As cloud computing moves towards the mainstream of IT, resellers are increasingly being challenged to rethink the traditional “box shifting” mindset and look at new delivery models such as software, platform and even infrastructure as a service.
The cloud of potential lost revenue looms over established resellers. With companies such as IBM and Microsoft introducing cloud services to the market, resellers are at risk of being bypassed, or at best limited to receiving a low-margin “finder’s fee” for identifying suitable customers. If resellers are to succeed in this new world order, it will become critical to partner with cloud vendors that recognise the true value of working with the channel.
IT services delivered from the cloud offer the benefit of being able to quickly scale IT infrastructure to meet the needs of a business. This model significantly reduces the burden of management, as vendors own and run the entire infrastructure, while removing the complexity of IT procurement, as customers can easily upgrade or downgrade their services on demand. It also helps to improve budgeting, with costs moving to an operational monthly expense rather than one large sum upfront.
The key challenge cloud vendors face is that they lack established, close relationships with end customers traditionally served by the channel, which are essential to building trust in the cloud computing model. This is where they need the channel – at least for the time being.
Microsoft’s Business Productivity Online Suite (BPOS) is a cloud-based service that operates a Partner of Record (PoR) system – effectively a thank you to resellers for bringing customers over to the new model. Customers place orders online directly with Microsoft, then select the PoR they worked with, who receives a share of the revenue.
Margins with BPOS are low (resellers receive 12% for the first year, plus 6% for the time they remain the chosen PoR), and the service comes with restrictions around a reseller’s power over pricing.
Systems such as this not only potentially hand the customer relationship over to the vendor, but partners can be changed at any time by customers, making the reseller vulnerable to loss of margin.
Some large vendors lack an intimate knowledge of the customer, putting them in a weak starting position. Through a partner system, they are able to take advantage of the channel’s relationships, which are particularly valuable when convincing customers to take the initial leap to the cloud.
For resellers choosing to work with direct-from-vendor providers, another risk they face is that most vendors have no track record in this model of service delivery. As such, direct-from-vendor cloud providers might pull out of the market at any time if there is more money is to be made elsewhere, leaving resellers in the lurch and ruining reputations with end-users in the process. The vendors that do survive will pose a long-term threat to the channel, as they hijack relationships and slice margins.
A vendor’s ability to execute is therefore everything, and resellers should base their partnership choices for cloud providers on this foundation. The channel also needs to simply and effectively maintain control over customer relationships. This includes giving users what they want: scalability, flexibility and a wide range of services.
Working with a one-stop-shop cloud vendor with a broad platform of services is one approach. Resellers should even consider pushing for the option to white label cloud services and hide the involvement of vendors altogether, enabling full retention of power over pricing and customer relationships.
Service delivery is a completely new concept for traditional IT vendors, and resellers already have enough to lose in the era of cloud computing. If you are going to choose a cloud partner, the big names are not necessarily the best.
This was first published in January 2010