly. Advancements in online selling (marketplaces), marketing and sales augmented by machine learning and artificial intelligence, and technology that transforms nearly every piece of machinery and electronics into a smart device are opening new markets and sales opportunities. Additionally, wider societal trends such as rapid urbanization, demographic shifts in the population, and evolving economic models will transform the way technology is sold by vendors and consumed by customers.
Highlighting the true definition of channels may seem a semantic exercise, but it’s anything but.
The first and primary objective of a vendor is getting its products to market, however a “market” is defined. In this context, a market can be a city, a region, a country, or the world. If the most efficient and effective channel, or route, to the target market is direct sales, that should be the choice. If vendors can’t cover the entire addressable market with a direct or automated (e.g., self-service) sales channel, they should enlist partners that can extend their sales capacity.
This is where clear definitions come in handy. As the market evolves, buying personas change, customer preferences shift, and technology opens new opportunities, vendors need to think of the breadth of channels at their disposal that will help them achieve their objectives and accomplish their missions.
A Better Way of Defining Channels
Instead of thinking about “the channel” as some monolithic mass of partners, vendors should consider the various sales route-to-market options for their go-to-market strategies.
- Direct sales
- Direct sales fulfilled by partners
- Indirect sales (partner-led sales)
- Alliances (technology partners selling vendor products)
- Marketplaces (automated, self-service platforms)
- Consumer retail
- Blended retail (consumer and business sales)
By looking at all of the available options, vendors can best decide which route to market is most advantageous in achieving their desired outcomes. Moreover, looking at all routes to market equally frees vendors from forcing sales through legacy channels.
The future is coming quickly, and the market will look vastly different in just a few years than it does today. It’s time vendors stop thinking of the channel parochially and start opening up to the route-to-market options at their disposal.
The 2112 Group is a specialist in channel strategy development. For information on how 2112 can help with your go-to-market and route-to-market strategy, e-mail firstname.lastname@example.org.