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26 September 2014

Billy MacInnesAt the Canalys Channel Forum EMEA held in Cannes this week, the research company unveiled the results of its latest global survey of channel partners. The findings probably aren’t that surprising. For example, no one can be especially shocked that most partners still make most of their revenue from reselling hardware and software (it’s still the most important business model for more than 60% of those surveyed).

Similarly, is it so much of a surprise that while 96% of those surveyed said they offered some form of IT-as-a-service, services still accounted for less than a quarter of sales for the vast majority of them.

Interestingly, two-thirds of those surveyed predicted services revenue would grow substantially by 2017. Just under 60% reported services were more profitable to their businesses than reselling hardware and services (the only question here being what on earth are those 40% selling as services to come in with lower profit margins than selling product?).

In the context of where the industry thinks it’s heading, the reservations channel partners expressed about cloud services could be an issue. According to the survey, 62% were concerned that cloud services would bypass the channel completely and identified it as the biggest threat to their own services efforts.

Distrust of the cloud is nothing new for the channel and it’s hard not to have some sympathy with the concern resellers have about it. After all, signing all their customers over to Office 365″ for example, does leave open the possibility of Microsoft taking their customers direct at some point in the future. It may well never happen, but the possibility that it could is what scares many. With the cloud, vendors don’t have to physically set foot on a customer’s premises to steal the account.

In this context, the anxiety and insecurity channel partners feel around cloud is easy to understand. Worse still is that cloud services may not be provided by the same vendors they have established such long running relationships with on the product side. Scepticism over whether Microsoft can be trusted with cloud is easily countered by the vendor’s history as a channel stalwart. There are no such precedents for some of the entrants in the cloud market all keenly touting for channel partners to promote their services to customers.

Reliance
The good news is that some cloud providers are very reliant on channel partners to give them credibility with customers because of their longstanding relationships with those customers. The bad news is that some cloud providers, especially those who are already well-established vendors in the IT industry, are probably have more credible with customers than their partners so the potential exists, somewhere down the line, for the middleman (the reseller) to be removed from the supply chain.

Canalys senior analyst Alex Smith told MicroScope that “vendors developing go-to-market strategies for cloud must ensure they are not increasing competition with their established partners, but recognise that this is typically delivered as part of a hybrid IT offering”. That hybrid offering being the varied portfolios of “hardware, software, public cloud services and their own managed service offerings”, that channel partners provided.

Many vendors have broad portfolios of their own, encompassing hardware, software and services, so they are unlikely to be in any hurry to cut channel partners out of their sales model just for the sake of cloud. Equally, those that are predominantly cloud-based will need to develop relationships with channel partners that can put their services in context within a multi-platform world where customers use a blend of hardware, software and services.

On the whole, the mood should be positive but it’s up to partners to grasp the service opportunity, whether it’s their own managed services offering or a cloud-based one. The fact that we’re still at a stage where so little revenue is being derived from services despite years of shrinking hardware and software margins shows that many are still trying to conquer their service inhibitions. The stark fact remains that if channel partners don’t provide services quickly enough for their customers and vendors, someone else will do it in their place.

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