Everything as a service (XaaS) solutions are sweeping the enterprise, forcing tech hardware original equipment manufacturers (OEMs) to jump on board. However, the success of OEMs relies greatly on their channel partners, many of whom are struggling to adapt their business approach to the new as-a-service landscape, Deloitte found.

SEE: Special report: The future of Everything as a Service (free PDF) (TechRepublic)

Deloitte’s How technology OEMs can guide channel partners into XaaS report examined tech OEMs that are currently undergoing an XaaS transformation journey, discovering the challenges, successes, and benefits along the way, specifically in OEMs’ relationships with channel partners.

What is XaaS?

“XaaS is used to encapsulate several categories of information technology, including those delivered in the cloud as a subscription-based service — such as SaaS, platform as a service (PaaS), infrastructure as a service (IaaS) and application platform as a service (aPaaS),” said Rick Howard, research vice president at Gartner. “XaaS also encompasses managed desktop, help desk, and network services, voice over IP (VoIP), and unified communications (UC). From a business point of view, XaaS reinforces a ‘service-first’ mindset that is customer-centered and performance oriented.”

XaaS offers individualized solutions geared toward a specific customer’s business needs and wants, the report said. As-a-service models are also known to improve business efficiencies, help business innovate faster, and lower costs in the process.

“XaaS is popular primarily because of cost reduction and cost avoidance,” said Jeff Loucks, executive director of Deloitte Center for Technology, Media, and Telecommunications. “Companies can buy only what they use and sidestep IT infrastructure that requires active management. There’s another big benefit to XaaS: it can accelerate agility and innovation. A recent Deloitte survey found that companies are using XaaS to access advanced technologies such as AI and IoT-based solutions. XaaS allows companies to access these technologies much more quickly, and with fewer up-front costs, than the traditional purchase/license IT model.”

With customers shifting more toward XaaS solutions, OEMs are forced to change their operating models and deliver the flexible, subscription-based solutions customers want. However, manufacturers can’t work alone. Manufacturing a product is necessary, but it is the job of channel partners to distribute the tech, making them crucial for OEMs.

“A channel partner is a company that partners with tech companies that manufacture products to market and sell the OEM’s products and services,” Loucks said. “Channel partners are also called value-added resellers (VARs). Channel partners can account for a significant percentage of tech OEM sales.”

How the roles of channel partners are changing

With XaaS, OEMs are changing their business model from selling physical products to delivering services, Loucks said. In the past, channel partners were responsible for selling those physical products for OEMs, but now OEMs can sell their services directly to the end customer.

“Channel partners that principally resell or integrate products need to evolve their value proposition in an XaaS model,” Loucks noted. “Instead of reselling, they need to deliver integrated portfolios, including custom software solutions built on top of OEMs’ XaaS offerings.”

Tech OEMS bank ontheir partners to adapt to the expectations and needs of end users. This means, channel partners must garner a more thorough knowledge of OEM solutions, improve industry expertise, and focus on how to drive customer satisfaction, Loucks said.

Often, significant change brings challenges.

The challenges

The report identified the following five distinct challenges channel partners may face:

  • Developing a customer-centric mindset, moving from a transactional to a relationship-based approach
  • Addressing the emergence of line of business (LoB) executives as key IT influencers and buyers
  • Handling threats from new kinds of competitors, including hyper-specialized ISVs, cloud-native startups, and accounting/legal/compliance firms offering niche technology solutions
  • Acquiring talent and expertise to develop customized capabilities and solutions
  • Facing potential negative financial implications of moving to a XaaS business model, such as increased difficulty in making business investments

However, these changes aren’t only beneficial for channel partners, but necessary, according to Loucks.

“For channel partners that can make the transformation, there are financial benefits. Deloitte’s analysis of select indirect channel partners’ financial data suggests that as-a-service transformation could boost EBIT margins by 300 to 600 basis points over a three-year period,” Loucks said. “There is also a simple need to change: OEMs are transition to XaaS offerings because that’s what enterprise customers want. To stay relevant, channel partners have to make the same transition.”

How OEMs can help their channel partners

The good news, the report found, is that all of the challenges that can surface are solvable. The report suggested OEMs take an active approach in their partners’ whole XaaS transformation. OEMs should be there for the IT buying and implementation journey, broaden their own portfolio of services, design targeted programs, and execute changes in phases, making the process more digestible.

Image: Deloitte

“OEMs should [also] responsibly share customer data so that their partners can better understand how customers use technology,” Loucks said. “This can enable partners to interact with the customer more effectively, and to see which services they’re using.”

For more, check out Top desktop as a service (DaaS) providers: Amazon, Citrix, Microsoft, VMware, and more on TechRepublic.

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Image: iStockphoto/gorodenkoff