ScanSource is tearing down a wall between on-premises enterprise communication solutions and the cloud.
The distributor is integrating the communications sales teams of its reseller-focused Specialty segment and agency-focused Intelisys segment. Partners that sell unified communications and contact center solutions will no longer need to work with separate teams for hardware and cloud-based solutions.
In doing so, ScanSource may be unlocking the biggest obstacle to moving its hardware resellers to the cloud: account management.
“In the past, the Intelisys employee here at ScanSource would flip that hardware lead over to the hardware guys, and that just wasn't working. There were not the right incentives and opportunities,” Chairman and CEO Mike Baur told investors in the earnings call.
The shift to a single sales team is a boon for the distributor’s hardware sellers, who were previously walled off from selling cloud solutions.
“It was just like saying, ‘We're not going to let you sell the new cars. You can only sell the used ones,” Baur told Channel Dive.
The move comes as ScanSource and other partners continue to suffer declining revenues for on-premise communications solutions. Hardware heavyweights Avaya and Mitel have both undergone bankruptcy in the last three years as businesses rip out physical phone systems for cloud-based systems.
“The on-premise hardware for ScanSource has been going down 10% to 20% a year for five or six years,” Baur said. “It's driving me nuts.”
Losing on-prem revenue is one problem; missing out on cloud migration revenue is another.
ScanSource partners with a host of unified-communications-as-a-service and contact-center-as-a-service vendors in its Intelisys technology services distributor business, acquired in 2016.
ScanSource made the purchase with the hope that its traditional base of value-added resellers would adopt Intelisys’ portfolio to catch the rising wave of cloud-based solutions from vendors such as Zoom, RingCentral and 8x8.
The plan stalled when sellers weren’t properly incentivized to evangelize cloud to their VAR partners, according to Baur. ScanSource reps would hand the VAR over to an Intelisys rep only to earn a small referral fee and possibly lose the relationship with the VAR.
“We were doing our people a disservice by not making this much, much easier,” Baur said.
Without a simple on-ramp to the Intelisys portfolio, ScanSource VARs were taking their cloud business to rival TSDs such as Avant and Telarus.
“We've got these VARs that are either going out of business or selling something we're not selling them, because there hasn't been enough of the uptick on the Intelisys business to be able to see that shift,” he said. “We're going to get more aggressive.”
Seismic shifts
Comms-focused VARs have for years seen the writing on the wall that they needed to establish relationships with cloud-based vendors.
C1, a long-time ScanSource partner, managed to pivot to cloud with vendors such as Genesys, only to be sued by Avaya for pushing migrations from the platform.
For other VARs, the biggest cloud challenge was shifting to recurring revenue. VAR business models were historically based on large, one-time payments from customers, rather than monthly subscription fees. Sales reps in the industry were accustomed to earning one big commission rather than several small ones.
“They're not going to take a 1/36th of this three-year contract and pay their bills,” Baur said.
ScanSource triaged by advancing VARs the first 12 months of commissions if they sold in an agency model. Now, ScanSource sales teams will get similar treatment as they adjust to a recurring model.
“We'll make it look like it was a one-time transaction that they're used to, until they can get used to this model,” he said.
CTPros is among the resellers that successfully jumped to cloud. CTPros Co-CEO Joe Rittenhouse credited ScanSource’s purchase of Intelisys as a catalyst for his organization.
“Intelisys has been a significant driver of our continued expansion. Mike and his team are running a disciplined and well executed organization,” Rittenhouse told Channel Dive in an email. “From our vantage point, the alignment, support, and portfolio breadth have positioned them well in the current market. I would venture that we are among their fastest growing partners.”
ScanSource tried to cross-pollinate its sales teams six years ago and came away with hard-won lessons.
The company gave its reps for Zebra Technologies and reps for Cisco — two top hardware suppliers — access to the other’s portfolio. Ultimately the project failed because it was too difficult for the reps to learn an entirely new product set, Baur said.
The recent pivot is an attempt to stave off losses in hardware revenue. ScanSource also sees promise in AI tools designed to help reps cross the chasm, Baur said.
“We're going to need capabilities and tools like an AI tool to help this team sell across all of these products — meaning hardware, software, connectivity and services — and it's going to require more expertise than those teams have individually today,” he said.
