16 August 2023

Episode 3: Opportunities in the Channel with Jay McBain from Canalys

Welcome to the third episode of B2B Tech Marketing Talks, presented by Filament.

Jay McBain | Filament

The theme of this third episode is Opportunities in the Channel.

Joining our host Jeremy Balius to discuss all things channel landscape is Jay McBain, Chief Analyst at Canalys.

Canalys is the world’s leading analyst firm with a distinct focus on channels, partnerships, alliances, and ecosystems. The 24-year-old market analysis firm strives to guide clients on the technology industry’s future and to think beyond the business models of the past – delivering smart, timely, and actionable market insights to IT, channel and service provider professionals.

Prior to Canalys, Jay was the Principal Analyst of Channels, Partnerships and Ecosystems at Forrester, has held leadership positions in channel SaaS companies, and got his start at IBM and Lenovo. In this conversation, Jay brings extensive insights to topics including the recent announcements made at Microsoft Inspired, how AI will be embedded in future partner services, how routes to market are diversifying rapidly and many other important topics relevant to channel and partner leaders. Enjoy the conversation!

Connect with Jay McBain on LinkedIn.

Discover Canalys.

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Read the transcript of the podcast episode

Jeremy Balius: Hi, and welcome to the B2B Tech Marketing Talks podcast. I’m your host, Jeremy Baylis. Today’s theme is opportunities in the channel. I’m very excited today because I’m joined by Jay McBain. Welcome, Jay.

Jay McBain: Thank you so much for having me.

Jeremy Balius: Jay, you’re the chief analyst at Canalys. You’ve. Previously been principal analyst of channels, partnerships, and ecosystem at Forrester. You’ve had leadership positions in channel SAS companies, but I’d like to start prior to that with your experience at IBM and Lenovo with your channel origin, such a story as such, how did you get started in the channel?

And what was the channel like back then?

Jay McBain: Yeah, absolutely. I had a mom that was a computer teacher, and she would lug home an Apple computer when I was 11 years old. So I taught myself to program, built some programs. So my computer kind of thing started much more, much before the channel. But, when I went to college, my dad was on me to say, you should go grab an internship and show people what you can do.

And, that might lead to a full time job. Cargill Meat Packing Plant, came calling. As did IBM, so as part of their management training program, I could have pulled hides off of livestock for a year, at Cargill, or I could have joined the IBM helpdesk, the “1-800-MY-COMPUTER-IS-BROKEN and you put me on hold for 45 minutes and I’m really mad” helpdesk.

I chose the latter and quickly within a year got into a channel-facing role and have spent 30 years in this industry, trying to figure out how it works, the system behind it and connecting dots that people don’t have the time to connect is, is what I’ve tried to do.

Jeremy Balius: That’s amazing. And, I can’t believe those, two pathways, that you were choosing between, you pursued the channel. There’s a clear direction in your past that, goes deeper into channel over time. When you started out at IBM, what was it about the channel that started igniting this passion for you?

Jay McBain: Yeah, so I was, I started at IBM in the PC area and then that flowed into Lenovo later, 17 years later, the fact of the matter, though, is most of my colleagues at IBM, 500,000 colleagues were selling mainframes to banks. And they didn’t feel that the partners had a seat at the table and it was very much a direct focus and things like that.

But in my world, trying to cover, in those early days of the PC, trying to cover all of those opportunities and all the growth and everything else, I knew not only a resale channel, I knew a retail channel and later on, about a decade later, a new managed services channel, I recognize how buyers that would think about these purchases and the importance that partners brought not only at the point of purchase, but those moments before the purchase, all of the consulting work, the design, the architecture, the configure price quote.

And then after the point of sale, for, to win that customer again, and to get them to buy your laptop again, they had to have a good experience, implementations, integration, security, compliance, continuity, all the things that come in that full life cycle, three years later would lead to another, a customer purchase.

So that was always for me, surrounded by partners. And we’re at a point now where the average considered purchase in the 5 trillion tech industry. Is surrounded by seven partners that the customer trusts.

Jeremy Balius: So Jay, I was hoping we could kick off our conversation, with an overview of Canalys and what you do, your, what your focus is and what your guys mission is

Jay McBain: as a company. Yeah, sure. Canalys is a top 10 research and analyst firm around the world. We have a niche and our niche Canalys is Latin for channel.

So this company is over two decades old and it’s always focused on go to market and routes to market. You’ve got big companies like Gartner and Forrester and IDC and others that are more generic and they’ll touch on, different topics for different buyers like CIOs and CMOs and stuff.

We’re pretty much focused on the partner first, the vendor that supports the partner, which there’s 35, 000 today with channel managers and with a channel programs and running channel technology.

