Subscription-based hardware is the emerging model that every hardware vendor is promising to customers, partners, and investors. It’s a significant shift from the classic capex model in which firms spend money for outright hardware purchases. There are several scenarios such as new technology, short-term projects, test-before-you-buy, and infrastructure bundled with managed services, etc., where subscription-based hardware makes sense. Here, I’ll talk about the channel.
The channel plays an integral role for geographic reach, sales, fulfillment, delivery, services, support, ongoing maintenance, and so on. Vendors and channel partners have established practices and models that have supported them for decades. Each one knows each other’s role and responsibility, needs, and challenges and had mastered their responses. The hardware vendors want to grow subscription business revenue and increase channel participation.
With every change or new model comes new risks. The subscription model is no different, bringing along its own inherent risks. Its implications are far-reaching. The channel partners and distributors face a new risk: liability.
What do I mean? In the new business model, the participating channel partner or distributor is expected to carry the hardware assets in its financial books. Each asset is a liability. What do I hear from the channel? The vibe in the market is that the risk outweighs the benefits, because the “what-ifs” are looming:
- What if the customers exit the contract prematurely?
- What if the customer faces financial struggles — aka bankruptcy or shrinking business?
- What if the usage remains below committed levels?
- Who carries the financial risks of delayed payments?
- How does one manage the litigation costs for outcome-based/-driven service failures?
- And the list goes on …
The (unofficial) consensus in the partner community is that they will still be on the hook for those monthly/quarterly predefined committed payments. The silver lining is that these risks are not insurmountable but just need the vendors and channel partners to come together to find innovative solutions.
And that’s just channel implications. Lisa Singer and Naveen Chhabra (me) are putting together research about the implications that subscription infrastructure has on the entire ecosystem.
If you want to talk about how subscription-based hardware is relevant to your business and about vendor differentiations, you know that I’m an inquiry call away.
