South African IT channel players foresee a tough year ahead due to the weakening rand, among other issues.
The rand has been wobbly since president Jacob Zuma plunged the South African economy into uncertainty in December by firing then finance minister, Nhlanhla Nene.
This week, the local currency plummeted to a record low - more than 9% to R17.9950 against the US dollar, by far its weakest level on record, on fears that China wants to weaken its currency aggressively and boost its export competitiveness.
"It is going to be a very tough year for the whole market with the exchange rate fluctuations and it is certainly going to be the year of survival," says Anton Vukic, channel director of Phoenix Distribution. "We are in for a very tough and challenging year but those that can survive will reap the benefits in the years to come."
"The deterioration in the local economy and the woes of our currency will be the main challenges for the channel in general," says Uwe Brandkamp, sales director at Westcon-Comstor. "The effect will be a further erosion of margin, purchasing indecisions and stretching the available credit terms in the market to a maximum. It will be very tough for the local market to have to stomach this," he adds.
Brandkamp is of the view that finding high-margin lucrative technology niches in the market and making appropriate investments will prove difficult for the local IT channel this year.
For Gary de Menezes, NetApp SA country manager, a combination of flat economic growth, a declining rand and increasing complexity in the IT sector will make it very difficult for channel partners to maintain profitability.
Marc Dijkstra, technical sales executive at Agilitude, points out that in the world of cloud computing, where most services are priced in US dollars, euros or British pounds, customers that are looking to sign up for cloud services are reticent due to the rand's weakness.
"Customers that have been on the service for one year, and thus looking to renew their subscriptions, are seeing large increases in their renewal costs - which leads to a certain amount of churn for resellers and vendors," Dijkstra says.
Changing dynamics
From a technology point of view, Vukic believes this is going to be the year cloud computing really grabs a huge portion of the market share and will experience the biggest growth yet. "With the exchange rate dropping and products becoming unaffordable, I believe we are going to see many vendors moving towards a direct model."
According to Vukic, all changes in the channel are an essence of cloud computing. "Cloud computing is changing the shape of the IT market worldwide, while the bandwidth requirements for cloud are changing the need for high-speed Internet access across the country," he points out.
Philippe Fosse, vice-president of EMEA channels at EMC, says the advent of cloud computing and virtualisation has made the IT infrastructure channel much more complex than it used to be. With a wide array of technologies and business models available to partners and customers alike, it is no longer possible for one partner to meet the needs of all its potential customers, Fosse notes.
"A partner might, for example, be great at offering on-premises infrastructure, but less so at delivering cloud-based managed services. As a result, in 2016 we will see an increase in instances of so-called 'co-opetition' within the channel."
Cloud interest
Brandkamp also believes cloud computing will be one of the major drivers of transformation in the local channel, as a host of larger systems integrators have set up divisions within their companies and invested in strategies around the cloud.
"At the same time, more 'born in the cloud' IT companies have emerged during last year and I foresee this trend to continue. We have also seen continued and growing interest in cloud computing and ancillary technologies from the channel at large," says Brandkamp.
Dijkstra believes the rise of cloud computing, coupled with a drive from the South African cable providers and ISPs to connect businesses to the cloud vendors, such as Microsoft, Google, Amazon and Salesforce, over point-to-point connection and bandwidth driven by SLAs, will help to drive the adoption of these services by SMEs and large enterprises in SA.
"For the channel that are 'born in the cloud', this creates a huge opportunity, tied together with an annuity subscription business, for growth."
NetApp's De Menezes says the maturity of the cloud model by vendors has resulted in channel players having to redefine their value proposition to customers and how they position themselves in the industry.
"Channel partners that had traditionally focused on infrastructure as their primary business strategy have had to engineer themselves as platform-as-a-service and infrastructure-as-a-service will result in the disintermediation and eventual death of the business, he concludes.
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