We’re focused on the distributors that support those vendors and partners. And there’s hundreds upon hundreds of those, today across the world. So we’re in this technology market. And the 73.3% of the $5 trillion last year that businesses and governments spent on tech and telco go to, through, and with the channel.

And that’s what we do.

Jeremy Balius: It’s incredible. And the pace at which you’re publishing research is just phenomenal. It feels like every day there’s new insights coming out from you.

Tell me more about Microsoft Inspired, today.

Jay McBain: Yeah. So Microsoft Inspired today announced a whole bunch of things around generative AI, which most people would have expected, but there’s a brand new partner program around generative AI. And you’re wondering, what does that mean? They just came out with a new point system last October.

Microsoft has the largest channel of any company in the world with 470,000 partners and 400 new ones to join every day. But they’re starting to show.

The education, the training, the certifications, the competencies, all of the different monetization or the multiplier around generative AI, how do partners make money?

And then how do they get recognized in this case by Microsoft? You’ll soon be hearing from AWS and Google and IBM and others. And the idea is this is a whole new, program that wouldn’t have looked anything like programs we’ve seen the last 43 years.

So again, what does this mean for the partner? What does this mean for other vendors that are either in this space or looking at this space?

And how do we make sense of this new economics of partner?

Jeremy Balius: Generative AI is such a hot topic. And this is something I wanted to bring up today. we’re seeing partners starting to come to grips with how do they use large language models and how do they incorporate, this into their day to day activity and their service models.

Do you see any movement in this space? In the channel already, or is it still we’re feeling our way into it?

Jay McBain: The channel overall, there’s millions of partners of different types that all the GSIs global system integrators have put out big announcements of their generative AI practices. And some like KPMG have signed the big deal with Microsoft, that was announced, not too long ago. And yeah, from the large perspective, but what we are figuring out, if I go back to this multiplier.

Is where the opportunity actually is, we know that generative AI, much like infrastructure as a service software as a service security is going to be in seven layers, out of the gate. You’re not just going to go by, business version of chat or a business version of Bart or Bard. Sorry, business version of Watson X from IBM.

You don’t just go buy that as a skew. What’s going to happen is you have to think through as a partner.

All of the compliance, all of the security, all of the data, and you’re going to work with companies, like Snowflake or Databricks and other companies that you may not have worked as much with in the past.

Around the large language models, you’re probably not going to host these models. You’re probably not going to be in charge of, feeding these models and writing the algorithms, but there are partners that will the average company to die today of mid-market size or larger has seven partners.

They trust and one of the main things partners take from this is there’s probably going to be six other partners in the room and you’re not competing over the same thing, but the larger opportunity around it, can really feed all the partners and being able to work and co innovate together, create value together, leverage each other’s network effects as you can take this to other companies, either around the world in the same industry.

Same buyer type, same segment or sector, same kind of 7-layer stack expertise. Same delivery models. So there’s so many areas to go take this and build your own ecosystem and build a practice that, can take you to new heights.

Jeremy Balius: It feels like such a new era because, as many business leaders are just thinking about the unwrapped. ChatGPT or BARD, as you called it, the, the opportunity really here is looking at how are other organizations going to put a wrapper over it and infuse it into offerings that evolve them into new heights that partners can take to market, which is fascinating.

And it’s all happening very fast.

Jay McBain: Yeah, and this isn’t the new, this isn’t the first time a new technology is taken over the consumer realm, you’re reading about it in the New York Times and you’re watching about it on, the news and, this is, become a consumer level frenzy of which every one of your clients is asking, okay, can you translate all that consumer stuff, Terminator 3 and Skynet and can you take all that and tell me from a business perspective.

Yeah. What I should be doing, but 10 years ago, we were in a flurry around Internet-of-Things. A year ago, we were in a flurry around the metaverse around automation, robotics, self-driving drones. I could take you through 3D print. I could take you through dozens of examples of these emerging technologies, promising huge things for partners of different types.

And what you’ll find out is all boats don’t rise. Internet of Things, 10 years later, it’s still not a common practice across the channel. There are companies making billions of dollars, bringing in plastic from China and getting it out there and building out the 5G networks and building out all the different, edge-to-cloud technologies and stuff.

But it never became a broad-based opportunity, even though you would think that every one of your clients, could succeed with Internet of Things. It really wasn’t true. It was very specific to certain industries, very specific to certain size of companies, your flower shop down the road, other than maybe a beacon on the wall had no use for it.

So this is, we’ve got to figure this out with generative AI as well. while we think it’s going to change the world and very important people are writing long letters to governments. Asking to pause it and, we’re coming up to Armageddon here. the fact of the matter is partners have been through this enough times to step back and ask important questions, intelligent questions, and very quantitative questions.

It is important right now, and customers are asking a lot of questions, but how much money is there to be made in consulting? In generative AI, how much money is there to be made and design and architecture at the point of sale? Any kind of co innovation in those 7 layers? Is there any kind of resale opportunity?

