IT partners and industry forecasters assessed what’s next for supplier cloud marketplaces, emerging AI capabilities and forthcoming product and service distribution changes at the 2024 Channel Partners Conference & Expo in Las Vegas.
Upheaval in the distribution market was spotlighted during the March event when prominent IT and telecom distributor ScanSource announced its intent to launch a subsidiary that sells IT products and services directly to customers. Channel Insider attended the conference, and this report breaks down the business outlook, along with the dominant issues discussed and challenges partners are facing in 2024.
State of the market: Growth amid economic headwinds
IT market research firm Canalys sized up the IT partner ecosystem’s opportunities and challenges. Despite the continued weight of economic headwinds sparked by interest rates and geopolitical turmoil, Canalys forecasts that businesses and governments worldwide will spend an estimated $4.94 trillion on IT and telecommunications in 2024.
Canalys’ Chief Analyst for channels, partnerships, and ecosystems, Jay McBain, summed up the state of the market, noting that overall IT spending is growing at 6.2%. “This is double the world GDP,” McBain told attendees. “This is the fastest growing industry out of 27 industries or 297 sub-industries. So this is the right place to be.” Balancing his optimism, McBain made no bones about lingering economic uncertainties.
“We’re facing headwinds, and they’re coming from all over,” he warned. “And while inflation and interest rates are starting to settle, it’s not uniform around the world. And there’s a perception and reality issue that they’re not.”
Channel partner ecosystem projections
Taking a more optimistic tone, McBain said that MSPs, solution providers and managed security services providers are poised to move past these headwinds. Pointing to the dotcom meltdown in 2001 and the financial crisis of 2008, McBain said, “It’s people in this room, the partners who have been the tip of the spear of optimism that have taken the tech industry and driven the world out of recession.”
By the end of 2024, millennials, for the first time, will account for the majority of IT buyers, who are more likely to choose tightly integrated solutions over best-of-breed, even if they only have 80% of the capabilities, McBain noted. Among the data points feeding the projections he shared:
- 73.2% of the projected $4.94 trillion in IT spending will pass through channel partners
- 335,000 companies worldwide have at least one contract through an MSP
- 82% of buyers now outsource all or at least some of their IT
- 1 out of 10 dollars spent by businesses and governments on IT will be on a managed contract
- Buying through B2B marketplaces is growing at a CAGR of 86%
The Computing Technology Industry Association (CompTIA), which unveiled its annual State of the Channel Report at the conference, forecasts that 2024 spending on IT services will reach $1.5 trillion, estimated at an 8.7% year-over-year increase. Other key findings based on its survey of 1,042 leaders of channel providers included:
- 50% of U.S. channel companies anticipate pricing pressure will impede growth
- 63% of North American channel partners say their businesses have improved
- 47% of U.S. channel companies plan to sell generative AI-based solutions
- The number of IT channel companies has increased 29% since 2020
Business driving more through marketplaces
Channel partners are increasingly embracing solutions marketplaces operated by hyperscale cloud providers AWS, Microsoft, and Google Cloud, as well as key platform players such as Salesforce, Oracle, SAP, IBM, and ServiceNow.
In 2023, channel partners ranked vendor marketplaces as their top competitive threat, according to CompTIA’s State of the Channel Report. In the newest report, marketplaces fell to No. 2 (behind rival channel partners). More notable is that the number of partners seeing online marketplaces as a threat has dropped to 36% from 49% a year earlier.
Channel partners have been skeptical of online marketplaces, fearing that vendors are using them to bypass the channel and enable ecosystem partners to sell directly to customers. David Markley, president of Stronghold Systems, an MSP focused primarily on Microsoft-based solutions, is among those who have embraced marketplaces.
“From a Microsoft perspective, the marketplace isn’t really designed for an end user or a customer to work directly with Microsoft,” Markley said. “It’s designed to be a place where partners can put solutions into the marketplace.”
