While speaking to Amit Singh over the relevance of IT infrastructure, Jordon De Leon, Senior Analyst, Canalys, highlights that the contribution from hardware is stabilizing and is expected to remain at least 50 percent of partner revenues. Further, while partners are expected to grow at 15-20 percent annually, they shouldn’t ignore the upcoming technology trends to remain relevant in the market
How do you see the growing importance of software, services, and cloud computing will affect the relevance of IT hardware for channels?
Hardware will drive value for channels over the next few years. The notion that hardware is dead is wrong. We expect that by 2020, 50 percent of partners’ revenue will still be from hardware, including IT infrastructure, in APAC and India.
Although the world is becoming software-defined and the public cloud continues to accelerate tremendously, there is still an opportunity for the channels. While volumes of servers and storage have slowed down compared to previous years, there is an opportunity for next-generation hardware – converged infrastructure, hyper-converged infrastructure, wireless, and IoT devices/sensors. These all are examples of IT infrastructure.
On the other hand, software, services, and cloud computing reflect the world we live in today. Software is critical because of digital transformation. Every company is becoming a software company, and that means there is a growing need for talented software engineers/application developers, especially as solutions become more application-led.
In addition, services will always be important because of its higher margins. Moreover, delivery of hardware/software as a service, like PC-as-a-Service, provides stickiness to the customer and predictable revenues for partners.
While cloud will continue to grow, we are seeing a shift towards hybrid, where only a part of workloads/data will be on the public cloud, and the rest will be on private cloud/on-premise. This creates opportunities for partners to help customers determine which workloads are suitable for the private and public clouds.
What are the key factors driving the IT infrastructure market in India over the next few years?
IT infrastructure market will be driven by the fact that every customer is looking to IT to drive transformation and to help them achieve business outcomes. The important thing to note here is that there are many customers who are undergoing this transformation and people think it’s all about the cloud. Cloud is certainly a huge part of this transformation, but it’s not the only element. Customers have legacy hardware that needs to be refreshed. This means a massive opportunity for partners to place modern infrastructure such as all-flash storage, hyper-converged/converged systems, and next-generation servers.
As enterprises are consuming IT by tying it with their overall strategy and outcome, it involves architecting a digital strategy, which means partners need to approach it from a consulting angle.
The infrastructure is further driven by the macro trends including Digital India and Make in India. Further, India has a wealth of untapped markets and opportunities like wireless connectivity in states, delivery of healthcare solutions to rural areas, e-commerce payment systems, and next-generation IT infrastructure to enterprises.
Have you seen the contribution of IT hardware to channel’s revenues declining over the last few years?
Yes and no. Three years ago, many experts said that the PC was dead, but it’s stabilized and is doing better than servers. Certainly, we’ve gone through a world where 75 percent of partner revenues came from reselling IT hardware. We have seen that decline to about 50-60 percent. This massive change is because of a variety of factors – customers willing to extend usage of IT equipment, services focus and move to the public cloud.
However, we’re seeing many customers who moved to the public cloud 3-4 years ago, figuring out that it is actually more expensive than on-premise solution over the years. That’s why some of these customers have moved back to an on-premise/hybrid solution. This is a large opportunity for channel partners. And now we have edge computing because of the need to have compute power closer to the edge.
We think that contribution from hardware is stabilizing now and we expect it to remain at least 50 percent of partner revenues. Services contribution is expected to increase.
What is the growth you expect in the IT channel over the next few years?
We expect partners in APAC to grow at least 10 percent on an average over the next few years. In India, because of the strong economy, the growth could be at least 15-20 percent. Technology like robotics, AI, edge computing, hyper-converged/converged infrastructure, and security would be massive growth areas for partners. Overall, my recommendation for partners is to listen to their customers.
Decreasing margins on hardware is a known fact. How do you suggest partners increase their margins on hardware-led deals?
I think margins will always be under pressure and there’s no single way around it. It’s more of moving towards a solution selling and maintaining that stickiness with a customer. There will always be customers who will say, “I just want to refresh my servers.” It’s up to the partner to add services or deliver it in a managed services capacity.
While domain expertise in software development/customization, services and cloud are essential, we think specialization by vertical or line-of-business is immensely critical. Being able to understand the customer’s desired outcomes and business problems at a vertical and line-of-business level positions the partner as a trusted advisor to the customer. That, I think, provides tremendous value, beyond the margins to the partner.
According to many experts, channel partners who are unable to transform into a service provider may find hard to survive. In this scenario, what are your suggestions for traditional IT channel?
What I don’t agree with this statement is that it seems like there’s only one path to remain relevant. That’s not true. In the past year, we’ve spoken to multiple partners who have different, even opposing perspectives.
A partner said that his core reselling business is strong and will not change anytime soon. Another partner from India said that they made the decision not to build their own data center to offer cloud services because of high Capex. As per another partner, their decision to invest in their own cloud capability was correct and was providing results. Hence, it’s not the one-size-fits-all approach.
My suggestion for partners would be to listen to their customers, and then assess where they should start investing. It needs to be customer-led. The approach needs to be pragmatic, but at the same time partners shouldn’t ignore the future technology trends.