There’s most of this going to go through a marketplace. What’s the opportunity to make money in that marketplace every 30 days forever?

It’s not just going to be part of your managed services contract along with help desk and your security firewall and all the other things you’re doing. You’re not just going to add gen as your 21st thing that you’re going to help them with.

For that 113 a month, you’re charging per device. So you’re starting to think, how is the managed services going to wrap around this? The implementations, the integrations, the compliance, the security, the continuity. How do I charge for all that? How are customers ready to buy that today? And who are they going to be buying it from?

And again, let me ask intelligent questions about where the money is to be made, given this trend and given the.

Jeremy Balius: It’s good to take that commercial aspect because it really diminishes the media frenzy around, the ethical questions or the Armageddon, as you put it, very insightful there. You earlier mentioned the seven layers of technology. We here at Filament. Are, working at a nexus of enabling, vendors and their partners to go to market together.

Oftentimes that’s with multiple vendors, or strategic alliances and their partners who are end user-facing when Canalys published, the seven layers of technology, which is made up of the distributors and the cloud marketplaces and telcos and aggregators and so forth. That was a real aha moment because it visually gave us the ability to, show what is happening and the way that the different partners sit alongside each other.

And I think I even see the poster on your wall. of that image, in what ways can these partners or in what ways do you see these partners co creating together, co marketing, co selling in ways that they traditionally might not have when they were, accustomed to going it, going to market by themselves.

Jay McBain: Yeah. the seven-layer research was just to show that, if you focus on the way money changes hands. And that’s all you focus on the point of sale for 43 years, our industry has actually been pretty linear in terms of how that works. When I sold laptops for Lenovo and IBM, 80 plus per cent of our business, would go through resellers and retailers.

And that’s how money changed hands. So you set up programs and you set up coverage models, and that’s the way we’ve been working for decades and decades, and this is all changing pretty rapidly. Obviously, the cloud has introduced cloud based distributors that are distributing bits, not atoms.

They don’t have distribution centers, they don’t have 3PL logistics, they, but there’s a ton of orchestration that needs to happen. So there’s the fastest growing distributor in the world, like a PAX 8 doesn’t have traditional distribution value across logistics and supply chain, but have a ton of value for orchestrating the outcomes of what clients are asking partners for.

And that’s why they’re growing so quickly. they have a bunch of competitors around the world that are also growing quickly. You look at the next layer, like telco, that convergence with IT. Telco services are still larger than I. T. services. Not a lot of people know that won’t be a few years from now, but there’s still a trillion and a half dollars of telco services.

The 25 what used to be called master agents now text solution brokers. Have consolidated down to about four of them now, really large and very technology focused groups. That is another layer of distribution. Marketplaces are growing at 86% compounded. They almost double in size every year.

There’ll be 45 billion spent through marketplaces in the cloud by 2025, a year and a half from now. AWS is going to be a top 10 distributor around the world, along with TD Cinex and Ingram, on that list. So this is changing rapidly. And the buyer of technology will be a millennial in less than 2 years.

These are iPad kids digital first and how credits are going to work and how these new, how money changes hands completely changes the economics of what we’ve done for 43 years, new programs, new relationships. When you talk about the intersection of vendors and distributors and partners, all of the funding that takes place.

We just talked about Microsoft’s new program today. Almost no money at the point of sale because they’re not selling AI. It’s embedded in other things and the money and the economics is different. Because there’s no skew. So in that world, we’re talking multipliers, we’re talking marketplaces, there’s a lot of changing.

And I go down from there. there’s four other categories of how money changes hands. And it’s important to know that what’s fueled this industry for decades, since the very beginning, August the 12th, 1981, till now is changing pretty radically. And it’s changing so quickly that in the next three to five years, it’s going to be radically different.

In terms of how we make money as partners, how vendors support that and how distributors find a spot to orchestrate and add value so that they remain very relevant in that new future.

Jeremy Balius: It’s really fascinating because from our point of view, we’re starting to see business leaders within the individual organizations start to wrap their head around. How do we structurally shift? to meet this change and, from a resourcing perspective, even they’re starting to figure out if we’re going to market together with multiple partners, because we’re all in service of some end user down the chain.

And we’re all trying to sustain a larger, longer-term sales cycle to reach that end user business. how do we sustain it together? That makes sense. And. We might see in the B2B space, let’s say 12, 18, 24-month sales cycles. If you’ve got multiple partners in play, nobody really owns the sustaining of that sales cycle, across all of them.

And so it’s fascinating to watch business leaders try to figure out. Should sales own this? Should marketing own this? Do we need market partner marketing teams in the way that SAS is starting? I’m not starting, but has really shifted into there and leaned into their partner ecosystems.

