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5 Ways to Reduce Risk in Cloud Agency Contracts

August 28, 2014 - Article

Mark Del BiancoBy Mark Del Bianco

One channel partner who recently refocused her business on selling cloud services describes the state of the indirect cloud sales channel as the “Wild West." She said many cloud providers have a service that has proven to work for a small base of customers, but when they try to enlist channels to help broaden their market reach, it’s very apparent that they are unfamiliar with channel sales processes and incentives.

I would agree with her based on my experience as a channel contract lawyer. Compensation, for example, varies widely among cloud service providers as do rules of engagement and other terms and conditions of sales agency agreements. To complicate matters, many cloud providers offer month-to-month service and do not require long-term customer contracts, making it difficult to incentivize partners to sell. Add to that the inevitable consolidation of service providers over the next few years and you have all the components for a range war.

Does this sound familiar? It should — a similar situation occurred in the telecom space in the late 1990s. To put it another way, the major risks for channel partners looking to sell cloud services on a referral basis today are similar to the risks they faced trying to sell telecom services 15 years ago.

So, what are the risks you need to be aware of in the new cloud services world? Here are a few:

  • You will choose the wrong service providers and the wrong services to sell.
  • Your prospects will not understand what they are buying and their unrealistic expectations will not be met by what they buy.
  • A service provider whose services you sell will not pay some or all of the commissions you’ve earned, will go into bankruptcy or will be bought, and the buyer will stop paying your commissions

Some of these risks must be accepted. Service provider bankruptcy is one example. Nobody has figured out a foolproof way to make sure a sales agency contract survives a service provider’s bankruptcy.

However, you can mitigate some risks through smart business practices, such as:

  • Selecting the right portfolio of services to sell by educating yourself on the technology and talking to customers about the services they really need
  • Selecting the right service providers by looking at their financial stability and managerial experience
  • Educating your customers and not overhyping the ability of cloud services to solve their problems and met their needs
  • Facilitating communication between your customers and service providers, so that if customers become dissatisfied, you do not become the target of their wrath — whether it is legal action or simply trashing your reputation in the community.
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