Covid-19 ‘best case scenario’ will see billions wiped off channel spend
1 April 2020 | 0
When organisers of Mobile World Congress (MWC) decided to cancel their flagship conference due to coronavirus, many shook their heads in disbelief.
Yet few could have predicted this was just the first tremor in what has become of one the biggest economic earthquakes to hit the technology industry – and the world – in the last 100 years.
Now, almost two months on, technology vendors and their channel partners are sitting on the precipice of 2% economic contraction in 2020 – and that is the best case scenario.
As outlined by Jay McBain, principal analyst at Forrester, the channel’s fortunes for this year now heavily depend on measures to curb the spread of Covid-19 taken by governments round the world.
Even a minimum of a 2% recession in the US economy alone would see $47.36 billion wiped off the total $880.5 billion spend in technology through the channel. This, according to McBain, could lead to a marginal increase in bankruptcies and forced merger and acquisition activity in the channel as a result.
Unfortunately, judging from the present situation, there is a 50% probability that global tech markets will decline by more than 2% in 2020 if a full-fledged recession begins.
According to McBain, this could affect more than a quarter of resellers, value-added resellers, independent software vendors and managed service providers (MSPs) around the world.
“We have observed models where one-fourth of all technology partners either lose money or struggle to break even (in good economic times),” he said. “These partners are the most exposed in this scenario and are least likely to get additional capital or other lifelines.”
IT organisations are already starting to feel the effects of the virus’ spread, as government-mandated social distancing and isolation measures start to bite both productivity and customer spend. According to analyst firm Technology Business Review (TBR), only 19 of the IT companies the firm had surveyed had not yet experienced change to operations. More than a third have had to spend on technology related to productivity.
Nevertheless, within this bleak picture, there are some silver linings for partners, with IDC predicting demand for compute and storage cloud services would still see growth. McBain also noted that demand for cloud infrastructure services would remain strong.
In addition, partners could see potential increases in spending on specialised software, communications equipment and telecom services as white-collar firms encourage workers to work from home and schools move to online courses.
“If we use the unified-communications-as-a-service (UCaaS) market as a bellwether to the new normal, the results we are seeing this week are mind-blowing,” elaborated McBain.
The analyst cites the fact that Microsoft gained 12 million users for Teams, Slack picked up 7,000 new customers, Cisco Webex logged 5.5 billion meeting minutes during first the 11 days of March, a total of 3.2 million meetings per day. In addition, Zoom added more users in the first three months of this year than all of 2019.
Once the world economy enters its inevitable – albeit eventual – recovery, partners will be able to capitalise on areas to help “customers survive and, later, thrive from this crisis”. These include, but are not limited to, moving customers to cloud infrastructure faster, automating customer workflows and engaging deeper in business consulting.
In the short-term though, all vendors and partners will suffer short-term revenue losses. Aside from “a burst in triage activities” in collaboration and UCaaS tools, many core IT services businesses will be impacted as on-premises work grinds to a halt, argued McBain.
The uncertainty of this climate can, in some cases, spark higher claims on partner programmes from cash-starved partners, according to McBain.
“This can change the forecasted yield on some programs and, in some cases, could be a material impact that needs to be reported internally and externally,” McBain claimed as a “note of caution” to vendors. “We also observe that gaming the system can happen across the multitude of incentive programs, as well as an increase in fraud.”
Internally as well, channel leaders may have to face new challenges among their teams, initially from themselves having to get used to executing project delivery remotely.
Beyond the crisis, smaller partners may find themselves impacted by a skills exodus, as talent moves to “safer” climes in larger organisations.
IDG News Service