It’s a hard change because they haven’t done that for decades. And it’s fascinating to watch it take place.

Jay McBain: It really is. And to pick on SAS for a minute, because that’s where you were going. 75% of SAS today is bought by business leaders, and it makes sense that a CRO buys a CRM that a CMO buys a marketing automation platform, plus the 11, 039 other MarTech and AdTech tools on the stack.

It makes sense that a customer success buys a ServiceNow, a HR buyer buys a Workday. It just makes sense. And they’re spending over half their time on tech now, as opposed to their day jobs. So this is just a tech economy where the people, the companies they work for, regardless of what industry are becoming more technology companies.

So everything’s converging at once into this space, but let’s pick on, one of the largest SAS companies, Salesforce. Here’s a company that is almost a hundred percent direct. Talk about how money changes hands only in a few places in Asia Pacific. Do they have indirect? And they might be growing that a little bit more based on some recent announcements, but let’s assume that 32 billion a year.

Is direct mostly, and that’s larger in size and revenue than SAP it’s, they got to a valuation higher than Oracle for a while. So this is big time stuff and they got there without a channel selling their stuff. But at the same time they’re recruiting 500, 000 partners. So why the heck would a partner sign up to somebody where you can’t sell their product?

every dollar of Salesforce comes with $6.19 of ecosystem or economic value, if that customer has 7 partners, they trust you’re all staring at the 6 dollars and 19 cents. So they’re spending $100 grand on Salesforce consumption or subscription, and now there’s 600,000 for all of us to divide amongst ourselves.

In richly paid services, like we’re talking 75% margin services, and we can break that down before, during and after the transaction. We can break it down into co innovation and the 6 other ISVs that will be sold with every dollar of Salesforce, break it down into the strategic and business alliances. But yeah, you’re going to have.

An ecosystem leader, you’re going to have a partner business development person that looks at your customers, your TAM, figures out who the seven people surrounding them are, figuring out who the most likely non-competitive companies you should be integrating with. And here’s another thing that’s brand new in the last six months.

Every buyer in every industry is becoming integration first. Ahead of price, ahead of service, ahead of support, any other part of the criteria. We’re integration first. So we’re buying tools now, not in terms of how much they cost, but how well they work with our already established system that we put in place, the layers we already have.

And to flip gears into consumer, 91% of us today would not buy a car unless it has Apple CarPlay. This in our personal lives and our professional lives, we’re integration first and partners need to be integration first because that’s what your buyer is. They don’t want a single throat to choke.

They don’t want a trusted advisor without a plural. They literally want you to plug in. And add your skills, add your capabilities, build out their capacity, and they’re free to spend, upwards of that 6 for every dollar outsourcing some or all of that technology services that they need to do to be successful.

And that’s it. That’s every neat buddy needs to look at this. And do you hire more direct sales people? Do you hire more marketing people? Or do you start looking at your customer and who surrounds them in the first 28 moments on average before they make a decision? Who surrounds them at that point of sale, because it really doesn’t matter for the first 30 days of a subscription or consumption model of where the money goes, who collects the money, but then every 30 days after that, your retention, your renewals, your upsell, your process, your enrichment, your entire lifetime of that customer.

The value of that customer is to keep them as a lifetime customer is partner driven. So I got to look at the entire journey now that never ends because it gets renewed every 30 days or every year forever.

Jeremy Balius: I just want to jump on one stat that you just threw out there, 28 touch points. Now we’ll be sitting across from business leaders and talk about 12 to 18 touch points on average 28 touch points. Tell me more.

Jay McBain: Yeah. So let’s not use the word touch point because that would seem more sales or marketing specific.

Let’s talk about moments. It seems more psychologically safe to use that word. so let me take you back to the last time you bought a car. And today there’s 63 major manufacturers of cars that built 365 brands of car. So you’re not going to go on 365 test drives. That’s one every day of the year.

You’re going to start to narrow things down. Do I want an SUV? Do I want it to be electric? you start to think, but what are the moments early in that journey as you start to build that funnel and narrow things down? Not till you want a midsize SUV that’s electric. Have you got it down to something that your head can contain and move forward with?

And you’re using YouTube, you might be using social media, you’re talking to your neighbors and friends. Those are all moments in time. They may be very simple, like reading a tweet. It could be complex, like reading an ebook or listening to a full podcast like this. It’s all part of the moments and we all have psychology.

Some of us love podcasts and others don’t use that medium. So in that world, as you move along your car buying journey and you’re narrowing things down and you’re getting reinforcement from those you trust. Guess what? Around the mid journey, you start going on the website, configure price, quote your car, build out the color and the rims you want to, you start to get, a little bit excited about exactly how it’s going to look.

