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The Cloud & Technology Transformation Alliance is a joint initiative of Channel Partners and The 2112 Group. CTTA's mission is to be a forum through which all members of the technology value chain – IT vendors, service providers, distributors, resellers, agents and end users ‒ can discuss the issues of next-generation technology and systems, define the value of technology in business context, create best practices for adoption and application, and provide guidance for the business community on what comes next. This blog covers some of CTTA's work. More information is at http://cttalliance.com.

Cloud Compensation Confounds Channel

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By Larry Walsh

If you believe the hype about cloud computing, the sky is literally the limit in opportunities and profits.

That’s the hype. It’s not the reality.

Cloud computing presents many technical and operational challenges to channel partners – telephony and IT, alike. Chief among those challenges is compensation – or what to pay people for selling clouds and how much channel partners should make from the sale of cloud products and services.

The Cloud Convergence Council, an industry forum moderated by Channel Partners Magazine and The 2112 Group, has been looking at the issue of sales compensation and margins related to selling cloud services through the channel. The results of our “2011 Cloud Compensation and Margin Survey" have been quite revealing.

  • No one standard exists for structuring cloud sales compensation plans; and most compensation plans implemented are still considered experimental.
  • Channel partners struggle with making sales compensation plans relevant to salespeople and an instrument to influence behavior.
  • Most of the channel views cloud margins as too low; many solution providers simply can’t make money on cloud revenues provided by their vendors and carriers.
  • Channel partners can’t afford to bridge the gap between an annuity revenue stream and the cost of current operations.

The two issues are irrecoverably intertwined. If channel partners cannot make money on the cloud, they cannot afford to pay sales commissions, operations and product acquisition.

Overall, channel partners have a pretty dim view on margins offered by IT vendors and carriers. Most channel partners are receiving 11 percent to 20 percent on cloud services. For the most part, most say the margins for applications and infrastructure are too low, while telecom and hosted cloud services are OK.

The quick resolution to the low margins, survey participants said, is simply to increase how much partners receive for selling cloud services. But that’s only a short-term fix. The real issue, the survey reveals, is the inability of channel partners to bundle, customize and add value to cloud services in the way they do with hardware and software products today.

The ability to make money on the cloud is a vexing problem, since selling the cloud requires salespeople who are properly incented. Channel partners are challenged in crafting sales commission plans that are rewarding to their sales teams, determining the right compensation for renewals and balancing compensation plans with amortized revenue.

The Cloud Convergence Council is powering an entire track of sessions at the Channel Partners Conference. Our members will dissect these survey results to crack the cloud compensation code and margin mystery. We’ll also talk about overcoming cloud objections defining channel cloud value propositions. And since security is such an important part of cloud services, we’ll have a special session on the role of security in the cloud and regulatory compliance.

The mission of the Cloud Convergence Council is helping IT and telephony channel partners understand the opportunities and best practices awaiting them in the cloud. We treat our work on cloud compensation as a waypoint in our exploration of cloud channel issues. These are topics that will be at the forefront for some time. We’re treating our sessions at Channel Partners at the beginning of journey that will lead to a resolution.

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 lmwalsh@the2112group.com.

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