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We have a really exciting guest, Jay McBain, an analyst from Forrester as he so humbly describes himself.
There’s no one in the industry who has spent so much time over, so many years, with so much depth, talking to so many players, understanding what the market for cloud software distribution and the channel in general. His insight comes from a personal place. He was a startup CEO for 7 years working on the software channel.
We’re talking today about his really excellent report, “What I see coming for the channel in 2020.”
How big is the channel?
Let’s walk down the ladder. Across 206 countries, the global GDP is $80 trillion. Of that, $13 trillion is the business-to-business (B2B) market, including everything from software to hardware to cars to paper.
Just the B2B technology GDP is $3.53T. Of that $3.53 Trillion, 64% of technology globally is spent through a channel. So that’s $2.26 trillion. That’s the North Star. So that’s the number today that represents what the channel delivers from a transaction point of view.
So out of the $3.53T which businesses spend on technology. $795B of that is spent on software. SaaS is one third of that today, but it’s the fastest growing by far. About $100B is B2B SaaS application software.
There are 175,000 SaaS companies today. Looking at the large, public companies like Salesforce, Marketo, NetSuite, ServiceNow and Workday, they’re all growing at 30% year-over-year. Salesforce has been growing for two decades at that amount of clip.
You look at the infrastructure side, Microsoft just announced 67% percent growth on Azure. AWS reported 54% growth. Google is showing 50% plus numbers.
Cloud growth is far outpacing legacy license software, which is still growing in small single digits.
How much of SaaS is sold indirect?
This has been a stubborn number. You know, Microsoft sells 96% through the channel, but the general SaaS market is south of 30 percent.
Many of these companies are over a decade old. Salesforce has been selling for 20 years. It’s not like this is new. In the normal tech industry maturity phase this is the point where they would be north of 50%. Some of the bigger ones should be north of 70% or 80%. It just hasn’t happened.
I’ll give you one example that happened recently. Salesforce announced to double their revenue—which is just south of $20B right now—that in the next four years, they require 250,000 new partners. The same day they announced that they shut down their resale program. They want 100 percent of the revenue to go through the AppExchange.
Salesforce is doing a really cool work in terms of convincing partners of where the money really is outside of transaction. For every dollar Salesforce sells, their ecosystem can make $4.65 at 75% margins today.
Is channel really shrinking?
I want to be careful with language, though. The indirect side of the equation is not shrinking. It’s growing. It’s not growing as fast as direct. Both sides of the equation are both growing because the tech industry is the fastest growing industry in the world.
It’s just the percentage of indirect that is shrinking. Infrastructure and SaaS are growing at such a fast clip Because the percentage of indirect is lower for cloud infrastructure and SaaS, and they are growing at a fast clip, this revenue is replacing the traditional on-premise hardware and networking gear in the channel.
If it’s 64% today, it’ll go down to 63% in a couple of years, and then 62% and then 61%. When we finish off the decade, it’ll probably be in the 50s.
So, then how fast is the channel growing?
The channel itself is exploding. Every company and every industry is becoming part of that ecosystem. The amount of opportunity is exploding.
I mentioned ecosystem partners make $4.65 for every dollar Salesforce makes. That Salesforce number will be $5.80 five years from now. Microsoft has some products, for example, that are close to $8. It’s growing.
So it’s a huge opportunity. We can’t come off and say that the channel’s in trouble. We have to come off and say that the resell part of the channel is the part that we have to focus on.
What part of the channel is growing?
You’re going to sell it through a bunch of different areas. This is why partnership executives have jobs. They understand not only go to market, but routes to market. And what that spread optimally should be depending on the product.
Your routes to market, your go to market strategy is going to be messy. You’re going to sell your product on Amazon for Business, Alibaba, the Salesforce AppExchange and the Microsoft Exchange and the Adobe one.
But the influence channel is what to focus on. 81% percent of people start with a Google search. Based on what’s on page one or page two of Google results, they then go on a journey of clicking and reading e-books and listening to podcasts and dialing into webinars and going to peer groups and then go into social networks and they bounce around kind of like you do when you’re buying a car.
These partners in the influence channel have different business models. They have different ways of getting paid. They have different ways of going to market. But they may look like to you like alliance partners, affinity, affiliates, advocates, ambassadors, digital influencers, or super connectors. But the way you’re going to measure them is on attribution because they don’t actually collect money from the customer.
What’s driving this is the new buyer. 65% of all SaaS spending today is happening outside of I.T. What used to be called shadow I.T., rogue I.T. is the new normal. It’s two thirds of all tech projects today. That’s growing to 80 percent. This is the future.
What will the channel tech industry look like in a decade?
The next decade is channel enablement. There’s one hundred and six companies who build channel software today on my tech stack. That’s partner relationship management software. It’s through channel marketing and it’s incentives. Finance, its enablement, its data.
I always follow the money. The fastest growing is on ecosystem.
I talked about partners in the hundreds of thousands. AWS is going to have a million partners probably in three to five years. Microsoft is bringing on 7,500 new partners a month. 80% of those are non-transacting.
The type of software that’s exciting right now is not how manage your “gold/silver/bronze” program better, but it’s to generate these new ecosystems to serve the channels for every buyer moment.