And then, before visiting the dealership, you go and download the invoice price. You know what they paid for it. You download the back end rebates this month. any funny money that’s going on, within 100 with that car is going to cost. you don’t need that old school.

Eight hours as they try to get you a deal, the manager. You’d rather like Carvana, just deliver the car on my driveway, hand me the keys. I’d happy to pay you 100 more just to avoid ever going to the dealership experience. But that’s your 28 moments and you could count all the times and all the things you did and all those YouTube videos you watched of your car racing up against a Tesla or something.

Those are all moments and everybody’s competing for those moments. You can imagine 63 manufacturers competing for those moments. And guess what? In the post cookie world. You can’t go buy those moments anymore because your privacy is protected by Apple and soon to be by Google. They have 99% mobile share and 82% desktop browsing share combined.

You get to the Internet through two companies, two trillion-dollar companies, multi trillion dollar companies. And so when those two companies decide there’s no more cookies, there are no more cookies. So whether you’re Ford or Mercedes or Toyota, you can’t go buy. Your 28 moments, you’ve got to go partner with that YouTube creator, you’ve got to go partner with the ebook creator.

You’ve got to go partner inside those social networks and those circle of trust that you built. And if those people surrounding you have led you to a certain SUV brand, then they get credit and they should get credit in the new economics of partnering to getting you to the dance. If the dealership takes your money.

Perfect. they should earn whatever that’s worth, but it could be a digital. Most states and provinces are now taken because the Tesla are taken down the requirements you have to buy from a dealer. So you could buy it direct on a website, especially for electric cars. They look like a computer.

Then every 30 days after that, whether you take it to that dealership for service, or it drives itself to get its own service at 3 in the morning. I put a 20-minute video on the future of cars on YouTube myself. Talking about partnerships, but that’s it. That’s the 28 moments. The same goes for when you buy software.

The same goes when you buy any considered purchase. It’s the average of moments that land you in the vendor, the brand, the decision you make.

Jeremy Balius: I really appreciate the language that you’re using to describe this because we’re seeing a radical shift in how organizations are viewing demand and how they are shifting. Attribution and where they source, net new prospects and leads and how they qualify. This is all shifting very fast and, and it’s fascinating that it’s being driven, by them being forced to because of the two monoliths, are making changes that are, they’re pushing them in that direction.

And I think it’s positive.

With just a nudge, I wanted to take you back to what you were just describing around the services that are being wrapped around, SAS and, other providers and, and ask you about some research that Canalys published a few months ago around partners, outpacing vendors rapidly. Why do you think partners are outpacing vendors?

Can you tell us a bit more about that?

Jay McBain: Yeah. So in, in one case, vendors are limited by the product SKUs that they sell and either it’s a hot category, which, last year at this time, PCs were really hot, coming off the pandemic and stuff this year. It’s a disaster, they’re down multi double digits.

So as a vendor, it is what it is. There is certain demand for the product, but partners aren’t linked directly to the cell. Of the product. So if somebody is extending for it, let’s keep on PCs. If somebody is extending their PC life cycle and going to keep those laptops around for year four, maybe year five.

guess what services these things break more often. They need more managed services. They need more white glove service. You might need some hot spares. There’s a whole bunch of, I could think of 20 different services Around an aging fleet. So where Lenovo HP and Dell may not be so happy because sales are down.

It’s actually provided an opportunity for the partners to earn more money. Now, there’s 250 other product categories. If you think about software, if you think about other things, all of these, demand areas that the market, Tam, the current demand for a certain category. partners have all kinds of headroom to go build against the multiply, to go build new skills, go build education, training, certifications, competencies.

So where I was a implementation partner, now I can become an implementation and integration partner, because now I have an integration first buyer. I was a reseller, but I’m going to start to move into, managed services. I was a digital agency. Doing creative work, but I’m going to start working now more on compliance and other types of things.

So I’ve got all these opportunities again, upwards of six or seven times the sale of the product itself, where I can go build practices around and I could make two or three or four dollars for every dollar the manufacturer, every dollar the vendor makes. And that’s, the sky’s the limit in terms of that.

Jeremy Balius: Yeah, it’s really interesting. And it seems like vendors are leaning in on this. We’ve been to some recent conferences where, different, vendor channel programs are announcing that this is the year of the partner. Or the age of the partner, and it seems to be a critical strategic imperative on their end to invest in partner value creation is something that’s evident on, in your research.

Jay McBain: It is, and I always ask the 2nd question because, for decades, I’ve seen it be the year of the partner, but, show me the money as the movie would say, right? But show me what that means to you. So define what partner means to you. If it’s somebody who helps the customer along those first 28 moments and gets recognized, monitored, measured and managed for that, a partner that helps that customer, procure and provision the technology, like 24% of marketplace deals are today are partners clicking by on behalf of the customer.

