Newbie Terminology: What Is A "Channel" and Why Do I Care?

Our industry has so much jargon that we sometimes fail to define our terms. Folks new to IT consulting (and some older folks as well) might not be familiar with the term "Channel." In fact, some people use the term so broadly that they refer to the entire IT community as the channel. Here are some thoughts, intended to clarity.

The the broadest sense of the word, a channel is an industry-specific ecosystem that includes all the actors from the manufacturer or developer, through the distributor and consultant, to the end end user. One simple channel is displayed in this diagram.

In the IT channel, manufacturers include all the brand names you know and might resell. These might include hardware , software, and services. Distributors include aggregators (so, for example, both Ingram Micro and Sherweb).

From a broader perspective, the channel includes industry magazines, news web sites, industry analysts, podcasters, bloggers, membership communities, and all the folks who put on various events.

We frequently refer to manufacturers and developers as Vendors. Vendors make the physical and digital stuff we sell, including services. And, of course, there are combinations. Some distributors create services, so they are both the developer and the distributor of their services. And some developers combine their creations with others' creations or services and begin to look like mini-distributors.

From time to time, you might hear the terms channel-only or channel-friendly. Channel-only vendors only sell directly to IT consultants (their resellers) or through distributors. They do not sell to end-user clients. The most channel-conscious vendors will connect end users to their resellers.

Channel-friendly companies might be very friendly to their resellers, or they might be less friendly. As a rule, the companies that call themselves channel-friendly try to sell through the channel. But, all too often, they also sell directly to end users. 

And that brings us to the natural tension in channel relationships: It is very tempting for vendors to sell directly to end users and cut out the "middleman." That's you. In the big picture, there's nothing wrong with this - unless the vendor has promised to only sell through the channel. All vendors have this temptation. Over time, fewer and fewer of them manage to resist the temptation completely.

Many vendors openly sell through the channel and directly. Perhaps the largest companies you deal with on this front are Microsoft, HP, and Cisco. If you're an IT reseller, you probably refer to this as vendors competing with their channel partners (resellers). Recently, I heard this referred to as co-selling. When Microsoft first admitted that they were going to go all-out to compete their "partners," they referred to it as disintermediation (see this blog post).

If you ever need a great example of how companies do a bad job of managing channel partnerships, ask someone about their relationship with Dell. Time and time again, Dell revamps their partner program. They promise to protect you and never sell against you. They let you register prospects, so their inside sales people know to leave them alone.

But . . . they also do nothing to change the incentives of inside sales people. And because those folks make money by poaching your clients, they poach your clients. Sales people will do what they are paid to do. So, beware of the actions of your vendor "partners" in addition to their words.

Microsoft has been very honest about their approach. As they were dismantling their partner network and renaming it to eliminate the word partner, their message was: You won't make any money by reselling our products. But you'll make money selling services related to our products. Shockingly, that didn't work very well. So, now you can make a little money. But you have to sell a lot of licenses to make it worth your while.

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Your Action Steps

If you're new to the concept of channel sales, or the IT channel, you need to decide how much you care. Some people do not include profit from resale into their business model. So, sometimes they make money and sometimes not. Instead, their profit comes 100% from labor - consultation. 

Other companies make a point of working with channel-only vendors whenever possible. This gives them a direct channel for acquiring products and services, and maybe even new clients. And they know that their "partner" will not be competing against them. Note: As I mentioned, pure-play channel-only vendors are becoming harder to find.

Here are a few actions to consider. First, determine how much you care. Will you seek channel-only vendors (or "channel first" or "channel friendly)? Second, evaluate your current suppliers. You may need to have discussions on forums or at conferences to find out how channel friendly your current vendors are. 

Third, learn about the channel commitment of future vendors. Remember, the channel-focused commitment goes both ways. For vendors, the commitment to channel-only sales is a tough decision. They are rewarded when MSPs commit to working as much as possible with channel-only vendors. Building a solution stack made up of exclusively channel-only vendors rewards those vendors who have made the decision to forego direct sales.

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Please let me know if you are new to the channel and would like me to give my two cents on other terminology you've heard. Welcome - and good luck!

:-)