Over the next three years, artificial intelligence will drive more than $236 billion in sales through channel partners worldwide.
Businesses will buy everything from AI-infused business applications to generative AI tools like Microsoft Copilot and Google Gemini, infrastructure to refresh data center capacities and capabilities, and professional and managed services for running all this smart stuff.
Vendors, analysts, investors, and customers are talking incessantly about AI. Scores of smaller AI startups are being infused with billions of dollars to cover their development costs.
Many of those startups are in the market with products. At customer and partner events around the industry, independent software vendors (ISVs) are displaying ingenious wares to would-be resellers and buyers. Vendor conference agendas are packed with AI sessions, announcements, and exhibitors. Many vendors are pivoting to being known as “platforms” because they can attach ISVs to their applications and enhance their value propositions.
Unfortunately, many of these startups and innovators lack true business plans, go-to-market models, and revenue sources. They’re pumping out interesting products but having trouble translating AI capabilities into revenue models.
Mirroring the Dot-com Era?
At the recent Google Cloud Next event, Channelnomics interviewed four dozen AI ISVs about their products and go-to-market models. Many couldn’t articulate their sales models, how they work with partners, or how they would scale. More worrisome was the number of ISVs with duplicate and overlapping value propositions, indicating major competition for partners’ eyeballs and customers’ wallets.
The state of AI market maturation is reminiscent of the dot-com era of the late 1990s. Back then, everyone in Silicon Valley and beyond wanted to be known as an “Internet Company.” Suddenly, well-known brands everywhere were no longer XYZ Corp., but XYZ.com.
That all came to a screeching halt in 1999 and 2000, when the venture-capital money ran out and these startups couldn’t support the Aeron office chairs and Aspen retreats they relished. Once everyone saw the instability of these companies, fiscal health and viability became a huge consideration for partners and customers.
Larry Walsh
7 Questions to Test AI Vendor Viability
A vendor could have the most whiz-bang technology to revolutionize business operations, but that would be meaningless if they are gone a year later.
This problem is not just for product resellers. Many vendors bringing AI technologies and products to market are talking about developing AI-managed services. There isn’t enough talent to implement and maximize the value of AI products, so vendors are looking to MSPs to help their customers operate these applications and provide support to increase value recognition.
While AI has existed since the 1950s, it’s just now becoming part of the mainstream technology market and channel. At this stage of category maturation, the fiscal health of vendors matters and the scores of startups flooding the landscape warrant more scrutiny. When these companies seek reseller partnerships, enable managed services, or influence customer consideration, it’s fair to question their long-term viability.
Here are some questions that resellers, MSPs, and integrators should ask newly minted AI companies regarding viability:
- Who is the vendor’s funding source, and what commitments have backers made to market and channel development?
- What is the company’s valuation, and how does it compare to similar companies?
- What is the company’s revenue plan and path to profitability?
- How much money is the company devoting to marketing and demand generation?
- Does the company have access to credit and capital?
- What experience does the management team have in developing the company from early stage to mid-term maturity to exit? What companies have management team members run in the past?
- Does the company have a formal partner program? Does the partner program provide an equitable exchange in value relative to the vendor’s expectations, investment costs, and risks?
Partners should look for companies with strong and committed backers, realistic valuations, and experienced teams to guide their maturation. Confidence and solid business principles reflect that a company is built for the long term, not a business plan built on buzzwords.
Larry Walsh is CEO, chief analyst, and founder of Channelnomics. He’s an expert on the development and execution of channel programs, disruptive sales models, and growth strategies for companies worldwide.
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