By Lawrence M. Walsh, CEO and President, The 2112 Group
Many people in and around the channel are asking what impact cloud computing will have on conventional value-added resellers and solution providers. Actually, it’s a little more than inquisitive conversation and more like a looping dialogue that never quite advances understanding beyond the re-ignition of another round of debate. If Elvis were alive (and I’m not saying he isn’t), he might call an end to this ceaseless chatter by saying, “A little less conversation, a little more action."
The latest example of cyclical debate comes from my friend and colleague Robert Cohen, co-CEO of ChannelLine. Through a LinkedIn forum over the last two weeks, Cohen has shepherded a conversation titled “The Cloud Is Not Killing the Channel." His premise: “It is merely just going through a much needed paradigm shift where the objectives of the channel partners will be more aligned with the objectives of their customers: Technology Focused Business Solutions."
Cohen isn’t wrong. The cloud isn’t a technology, though, but rather a delivery mechanism of applications and resources hosted by a service provider. It’s a point Cohen acknowledges during the conversation in which he states that the objective of the cloud is to provide the end user with access to information and applications from any place, at any time, on any device. This transformation of technology delivery from one of an on-premises infrastructure and client-side applications to cloud-based subscriptions is extremely disruptive to the current channel paradigm. And, as Cohen correctly states, it’s “a much needed paradigm shift."
The trouble is that the channel is caught in a feedback loop on the composition and mechanics of cloud computing. In association communities, events, online forums and casual conversations, solution providers and channel commentators spend more time debating the impact, the marketing hype and disruptions of cloud computing rather than advancing the conversation and state of the art.
Let’s dispense with some of the debating points.
- Is the cloud hot or hype? It’s both, just as every previous technology evolution has experienced. Technology marketers are attaching every possible product to the cloud moniker in hopes of capturing business as the hype wave crests. And it’s hot, since many businesses are looking to the cloud to increase productivity and decrease costs.
- Is the cloud disruptive to technology? Definitely. The cloud is about more than just access, but also the reduction in complexity. Many previously complex technologies have gone through similar simplification cycles. The result is a devaluation – or what we call commoditization – of the disrupted products.
- Is the cloud disruptive to the customer? Absolutely not. In fact, the cloud is enabling businesses to gain access to applications and resources previously out of their reach. Between the reduction in cost and complexity, as well as the divisible cost structure of recurring payments, technology has never been more accessible to a larger number of businesses.
- Is the cloud disruptive to the channel? Actually, that depends. For those sitting around waiting for vendors to solve their cloud woes, it’s absolutely devastating. For application developers and independent software vendors, the cloud is a boon that’s opening up new markets and customers for them. For vendors, it’s a painful transition as they transition their revenue structure from capital to expense sales. And for innovative and entrepreneurial solution providers, it’s a tremendous opportunity.
The underlying thread in Cohen’s conversation, though, is one of extinction, or how solution providers can or should avoid extinction. Actually, this is where the debate about the cloud falls apart. Rather than accept the fact that “paradigm shifts" have collateral damage, channel-cloud conversations get mucked up with the nuance of preserving the existing channel. It’s nonsense.
During the Cohen discussion, Dan Leunig of LG Electronics correctly states that the cloud is a revenue enhancement opportunity in which “successful VAR, DMR, ISP will find ways to marry the possibilities of the cloud with the realities that a primary revenue stream continues to be hardware." This is absolutely true, because it reflects an evolution of the business model. We know that the “Hybrid Model" – or the combination of cloud-based and on-premises resources – will be the predominant infrastructure model for the next decade. Therefore, the natural evolution will be to find a way to morph or develop business models that support both cloud and hardware/software sales.
But it’s Cohen’s response – those like his sentiment – that mires the cloud debate. He says, “My concern stems from the fact that most channel partners are techies first and foremost. With the cloud, managed services and a much stronger focus on business solutions for SMBs, the typical channel partner of today will be replaced by an MBA type of person who has great marketing, sales and general business skills … and knows how to hire smart techie people. If I am correct … a lot of hard working channel partners, who have been running their own business for years, will find themselves not being able to put food on their table and will end up working for the MBA types. Might be good for the industry long-term, but a heck of a lousy way to say good-bye to the entrepreneurs who have supported the IT industry for the past 30 years."
Here’s a fact: The channel churns about 15 to 30 percent of its population every year through a combination of attrition and acquisitions. The catalyst for that churn is economic fluctuations, steep competition and changing cost structures. Most of all, though, channel churn in many cases is caused by poor management and planning. Failure to plan and execute is the biggest cause of business failure, so is it really a bad thing to be employed by an MBA?
What people in the channel aren’t talking about when it comes to cloud computing is risk – or moving away from comfort zones. Success in cloud computing, regardless of the model, requires investment and the assumption of risk – two commodities in short supply in the channel. Solution providers finding early success in the cloud have committed resources to business planning, market development, staff training and sales. In many cases, they’re hedging their risk by developing cloud programs in parallel to their existing product operations – an approach that has the benefit of developing a new revenue stream as the older model atrophies.
When it comes to cloud computing, the channel needs a little less conversation and a little more action. While moderating a meeting of the CompTIA Cloud Community, I asked the solution provider there one simple question: “If vendors gave you margins, discounts or incentives for selling cloud computing, how would you make money?" After two hours of conversation, the group came to the conclusion that they would make money the way they always have — through the sale of value-add services. There are literally scores of solution providers on all levels finding success in cloud computing. They’re developing business models where they’re adding value to the cloud equation through application development, planning and migration services, training programs and ongoing systems support plans. Planning and execution will almost certainly deliver a higher benefit that another debate of “hype or hot" and pending doom.
Lawrence M. Walsh is CEO and president of The 2112 Group, a technology business advisory service that specializes in optimizing indirect channels and partner relationships, and principle blogger at Channelnomics. He’s also the executive director of the Channel Vanguard Council and moderator of the Channel Partners Cloud Conference Council. He is the former publisher of Channel Insider and editor of VARBusiness Magazine. You can reach him at firstname.lastname@example.org.
Note: This blog is republished with permission from Channelnomics.