Why The VR Industry Needs to Re- Build The IT Channel
Back in the 90’s creating strategies for the likes of IBM, Dell and Cisco, I found out the importance of having a good channel strategy. Everyone in IT knew that…
Without The Channel the IT industry would not have been able to rapidly serve the demands of a global market with physical products and services.
I firmly believe that its time for companies in the VR space to think about their channel strategy. Ask this, are you a manufacturer of VR hardware, a distributor of VR products, a software company, a Value Added Reseller or System Integrator?
Why the VR industry needs to re-build The Channel.
You need a channel to shift physical products and create complex sales, deliver designs and solutions.
VR is not just an app, you also need hardware to digitise and capture the real world. VR is a tech solution industry, it requires both software and hardware, this is not like the .com days, when you just logged on through a browser, on a machine you already owned.
To be in VR, you need a headset, a seat, a virtual studio, 360º devices for capture, virtualisation, peripherals, high-end render machines, and the list goes on and on, and it seems to get longer everyday.
Physical tech adoption is a race, VR will be a sprint that turns into a marathon, with the winners conquering the market and gaining mass adoption status. This is why when hardware is important, as I argue it is again today, a channel strategy is vital.
Here’s my big punt at a big idea – Virtualisation of the world – can only happen when the VR industry forms it’s channel strategy to meet the demand for global virtualisation.
VR companies need to start to look outside, at who can help them to grow faster and there are other benefits to re-establishing the channel.
For those of you who missed the importance of the channel the first time around, here’s how the VR Channel will work, based on what we used to call “The Channel” in IT circles.
Basic definition of – The Channel.
A sales and distribution channel comes about when a company chooses to replace (or sometimes supplement) its direct sales force (i.e. the people who sell directly to the end customer) with indirect organisations.
These organisations can be value-added resellers (VARs), distributors or partners, and together they create that company’s ‘channel’. The result is that the people who end up selling the product are not employees of the company that makes the product.
The channel I speak of here refers to the IT industry, but if you look you will find channels all over the place, in many industries (e.g. food and drink).
Who operates in the channel?
These are some of the terms you need to know if you are going to deliver a channel strategy for your VR company.
The vendor (manufacturer):
(HTC, Mo-Sys, Intel) This is the company that actually makes the technology. The vendor will usually have a channel manager (or a whole department), dedicated to recruiting and supporting channels.
This is the organisation that buys products from vendors, warehouses them and sells them on to resellers.
The role of the distributor can be really important, as they often develop the skills and expertise to support the VAR and they manage a variety of products from a number of vendors so that the VAR only has one point of contact and can deliver an integrated suite of products and services.
The value-added reseller (aka channel partner or reseller) takes the products from the manufacturer and sells them to the end user.
Unlike a regular reseller that just sells the product on (think of Tesco, selling Cadbury’s chocolates exactly as they come out of the Cadbury’s factory), the VAR adds extra features to the products before selling them on.
For example, if a VAR was working with a start-up, they might sell Dell computers with a bundle of other services and products, such as installation and setting up an office network. That’s the value they add.
The systems integrator:
This is a type of VAR that specialises in bringing VR component subsystems into a whole and ensuring that they function together.
Taking my VAR working with a start-up example, they might take a number of component systems, such as headsets from one vendor, a router from another, hardware recorders and cabling and PCs from a third to create a total networked VR solution.
This is great for the vendor, because they don’t have to get involved in every project where a small business uses just one of their cables, great for the distributor, because they have detailed knowledge of a variety of products and services and can therefore advise the VAR on how to make the solution work, and great for the VAR because they can choose the best bits of technology for each component and bring them together to produce a package that their customer is happy with.
It’s also great for the business end user because they don’t have to get too technical and learn about all the products available to them.
The end users:
The businesses or people at the end of the distribution chain that actually use the product in the end. Note that even if the end users are consumers, the channel through which they are reached consists of a series of businesses, making channel communications.
Why would a vendor choose a channel strategy?
You might be wondering why a vendor doesn’t just build its own salesforce and sell direct to its end users. Well, many do, but choosing the channel (either exclusively or alongside an internal sales team) offers a number of advantages:
• Many vendors don’t want to get involved in the nitty gritty of implementing their technologies at the end user’s offices (for example). They want to focus on making and improving their technology, but let someone else handle the support calls and onsite set-up.
VARs, many of which are consultancies rather than just ‘business technology stores’ can dedicate time to providing advice, support and consultancy services (and make a profit in the process).
• When expanding into new markets it is much easier to partner with a reseller who already understands the market and already has the networks and infrastructure to sell to and service it than it is to set up a new division or a new office.
Why would a reseller choose to work with a vendor or distributor?
If you’re a business IT consultancy, you probably don’t have much time to invent, test and promote your own computer, storage solution and operating system, and if you did, you’d have to be exceptionally good at it if you wanted to seriously compete with what’s already out there.
Instead, you would rather help businesses to use those technologies that they already want to use. And by partnering with vendors (usually through distributors), they get:
• Recognised brands (with all the marketing and promotions weight that goes with that).
• Training and education.
• Leads (many vendors don’t sell direct at all so pass their leads on to their partners).
• Exclusivity (some vendors offer partners exclusive partner status in certain territories or markets).
• Support in servicing their clients.
• They also enjoy an extra layer of support from the distributor, which usually holds a bit more clout with vendors (the distributor is usually a major ‘customer’, representing many resellers so can get the vendor on the phone for support much quicker than a single reseller who buys one or two pieces of kit a year).
What are the issues associated with selling through the channel?
Channel dynamics are different from those within other businesses, and if you are going to be communicating with ‘The Channel’, you need to understand some of the pressures facing people who work within it. Here are a few things to consider.
• The vendor has to give a cut to its channel partners (or they wouldn’t want to take on the effort of selling its technology). Resellers usually choose to represent vendors when they think this will help them improve their margins or market share in some way.
• The reseller is not obliged to work with a single vendor (although some vendors only recruit partners that will support their technology exclusively) – they can offer both Dell and Samsung solutions if they want, for example. This means the vendor has to make its offering appealing to its partners – either through better margins than competitors or by helping the reseller win clients.
• Sometimes the vendor also sells to the end user directly, which makes them a competitor to their own sales channel. Take for example the big Apple store on Regent Street in London, where the vendor (Apple) sells straight to consumers (anyone who wants to buy an Apple product). But then just round the corner on Tottenham Court Road, is a smaller technology store that has been certified by Apple (and has a big ‘Apple Certified Reseller’ sign on the door) to also sell those products to the same end user.
• When a VAR represents multiple vendors, they are under no obligation to give equal sales and marketing effort to their vendor partners. In fact, they usually focus on selling the ‘hot product’ of the moment.
• The vendor has to accept that the methods of selling are entirely up to the VARs, leaving the vendor in little control of the customer experience.
• Usually, vendors train their VARs in how to sell, implement and use their technologies.