Change Agents Channel sales get technical

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1 Change Agents Channel sales get technical By Gary Kim To gain an understanding of the changes sellers and buyers of communication services now are dealing with, consider one service provider s experience. ITS-Omnicom is a Simi Valley, Calif.-based provider of value-added and connectivity services of various types, including Centrex, T1, Internet access and services for small and medium-sized businesses. 26 ChannelVision May - June 2008

2 Fifteen years ago, the business mostly was about saving customers money on long distance. That meant one kind of sales force. These days the business is about IP services with lots more technology content. That has meant an entirely different sales force. The traditional telecom guys can t make the change, can t sell value-added services or IP, says Sharon Woods, ITS-Omnicom CEO. They just can t make the shift. ITS tried, but ultimately to no avail. We really worked it for three to four years, but it just did not happen, she says. So we shifted. ITS got rid of its internal sales people and now relies on value-added resellers (VARs) or security firms as its distribution. There are a couple of reasons, including the fact that solutions are more complicated now, meaning the basic sales approach must be a relationship sell, a collaboration, Woods says. That experience is replicated fairly widely among service and application providers, who say they have generally been disappointed by the ability of traditional telecom channel partners to sell hosted IP and managed services, for example. As a result, more providers are shifting their sights to data-centric channel partners. The good news is that analysts at Yankee Group say tier one service providers will not succeed as retailers of managed services unless they use channel partners. The bad news is that system integrators, information technology consultants, VARs and distributors are the preferred channel partners, not the sort of agents and agencies that traditionally have sold voice services and basic T1 connections. The basic problem is that all IP-based services are, by definition, data services running on data networks, with lots more software intensity and technology complexity. Sure, voice delivered using the public switched telephone network also was a managed service, but it always terminated at a clear point of demarcation, with no need to fiddle with anything on the customer side of the demarcation. That isn t true anymore, as managed IP services are deployed. By definition, the service has to work down to the actual end user device, be that a phone, PC or mobile, and often in conjunction with the actual software used on those devices. That traditionally has been the domain of data networking professionals. Service delivery and service support are the Achilles heel of the service provider sector, says Caroline Ashley, Yankee Group senior analyst. They have created poor customer relationships and placed the service provider at a disadvantage when creating managed service propositions, a significant element of which is based upon ongoing operational support. In an earlier time, that created the business opportunity for telecom agencies and agents, who could provide personalized attention. That s a tougher proposition now that services such as hosted private branch exchange (PBX) require network site surveys, remediation, voice virtual local area networks, traffic prioritization and local installation support. These days, smaller businesses want a trusted supplier, one that can provide ongoing advice on new technology developments, says Ashley. In the short-term, vendors with managed services propositions will May - June 2008 ChannelVision 27

3 iphone User Satisfaction Levels 100% SME Managed 80% Services Support Model: Technical Channel Needed n Sale Process Building the SMB Support Model Best Practice Sales engagement 60% 40% -Technical capabilities -Long-term trusted relationships -Accessible and responsive -Knowledge of the customer s business -Local presence Independent consultant, computer manufacturer Service engagement 20% -SPOC -Responsiveness SLA VAD, VAR Relationship Source: Yankee Group 0% -Trusted advisor (strategic advice, advice on demand) Music Touch interference Overall satisfaction with iphone Usability Performance Video Browser Wireless data speed Battery life Independent consultant seek to partner with VARs and tier two service providers messaging, is a telecom or an information technology purchase. If it is the former, small and medium-sized rather than tier one service Strongly providers, satisfied she says. Mildly satisfied In the short to mid term, tier two service providers enterprises (SMEs) probably will be more comfortable Mildly dissatisfied Strongly dissatisfied and independent consultants will increase their managed continuing to buy from a telecom agent. services penetration as they use value-added dealers and If it is the latter, IT consultants, VARs and VADs Source: Rubicon Consulting distributors to deliver support services. have the upper hand. In many ways, the issue is whether a managed service, According to the Yankee Group, 34 percent be that security, hosted business voice, collaboration and of SMEs with 20-plus employees are most heavily Channel Dilemma of Creating an Intimate Selling Environment That Is Economically Scalable rs Scalability of Sales Model High Traditional Web E-Commerce Desired Space Telesales it er Low Traditional Kiosks VARs, Agents, Etc. High Intimacy of Experience Direct Sales Teams Retail Stores Low Source: Yankee Group, Cisco 28 ChannelVision May - June 2008

