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Doug Allen Blog: Channeling Cloud Services for Carriers

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The buzz on cloud services is everywhere, even before the market is fully formed, or business demand has really taken off. The evidence is all around us; vendor consolidation among IT and networking giants (think HP and 3Com vs. Cisco and its EMC/VMware alliance) to create single-vendor soup-to-nuts solutions for the data center; reports of growing interest in such services among end-users and channel partners; and a renewed strategic push among Tier 1 carriers to deliver enhanced, managed and/or hosted network services and applications from the cloud (see AT&T, BT, Orange Telecom, and Verizon Business).

The channel finds itself in a somewhat strange position as it prepares to ramp up its own cloud services implementations for end-users. Caught between a shifting vendor landscape in the integrated server/storage/switching market, and providers who are similarly trying to move to a full-featured cloud service offering that will establish a firm business case as well as build a market for this network-based model, the role of the channel partner and resellers looks like it will have to evolve to address these trends.

Or does it?

To answer that question, let’s take a look at some particulars from Verizon Business' recently announced cloud-services initiative for this year and beyond. The carrier talked high-level strategy at its Analyst Conference last April, stressing that Verizon’s future is in cloud services. To that end, it is going to market emphasizing the power of its IP/MPLS optical network, the depth of its professional services and its strength in security as key competitive differentiators. Moreover, Verizon is positioning itself as a cloud services provider, and much more focused on vertical industry solutions than ever before.

How so? The carrier has built workflow systems that allow it to assemble and deliver resources to build sophisticated, customized service packages, including network, managed and hosted services, as well as customer-premise equipment that can be ordered, provisioned and activated through a single interface. At the same time, it is developing pre-packaged, vertically focused solution templates designed for specific customer-business environments, including data exchanges, storage, delivery and distribution solutions for these vertical markets, all tied closely to its professional services division.

Throw in a customer portal for network management with APIs for partners and sales tools, a customized training program for all sales and support staff, and a drive to partner with companies that can help craft pre-packaged solutions, and it’s clear Verizon is seriously invested in becoming a “strategic solutions provider.” It’s also clear that the carrier is trying to appeal to a variety of markets; not just key vertical industries such as Health care, Finance, Energy/Utilities and Retail, but also the traditionally underserved SMB space, particularly those at the higher end, as well as the enterprise.

Verizon appears to be paying careful attention to marketing this emerging class of applications known as cloud services, combining networking, data center services, and a full range of professional services including consulting, systems integration and support. They also are ramping up for a massive direct sales campaign, although the carrier is already using VARs to reach customers in the mid-market outside its local territory.

Such considerations aside, how do channel partners and VARs fit into the larger vendor/carrier/channel ecosphere, both as direct and indirect sales partners and in terms of adding unique value to the provider’s business proposition?

Part of the answer lies in the fact that cloud services have a long ways to go before mass – or even –significant adoption. According to Tom Nolle, principal at Cimi Corp., “AT&T and Verizon Business’ cloud initiatives indicate that they’re prepared to play a role where cloud services make business sense, but I don’t think either company believes you can go out and ‘sell’ cloud services to enterprises at this point. Only about 15 percent of enterprises have active cloud projects at this point in time … Most companies [we’ve surveyed] expect to do some cloud-sourcing but nobody believes it will account for even half their IT load.”

Given the infancy of the market, and lingering questions about market demand, it’s hard to say how the slow migration to cloud services will affect the channel. After all, if current cloud service use is mostly restricted to personal productivity tools and limited-use, specialized applications such as Salesforce.com, businesses will not significantly alter their spend on IT equipment or related services until the overall scale of cloud services grows enough to hit some kind of tipping point.

With all that said, the channel will be indispensable to carriers (and vendors), whether in-region or not, in growing the cloud services market.

Even with the finest array of carrier business solutions (from consulting, network design, systems integration, to management and support, you name it), the channel can offer much to end-users that carriers cannot.

For one thing, there’s the perennial issue of market focus. While Verizon, for example, has gone to great pains to realign its business offerings for the midmarket, it’s clear that VARs will continue to enjoy an advantage in the SMB space. For starters, even with market consolidation threatening price wars, vendor lock-in and potential channel conflict, VARs and channel partners act as local points of contact for solutions sales. By acting as middlemen between vendor and carrier salesmen who carry an obvious bias, they take on the role of trusted advisor, a (relatively) impartial broker that can concentrate on designing, implementing and supporting the business solution that best fits the customer’s overall requirements, instead of trying to pigeon-hole business needs into a one-size-fits-all generic carrier service. This is especially true of vertical markets, a key reason Verizon is moving so strongly to address this space, as well as smaller businesses that need a more customized, high-touch, face-to-face approach with a strong, personal relationship to their channel partner rep(s).

And to Tom’s point above, carriers don’t have the requisite experience in selling cloud services; that is, for the most part, they don’t know how to really close the deal. On the other hand, channel partners do. They’ve had experience in selling various forms of cloud computing/services over the years, whether it be in the form of SaaS, Grid or Web Services, NAS, or hosted applications. Call it what you will; for those customers who are skeptical (or downright scared) of cloud computing, channel partners can assuage their fears with their own record of customized hosted service implementations going back a decade or more, and can market a new cloud service according to what the customer is most familiar and comfortable with. After all, network-attached storage sounds a whole lot less scary to risk-averse CIOs than cloud services, right?

In this light, it makes sense for business customers to turn to their trusted channel partners for network and business consulting and systems integration to best maximize ROI and optimize network efficiency while meeting strategic business goals. Even though carriers are trying to move midmarket, typically the stronghold of VARs, channel partners still hold a big advantage; a direct line to the customer. Channel partners have the experience and ability to communicate a more compelling business case for cloud services, regardless of what these applications are called. Simply put, these customers have more trust and faith in their channel partner than in a carrier, especially when it comes to guaranteeing customer data security and protection. Moreover, some channel partners carry greater credibility than the average carrier because they’ve offered their own hosted implementations, complete with their own data centers, power, protection, and third-party business continuity backup.

How will carriers respond to the channel? With any luck, most providers will realize that credibility in sales is critical to building a mass market for cloud services, and will harness channel partners and VARs to educate and reassure their end-users that cloud services are safe and effective. That’ll be a tough sell, as even businesses interested in hosted services continue to express fears as to overall performance, potential data privacy breaches in the cloud, and lack of control over the data itself.

But ultimately, the channel will be instrumental in determining the overall viability and market success of cloud services. The sooner carriers realize this, the better for all concerned. Look for carriers to make their partners happy by extending flexible credit contracts to their channel partners, as well as offering introductory pricing on cloud services, deal registration, meaningful sales incentives, and a channel representative that can build long-term, close relationships to quickly resolve partner issues.

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