They’re not the reseller of record, but they’re literally have their finger on the trigger, that partner who helps every 30 days, get that product to be sticky, get that product to be. renewed and locked in. So you have a customer for life, that partner who’s doing co innovation creating, software and hardware, and it could be RPA or bots.

It could be all kinds of co innovation and value creation, all the kinds of strategic and business aligned. So there’s so many things a partner does. So if you’re still defining partner as somebody who collects the customer’s money, I guess the year of the partner ought to be paying them more for collecting the customer’s money, but.

What we’re seeing pretty much across the industry is that year or the era of the partner. Is to recognize what partners actually do and most vendors, this is going to ring true. You’ve always had a long tail of partners that aren’t active and you always get together with your colleagues and say, how do we engage them?

How do we enable them? If we just enabled our long tail, we’d be, guess what? After 40 years, we finally figured out they’re there for a reason because you’ve always measured them on their ability to sell. And 90% of partners are just not that interested in collecting the customer’s money. So you’ve got this whole laundry list of partners out there.

And you’re judging a fish by their ability to climb a tree. When you start looking at those partners and asking them the right questions, what do you actually do? Oh, wow. Thanks for asking. I do this, and this, which is hugely valuable. It allows me to grow. I’m very profitable. And by the way, if you just recognize me for that, I’d be happy, but you keep putting me on these spreadsheets and sorting by revenue.

I’m just never going to collect their money unless the customer literally. Forces me to, or they buy my procurement services if I’m a system integrator, but stop measuring me on only one KPI. And if you can measure me 10, different ways. I will show you, I’m one of your best partners. I should be a platinum, even though I’ve never sold a nickel of your product to most channel managers, that’s heresy.

But that’s coming to be true. And if you truly believe this is the era of the partner, you start to think seriously about point systems that do monitor, measure, and manage all of these points of value as opposed to just the point of sale. You start moving money around and opportunity around to all these points of value and you start to truly culturally from the top down, bottom up, become that partner first partner friendly company, not just when it’s at the end of the quarter and you’ve got to close your commission.

Jeremy Balius: Jay, this is just music to my ears because what we’ve. Been really championing for some time is the, not just the KPI of being increased consumption or increased sales of widgets, but the confines of that being on a quarterly basis is totally incorrect to place on a partner’s ,and their expectation.

and therefore in the way that you tier them in your partner program, because they’re out there. Selling relationships and attempting to create longer client lifetime value in a way that the vendor can’t recognize or reward them or support them. And,and that’s something that we’re continually feeding back into the channel programs is to divorce themselves from those quarterly business cycles.

Jay McBain: So if you look at your partner’s types and there’s over 20 models, but if you look where they land around the customer, and if you know your top affiliates, for example, your top one or 2% of affiliates should be platinum, your top one or 2% of advocates, ambassadors, of affinity style partners, your top one or 2% of resellers, your top one or 2% of MSPs, system integrators, implementers, integrators, Your top one or 2% of the companies that secure and make your product compliant.

The top one or 2% of companies who back up disaster recovery, make it,continuity. So if you think of all the steps of getting a customer for life and then start awarding your platinum status to the top, one or two that have just. Over and above, they made the professional leagues in that, slim category.

Those are your platinum partners. And then, the next year, your goal, the next year, but it’s not just sorted by revenue. That’s only 1 of the swim lanes of perhaps dozens. That you’re now measuring and I want to celebrate the best of the best at doing what they do. And again, that fish climbing the tree or let’s not try to get a football player to be a hockey player.

Let’s just celebrate that there’s professional leagues in every sport.

Jeremy Balius: I really appreciate this in the context of partnerships as well. it feel, moving away from just a single KPI, that is. Sales related into all of these lanes. It feels more like a partnership where you’re understanding the unique attributes of the other organization and the brand and the people they’re in.

and then what they’re bringing into your, channel program. And therefore you as a vendor, it just feels more. Like a partnership.

Jay McBain: That’s where we’re going. And people stopped using the word channel because channel was a shortened form of channels of distribution and that’s shortened for people who collect the customer’s money.

And so that was really for the 1st decades of this industry. The only way we could measure it was just too complicated. We didn’t have the technology 223. Entrepreneurial companies who are reimagining partnering there’s 11 islands of innovation. Now, just in these non transaction partners that we’re talking about, there’s 5 islands of innovation of where you can invest new processes and workflows and people and programs and underlying technology to automate all that.

This is where the future is going. Wall Street has got involved. they put in over 3 billion dollars into these categories last year. And they’re fueling this next decade of the ecosystem, as I’ve coined it. most companies, 82% of companies are investing more in partnerships as we speak in every industry of every size of every country, 76% of CEOs think they can’t do it alone.