4 influenced by VARs in a one-toone relationship when purchasing IT solutions. In part that s because there is a preference for direct contact with a salesperson when considering technology solutions. But there s more to it. SMEs often need hand-holding when making technology decisions. About 35 percent to 38 percent of SMEs with 20-plus employees need more knowledge and information to make good purchasing decisions when managing their technology infrastructure. So that s the issue. Do customers view IP managed services as telecom services that terminate at a punchdown block or wiring closet? Or do they view managed services as an information technology purchase? Other providers are moving the same way. Consider Microsoft, which sells the Response Point phone system for small businesses. Response Point is software. So Microsoft expects to rely on its small business certified partners to sell the system. Channel partners, yes. Telecom channel partners, no. You have to use people who are more technical, says Woods. You can t fight it; you have to adjust. Voice and data are all now the same thing, says Rick Minyard, ITS executive vice president. It has become a solution sell and you really have to be able to do that. It is not about selling cost per minute, he notes. One reason is that customers require more technical support, says Minyard. In many cases he sees every day, a small business has a teenager for tech support. That s not good enough anymore, he says. It s not enough to let them do it, he adds. They are telling us we need to manage all this for them. Sometimes that happens after customers try to manage systems themselves. One client, for example, runs two virtual PBXs, says Minyard. But somebody did something and anomalies began occurring, such as one-way audio. That s not an issue they can fix themselves and likely as not will have them rethinking whether they need professional management of their IP communications. There are other issues, though, for providers of managed services: scale. It s one thing to sell software or communications to an enterprise. Channel partners historically have worked well enough for mid-sized and small businesses. But as the technology quotient rises, even face-to-face sales become unwieldy and margin-deflating where the small business customer is concerned. If a managed service is a consultative sale, and the gross revenues, not to mention margin, from such a sale are smaller than traditionally considered reasonable for a consultative sale, what s the option? Some think indirect channels that are Web mediated are part of the answer. The issue is to combine the personalized attention that smaller organizations prefer with the efficiency of Web processes and telesales. On-site, local installation, training and support still are required. Still, sales overhead has to be managed by adding more use of Web and phonebased efforts, argue Yankee Group analysts Steve Hilton and Gary Chen. That means a healthy dose of Web 2.0 tools facilitating real-time and non-real-time communications and a pull rather than push marketing strategy. That means SMEs need a place to learn about solutions, poke around anonymously, ask questions and get answers, Yankee Group says. That gives technology decision-makers or influencers control over the process. A non-intrusive venue for learning is right for some. However, some want more immediate assistance. They prefer an intrusion into their learning process earlier, and that is where a local VAR, consultant or VAD is required. May - June 2008 ChannelVision 29

