Commoditization: Friend or Foe?
Talking about commoditization in the IT space can result in heated debates. Does it stifle or encourage innovation? How does it affect your business?
I want to suggest that solution providers should embrace commoditization. Before you call that crazy, or think that I’m just trying to sensationalize my blog, give me a chance to explain.
At a recent event, I had the opportunity to sit on a panel with some very wise vendors and very successful solution providers. I was a last-minute addition to the panel and more than happy to join, not even knowing the topic. The topic was a question: “How are we going to deal with commoditization?”
Immediately, the topic sounded incorrect. It took a few softball questions before we all had a great conversation about how we don’t need to “deal” with commoditization, but more so embrace commoditization.
Since all of my experience in this topic is around our channel, I want to focus this post on two perspectives: the products you sell and the services you offer.
- The commoditization of the products you are selling
I spent some time earlier in my career working for a large hardware manufacturer. At that point in time, the company sold only via the channel. My team’s responsibilities included helping our partners find deals; sizing deals; sourcing product; and, most importantly, pricing the opportunity. Pricing included negotiating the best margin for all parties: us as the manufacturer, distribution and then the partner, all ensuring we met the end-user price target. Remember when we had double-digit margins on laptop notebooks? About the same time we had to walk to school in 4 feet of snow—uphill, both ways.
A number of things ruined the glory days of making money on product and offering services for virtually nothing. First was the direct sales model that a lot of vendors made fashionable. This forced solution providers to “add value” and wrap services around those boxes. Along with the direct sales came the standardized pricing–whether you were a double-platinum elite partner of X hardware company or selling your first device or, even worse, end users were running down to Best Buy to get the device themselves, margins evaporated.
The bright side of all this was the birth of managed services. The commoditization fueled change in the way we did business, forcing us to look beyond the box and into better ways to manage, service and communicate with our customers.
This leads to the second perspective:
- The commoditization of the services you are selling
Yes, the inevitable is starting to happen. I say “starting” because when we polled the audience on whether they were worried about commoditization of services, the percentage of solution providers was quite small. That being said, it’s real easy for anyone to become a “managed services provider,” as there is no license or certification.
I’ve been preaching to the channel about the managed services evolution for some time. I used the word “evolution” here, not change, because it hasn’t happened overnight. Even the term “MSP” has been commoditized and now blends in with all the other names solution providers are called (resellers, VARs, MSPs, and so on). The evolution had to happen. Those that didn’t evolve (and I still run into guys building white boxes in barns out back of their offices) have died or are in the process of dying. Commoditization of our services is forcing us to evolve. It’s changing our needs for products that fit into our solutions–ones that we can sell, and make money on.
So what do you do?
There are two parts to your service sale. Fifty percent of your sale is the relationship. People like to do business with people they like, regardless of price. Build that relationship, and they will not only buy from you, they will stay with you. The other 50% is the product. Choose your vendors wisely. What is their strategy? Are they looking to sell directly? Are they looking to commoditize your market? What value are they delivering to you in terms of differentiators—things that make your service offering different than your competitors’? And, most importantly, are they giving you enough margin? How are they “fueling innovation”?
How do you stay ahead of the curve?
How do you accomplish all of this and stay ahead of the curve? Learn, learn and learn. Get out from behind your desk. There are hundreds of industry events each year (trust me, my family knows). At these events you will learn more about go-to-market strategies, new product innovations and how to position your offerings than you ever will from reading blogs (except this one, because it’s awesome). Network, share, ask and participate. You will make your money back in spades–and will learn to welcome that commoditization.
Rob Rae is VP of Business Development at Datto.