Whether you’re in pharmaceuticals, banking, insurance, manufacturing, it doesn’t matter where you are. 76% of CEOs think their current business model. Will be unrecognizable in 5 years and ecosystems are the number 1 reason why it’s happening everywhere. And all of us, this will raise all boats when we realize what this change is happening, how quickly it’s happening and our clients.

Our vendors, our distributors, our partners, everyone’s in this together and. Again, we’re all part of this bigger economy around ecosystems, which will be tens of trillions of dollars by the end of this decade.

Jeremy Balius: That’s fascinating and exciting. I wanted to shift gears into another topic, albeit from our limited view, something that we’ve been seeing come up in Strategic discussions, I’m based in Sydney. We’ve just started a new financial year in Australia, in strategic conversations, there’s been a increase in focus around accelerating, various service.

Components most popular being partners, shifting into managed security as a service. We’ve seen some unified communications as a service. there’s been some talk, although I haven’t seen any real go to market for it, but there’s been some talk, even as contact center as a service. Do you, from Canalys’s point of view, see increased investment in these additional as a services?

Jay McBain: Yeah. So aligned with my previous stat of 76% of CEOs. think their business model will be unrecognizable. The future business model, by the way, is subscription consumption. Everyone who sells you your toothbrush right up to your car, everybody who sells you software, hardware, and services are thinking about how to charge you monthly forever.

A Dell, a Cisco, an HP, a Lenovo, all the client server, biggest companies are all 100% committed to subscription consumption. It helps their valuation with Wall Street, and you even have Michael Dell out talking about 10% of the orders now in infrastructure are coming in via apex. You have, Green Lake having triple digit growth quarter on quarter.

So everything’s changing into this new model. So when you put a S on the back of 250 categories in the tech industry, the $5 trillion industry, we’re in, guess what? There’s a huge partner opportunity to go and make that a reality. So that’s where everybody’s thinking is, and it’s just a race on who can get there the fastest.

So it’s not just security in the $82 billion security, software industry. It’s the $300 billion dollars of services that kicks out and the most successful services are not project based because if you get a valuation for those, or you’re going to be acquired with those, people are going to pay, either pennies to the dollar or up to a dollar.

But if you can translate that into MSSP managed security. And you get a longer-term, more sticky customer base, that’s more predictable. Guess what? The multiples on your EBITDA or the multiples on your revenue start hitting maybe 10 to buy into something as hot as security that’s growing at 27% a year, buying into a place like Australia that is growing rapidly and people that can corner the market, very smart distributors.

Like a next gen in Australia, really coming around security to orchestrate a lot of that value. And again, the partners, the vendors, I know the vendors in Australia that have had a lot of success, triple-digit growth. And it all comes together again. Let’s, the train is, left the station.

Let’s hook our caboose to that train. And again, all boats rise. But as a service is driving so much of this multiplier driving so much of this valuation that you need to be on that.

Jeremy Balius: Agreed. Totally agree. It’s a, a fantastic shift. we’re seeing people move very fast, which is, excellent. Cause as you say, it’s ripe for the picking. last comment, I’ve been following you online, for a long while now, I found an article that you wrote. Four years ago, you were, talking about, how channel marketers need to consider themselves as community managers.

one of the key phrases and key takeaways from that article, you were, encouraging marketers and leaders to be visible every day. It’s four years later, 2023. Is this still part of your thinking or in what ways have you evolved?

Jay McBain: No, this is, not only as a part of my thinking, but if I go and look at the fastest growing companies, for example, around managed services, the companies that have created billionaires like Datto and ConnectWise, these are all community driven companies.

There’s nothing remarkable about their sales or marketing. They never ran a Superbowl ad, but they were in the grassroots of the community. people who recognize in Australia that there’s 15,000 VARs and MSPs. They might read CRN or ARN. They might read, Channel Life out in New Zealand.

They go to the Hamilton Island event, which I spoke at every single year. they go to maybe a Telstra event, which I also spoke at. So I got my two or three trips to Australia every single year, but they understand the community that they understand the podcasts like yours. They understand the associations like CompTIA and Moheb Moses and the work he does there with the CompTIA.

They understand that there are 14 spheres of influence of every partner. ’cause there’s not just 15,000 partners. They have on average eight people each. So you’re starting to talk about hundreds of thousands of people in Australia in this industry. And if you focus on what they read, where they go, and most importantly the people they follow, you’ll find that winning in the country, winning in the region is a bottoms up community play.

So I pointed at, like a Datto and their local person who lived this was James Burgle. Now with PAX8. globally was Rob Ray, also now, with Pax 8, but they get this and they know that you don’t just go into Australia and run a big set of TV ads and get billboards up and down the Gold Coast.