5 The issue is becoming more pronounced precisely as demand for managed services increases. A new survey of small and medium-sized business executives by Yankee Group suggests there is increasing interest in managed IP telephony services, for example. Apparently buyers recognize that an IP phone system isn t as easy to manage as a legacy phone system. About 47 percent of very small businesses, 53 percent of small businesses and 52 percent of medium-sized businesses will outsource some or all of their IP telephony management, the survey suggests. Note the change: phone systems now are seen by half of potential SME buyers as sufficiently complex that they must be managed by an outside entity. That is not the same attitude buyers used to have about buying voice circuits or simple broadband access. Also, 44 percent of very small businesses, 54 percent of small businesses and 56 percent of medium-sized businesses are willing to consider a mix of on-premises and hosted solutions. Fully 72 percent of very small businesses, 69 percent of small businesses, and 77 percent of medium-sized firms feel they are only minimally or somewhat capable of supporting IP telephony within their organizations. simply communicate The point is that selling an IP business phone service or system intrinsically requires the ability to provide technology management services. And though the survey confirms the continuing importance of price motivators for choosing hosted solutions over premises solutions, the survey also suggests SMEs that outsource don t do so for purely cost reasons. Lack of internal support staff and disaster recovery preparedness are issues that contribute meaningfully to the choice of a hosted solution. In fact, the survey indicates that only 21 percent to 25 percent of SMEs feel fully capable of supporting IP telephony. As a result, most SMEs who buy IP phone systems appear open to management services, either fully or in part. Security and enduser training appear high on the list of needs. About 42 percent of very small businesses, 43 percent of small businesses, and 41 percent of medium-sized businesses responded that security skills were one of their most lacking skills in order to deploy IP telephony. On-premises IP PBXs still dominate current and planned deployments. But voice-overbroadband applications and services such as Skype are getting traction as well. 30 ChannelVision May - June 2008

6 Web and audio conferencing are seen as highly valuable applications, followed by unified messaging and soft phones for very small businesses. At least so far, advanced applications still have limited rollouts and are not available to the majority of users, says Chen. Somewhat oddly, very small and small business users actually have better access than medium-sized business users to IP telephony applications, the study suggests. The survey also suggests buyers have bought the productivity message promised by unified messaging. Fully 70 percent of very small businesses, 80 percent of small businesses and 86 percent of medium businesses think that IP telephony will make it easier to deliver services to telecommuters and road warriors. And 40 percent of very small businesses, 38 percent of small businesses and 35 percent of medium-sized businesses believe that unified messaging will provide the biggest productivity improvement. One aspect of user behavior seems not to have changed, though. Most end users are not taking advantage of all the features of their IP telephony system, as SME respondents say end-user training still hasn t motivated people to exploit all the new features. About 35 percent of very small businesses, 46 percent of small businesses and 46 percent of medium-sized businesses say end-user training issues are the biggest barrier to benefiting from IP telephony and unified communications. The survey suggests that SMEs still are primarily driven to adopt IP telephony for cost savings. But the respondents also overwhelming view IP communications as a strategic move. Some 66 percent of very small businesses, 72 percent of small businesses and 76 percent of medium-sized businesses say that IP telephony is or will be strategic to their business. Nor have voice quality concerns lessened completely. About 49 percent of very small businesses, 48 percent of small businesses and 47 percent of medium-sized businesses say voice quality is their top technical concern. So far, it appears that hosted IP telephony providers have been unable to raise penetration levels beyond what Centrex had achieved in the market. Less than 10 percent of surveyed SMEs say they have definite plans to adopt IP Centrex at this time. The survey also suggests potential SME buyers are not convinced hosted providers can provide better or cheaper service than would be possible using an IP phone system. About 39 percent of very small businesses, 44 percent of small businesses and 51 percent of medium-sized businesses believe they can do a better job of managing IP telephony than a hosted provider. Part of the reason may simply be that providers of hosted services are confusing the market with too many different messages. Some 44 percent of very small businesses and 48 percent of small and medium-sized businesses will only consider IP Centrex if it is cheaper than on-premises solutions. On the other hand, 34 percent of very small businesses and 48 percent of small and medium-sized businesses believe that hosted IP communications services can offer better uptime and disaster recovery than an on-premises phone system. The lesson ought to be clear: managed services, including business voice, are starting to be seen as technology products. Most smaller organizations do not believe they can support such services using internal staff. So the sales process now is shifting: a seller has to be able to install and manage the system, to make a sale. The other growing trend, caused by the need for greater sales efficiency, is the use of pull mechanisms, especially Web-based learning sites, where potential customers can find out more, before engaging with a live sales representative. Neither trend looks to be especially favorable for traditional telecom sales agencies and agents. May - June 2008 ChannelVision 31

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