Telecom: A Gap in the VAR Cloud Play

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By Josh Anderson

While there may not be consensus on the precise magnitude of the market opportunity represented by cloud-based services, it is becoming clear who the leaders are among cloud service providers. Four of the five organizations identified by Gartner  as “leaders" were telecom providers — AT&T, Verizon, Terremark Worldwide (recently acquired by Verizon)and Savvis (being acquired by CenturyLink).

If telecom providers are in a leadership position for cloud services, it is therefore critical that local and regional IT firms position themselves to ensure their continued participation in the market landscape and to prevent losing an excessive share of IT expenditures to cloud competitors.

These local and regional firms typically cannot afford to lose lucrative service revenues to a cloud provider. Commoditization already has compressed margins on hardware and software. Most local and regional IT firms subsist on revenues tied to professional services in the form of integration and maintenance, break-fix or fixed-fee management.

Given the direction of the market, local and regional VARs, IT service providers and MSPs must determine a way to participate in the transition to cloud-based services in order to avoid losing revenues and market share to large providers.

The telecommunications industry has a long history of success with multitiered indirect sales channels. While these channels have traditionally focused on telecom-specific agents acting as brokers, some carriers and master agents are beginning to focus on VARs and systems integrators and to develop programs tailored to their unique requirements.

Particularly in the SMB market, IT firms participating in these programs can expand the scope of their capabilities to include both carrier-provided cloud-based and traditional telecom services, thereby allowing them to leverage their existing relationships with clients to become the primary service provider even as clients move increasingly to the cloud.

Benefits

The benefits of integrating these programs into an IT firm’s business model are extensive and touch on many of the challenges facing that industry today.

  • Enhanced value proposition for clients. IT firms that are able to provide a comprehensive solution including WAN and cloud service options can substantially differentiate themselves from their local and regional competition.
  • Protection from competition from telecom providers. Offering telecom services allows IT firms to preempt carriers that are increasingly offering cloud services and outsourced IT management.
  • Revenue diversification and stability. Telecom services provide ancillary revenue with no associated cost of goods sold. The typical residual compensation model enhances this value by providing income throughout the contract term — typically two to four years.
  • Access to the largest component of IT expenditures. Telecom represents the lion’s share of IT expenditures, so acquiring even a portion of a client’s telecom spend could mean a substantial overall increase in revenue per client.
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