By Lawrence M. Walsh, CEO and President, The 2112 Group
The No. 1 obstacle facing solution providers in the cloud-computing era is unclear business models. Little wonder why many fear that the cloud will obliterate large swaths of the channel unable to adapt to the new paradigm. And there’s more than a few who believe the cloud will render the channel obsolete as it enables vendors to reach end customers directly and with little effort.
The truth lies somewhere in between. The cloud is definitely forcing changes to the classic channel business model. When there is no product to sell, solution providers in the IT and telephony channels must configure their offerings around services they either host in their own data centers, or resell the services of vendors.
On paper, cloud services based on recurring revenue streams provide more stability and predictability to vendors and resellers. What many vendors and solution providers experience is highly profitable customer relationships with lower total top-line aggregate revenue. The cloud is giving vendors – legacy companies transforming their products to the cloud, and new vendors born and built on the cloud – the opportunity to develop automated, self-service systems that eliminate the need for intermediaries in the sale and support chain. And this has some people thinking the cloud will obliterate the need for the channel.
The reality is crystal clear: The cloud will not eliminate or obliterate the channel. Rather, the cloud is going to create new opportunities for IT and telephony solution providers to change or augment their existing business models with new services offerings, and provide value-added services to both the cloud vendors and the end-user businesses.
We put this issue to the Channel Partners Cloud Convergence Council. Here are the thoughts of two members:
“Our view is as cloud computing increases so will the pressure on the channel to adapt. We see this as opportunity for our channel due to the fact partners have trusted end customer relationships and provide the reach and capabilities for things like integrated solutions, professional service capabilities, training, etc. The role of distributor, partner and vendor may change as the cloud evolves, forcing us to develop business models that are solution-focused and make investments in ‘areas such as cloud’ sales and tech training. Partners can leverage the cloud as a competitive differentiation."
— Lori Cornmesser, vice president of service provider channels, Juniper Networks
“Vendors should start looking at channel partners that have cloud expertise and develop programs around them as specialties within a greater channel program. This gives them direct access to the cloud markets/solutions as well as opportunities to develop existing channel partners into the new specialties. You’re always going to have partners that focus on project-based solutions that are needed to grow their clients businesses, and not all markets are going to adopt cloud models for running their business IT. Plus, at the end of the day, someone has to be able to make all this ‘computer stuff’ work. Channel partners with business skills are going to excel in this hybrid market because they understand the technology and their customers businesses. Acting as that trusted technology adviser, they will be able to bring these technologies to their customers in whatever form they need to help their customers businesses grow.
—Ron Culler, CTO, Secure Designs
Forrester Research analyst Tim Harmon believes the cloud will wipe out as much as 15 percent of the channel, as solution providers unable to adapt will fall under the weight of change (see Channelnomics: “Is Darwinism Narrowing the Tech Channel?" ). The number could be substantially higher, as research by the Cloud Convergence Council shows business models, inexperience and protracted ROI hinder channel transformation.
The channel has undergone changes in the past that correspond with innovations in technology. What’s different about the cloud is that it’s both a technology and a business model vastly different from any appliance or software previously sold through the channel. What’s clear from the data and trends is adaptation in the cloud era is not a choice.
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 Convergence Council. He is the former publisher of Channel Insider and editor of VARBusiness Magazine. You can reach him at firstname.lastname@example.org.