Meeting cloud consumption requirements through marketplace apps
Markley said that when a partner puts a transactable offer in Microsoft’s cloud marketplace, midmarket companies and enterprises can apply those transactions to their Azure consumption commitments. “It’s our own IP in that marketplace that we can deploy to customers,” he said. They can purchase it and get credit towards Microsoft spend.”
While meeting cloud spend commit requirements fuels marketplaces, there are other reasons customers use cloud marketplaces, said Dai Vu, Google’s managing director for marketplace and ISV go-to-market programs.
“They are seeing a lot of benefits around things like being able to have a very scalable and repeatable procurement [and negotiation] process,” Vu said. “You can consolidate a lot of the vendor relationships and the billings and get faster time to value. The platform also provides a lot of other benefits like access control, security, governance, and being able to determine what configurations are approved by the end customer.”
New ScanSource subsidiary puts partners in play
ScanSource’s CEO Mike Baur stirred up the conference by announcing plans to create a new subsidiary that will sell directly to customers. The move raised eyebrows because many see it as creating conflict with its technology services distribution (TSD) subsidiary Intelisys, which distributes to partners, including VARs and MSPs.
Baur believes customers want more sophisticated and professional partners. The unnamed subsidiary, now called “NewCo,” will build this business either from scratch or by acquiring various partners that now serve customers whose operators are seeking to exit their businesses.
“This is not ScanSource selling to end users,” Baur insisted. “We believe NewCo will buy from the TSDs, that’s the way the model should work.”
AI: Hype versus business opportunity for the channel
AI has generated significant hype throughout the IT industry and the overall news cycle since late 2022, when Open AI launched ChatGPT with Microsoft, giving it a new level of credibility. Nearly half of those surveyed for CompTIA’s State of the Channel Report, 47%, said they plan to sell AI products and solutions in 2024, with another 34% reporting they’re considering them.
The large platform and application providers scurried to build out AI partner ecosystems in 2023, and now they are bringing MSPs and systems integrators into the fold. One example is cloud database provider MongoDB.
During a panel session exploring the future of AI, MongoDB’s global go-to-market lead for AI, Greg Maxson, said that now that it’s easy to develop proof of concepts, the company is enabling MSPs to roll them out to fulfill customer demand.
“The real challenge is how to deploy it scalably in a secure way to thousands of users globally,” Maxson said. “And that’s where we see an opportunity for service providers to provide more AI-specific wherewithal and guidance to their customers to help in those major deployments. That’s where we’re leaning on that ecosystem.”
Partners move toward building up AI skills
Channel partners of all sizes need to accelerate their skill levels and ramp up on many of the new AI tools and platforms that have surfaced. HPE, for example, now offers AI inference tools with pre-built models, tuning solutions, and training for its channel partners.
The most significant opportunity is consulting and advisory services building generative AI solutions using its high-performance computing (HPC) solutions, said Tom Wall, an HPC and AI specialist at Hewlett Packard Enterprise (HPE). “Generative AI uses a lot of resources,” Wall stated. “It’s going to be very difficult for people to get into these LLMs [large language models on their own]. I’m looking forward to a great run over the next couple of years.”
Given how new these AI platforms and tools are, many channel partners are in the early stages of understanding where to go next. Wall said HPE has added AI certification, training, and support programs.
“My advice is to invest, look at your business and determine where you’re weak,” Wall advised. “And [determine] what are you going to do to augment that.”
Bottom line: Challenges and opportunities
Channel partners face continued economic headwinds, and new models for how solutions are sold and delivered continue to evolve. As demand grows from customers wanting to deploy solutions with AI, partners need to avail themselves of training and certifications provided by suppliers and continue adapting to online marketplaces.
To learn more from leaders in the channel, tune in to our video and podcast series, Channel Insider: Partner POV, where we feature exclusive interviews with top solution providers. Episodes are available on YouTube and all major podcasting platforms.