You engage with people the way they like to be engaged with, surrounded through, to and with the people they trust. It’s not you standing out on the platform. It’s you working inside the community, earning trust for yourself and your company. And getting those loudest people, most influential super connectors in the industry from Sydney to Perth and from Melbourne to Brisbane, talking your story in every little event, in every article, in every blog and every ebook and every podcast and every association meeting and every peer group meeting, every vendor thing, every distributor thing.

You start to show up every day and you start to get to that seven times marketing rule. That’s community. I heard that at Dicker Data. I heard that in ARN Magazine. I heard this over at CompTIA when I went to my association meeting. I heard that over in a podcast. I heard this over in my peer group that I did with, Connectwise.

I heard this in the, guess what? It adds up. in the seven times rule, you’ve heard something seven times, the human brain tricks and goes, I need to learn more about this because I’ve heard it too many times to be a coincidence. I need to go to that website. I need to read more. I need to ask some questions.

And that’s community. You don’t get that in any other medium and rather than hiring your next batch of salespeople, your next batch of marketing people, given today’s economy, you can’t do any of that. You’re it behooves you to go and figure out the community thing, because 99% of vendors don’t get it. And this is the 1 thing that’s blocking their growth.

And it’s 1 thing their fastest growing competitor probably does get it.

Jeremy Balius: We had James on the podcast talking about PAX8 Academy and while that’s the wrapper that they’ve put around it, it really is community building and we really attributes their fast growth, at PAX 8. around that community building that it’s underpinning, and over time, whipped into a, an incredible growth story.

And, and we really see that as a prime case study for what you’re describing.

Jay McBain: Okay. And we had, we were there, they were at our event, Signapore last year and they had signed up 700 new partners in their first few months. it’s absolutely the fastest growing in the region. I just went and, spoke at their big event here in the U S a big global event.

First one. And it’s just, there’s 1300 people in the audience, standing room, only waving money at how excited they were. And again, no TV advertising, no traditional, floors full of salespeople the way you’d expect another distributor might run, but you can’t go to any Marriott or any Holiday Inn or any, hotel anywhere with 20 partners without seeing somebody from there or something from there contributing.

And that’s just it’s a feeling. It’s a culture. It’s again, top down. I know all the founders really well. Bottoms up. I met with their board while I was there. I met with investors while I was there. Everybody feels it. And you can’t mimic that in front of a partner. You can’t pretend you can’t just have one channel friendly person in a channel, unfriendly vendor that only goes so far, but when they just feel it from again, the mail room to the CEO and everybody around, that creates a movement that creates momentum and everything comes from their community is probably the most important thing I talk about to anyone in this industry, partners, vendors, distributors.

Jeremy Balius: Speaking of community, Canalys forums are coming up. Wanted to conclude, with that, in what ways are you excited about, about the forums later this year?

Jay McBain: Yeah, I published a list of 218 channel events around the world, and it behooves, my company, because we do run events, but most of them are bottoms up, most of them are, focused on getting.

every MSP and every VAR and everybody in a room, the forums forever for two decades have been top down. They’re the biggest events in Europe. They’re the biggest events in Asia Pacific. But the CEOs Lenovo and Michael Dell and others will come. There’s a captain’s dinner the first night. It looks like a Davos conference, private jets coming in and, billionaire partners and really large vendors.

It’s a really important event, not only for kind of the research and the. The conversations that happen, but connecting people at a very senior level. So if you’re a partner, if you’re a vendor, if you’re a distributor, thinking more top down, the biggest chunk of your TAM is sitting in one room.

This year it’s in Bangkok, other years it’s been in Sydney. Last year it was in, in Singapore, but it’s that type of event that’s focused that way. there’s over a thousand people there, but it’s not intended to bring 10, 000 people. It’s not a trade show. There’s no trinkets. There’s no trade show booths.

It’s intended to get there and have one-on-one meetings. You want to meet with the head of Pax 8? They’re there. You want to head with the, the head of Ingram or TV Cynics or other distributors? There’s a hundred distributors at a C suite that are there. The vendors of the C suite are there.

The partners at the C suite are all there. And that’s what makes the event different than anything else that happens in our industry.

Jeremy Balius: Jay, I’m deeply appreciative of your time. I thank you for your insights. we’re big fans of all your work. Down here in Australia, we’re, continuously cheerleading what Canalys is doing, keep up the great work and, can’t wait to catch up again and, pick up the conversation around, the next step of the, economy’s evolution.

Jay McBain: Thank you so much. And here’s a quick story to close it out. My mom lives in Canada, but she owns a camper van in Australia. And once a year, she’ll go and drive from Sydney to Perth. In a camper van, spending upwards of, four to six months in Australia every year. So I’ve got a strong kinship, in, in, in addition to all the travel that, that I do each year to, to, to Australia,

Jeremy Balius: That’s amazing. Thanks Jay.

Jay McBain: Thank you.

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