Eddie O’Rourke, sales director at Novosco, doesn’t pull his punches when it comes to the effects of cloud computing on the industry and the channel. He says that it has the potential to be the most disruptive thing ever for resellers. The ground is shifting under their feet and a lot of smaller resellers haven’t accepted that the traditional hardware refresh business is drifting away. “Longer term, it will be seen as an archaic thing to do,” he adds.
He anticipates a migration of resellers to become cloud brokers and the trusted adviser role they already fulfill will become more important than ever. With the biggest barrier to user adoption of cloud computing being the old bug-bear of FUD (fear, uncertainty and doubt), the reseller’s role will become even more integral. They will have to remarket themselves as people who can work as trusted advisers to manage the blend of traditional onpremise and cloud-based solutions delivered to customers.
Efforts by vendors in the public cloud are also problematic, particularly their insistence on direct billing which is “a sea-change.” In particular this rings true for Microsoft which has a strong channel tradition. O’Rourke says it has adopted a carrot and stick approach by offering channel partners a migration fee for signing up customers to its Business Productivity Online Standard Suite and the soon to be launched Office 365 service. Effectively, it’s saying to partners: “The train is leaving the station you can get on or stay where you are.”
He believes Microsoft has a “difficult and complex message to convey” because onpremise is still a big part of the business. “It has to be very careful [because] it’s very difficult to turn that ship around very quickly.” The vendor is reacting to what’s happening with Amazon and Google. “I don’t think the channel is foremost in Microsoft’s mind,” O’Rourke observes. He thinks the company is focused more on its own survival.
Time for reflection
Martin Cullen, director SMS&P at Microsoft Ireland, says the company has relied on the partner community to give scale to build out the business. It’s now trying to get partners “to do a little bit of soul searching.” The vendor wants to bring partners along but if they decide not to engage with Microsoft “that’s their choice.” But he warns that unless partners are “pragmatic, open-minded and progressive, somebody else will be.” Customers are looking for someone that will help to bring them along, they are looking for knowledge and understanding and partners have a “responsibility to themselves and their customers.”
To date, Microsoft has trained more than 140 partners on its cloud offering and is “going deeper” with a number of them, looking at issues like their business processes, the compensation plan and their revenue stream. They are looking at the ‘how’ of the business model, looking at cash flow in a different way, how they can charge customers and what the SLA looks like.
Cullen admits that when it comes to BPOS and direct billing, the issue has been raised with him by “every single partner” he’s dealt with. He defends the practice by suggesting partners spend a huge amount of time trying to collect money from customers and direct billing by Microsoft “takes away an awful lot of that challenge.” Resellers can spend less time and money on credit collection.
He concedes there is sensitivity over the billing issue because resellers are concerned the revenue is not going through their books. It’s also about the ownership of the customer. But Cullen says partners need to move to a services model to get closer to customers and key decision makers, to provide an IT managed broker service.
They can act as a services broker and aggregator to ensure customers get a consistency of service level. Partners will have to determine for themselves what role they play but he urges them to start the process, otherwise customers will decide for them and those partners that are “last in the decision making tree will be left behind.”
Facing the future
Karl Flannery, managing director at Storm Technology, says channel partners are facing a “fundamental change” to what they do over the next five year and they will either make the change “or disappear. It’s a tremendous opportunity if people change, if not, it’s a big threat.” A company like Storm has to “embrace” the new model and “figure out where the value is to our clients and demonstrate that value to them. It’s about how we can deliver the best value we can by using cloud technology.”
On the subject of Microsoft’s direct billing move, he says this is nothing new as IT vendors have been doing this for years. Microsoft has been very consistent in its channel strategy but there are elements of it “that won’t make sense in the future.” He suggests that the vendor is “getting rid of some of the noise involved in the engagement with the client and allowing us to focus on the business problem. They can focus more money on how to improve the impact of the solution on the business.”
But it will change relationships. For example, when using Azure and platform-as-a-service (PAAS) to deliver an application to the client, the SLA for the customer is directly with Microsoft. “The relationship with Microsoft will be different because we don’t control the infrastructure.” But as a product company, Microsoft has “built a channel that delivers services on top of its technology” and that’s still part of the equation.
Working it out
Where O’Rourke used the railways as an analogy for the situation facing channel partners, Andrew Miller, head of sales and marketing at Unity Technology Solutions, opts for a different form of transportation. “You either get on the bus or stay off it, as with virtualisation.”
He finds that the stronger a relationship a channel partner has with people at a higher level outside the IT department, the more likely the business is to opt for a cloud-based solution. If the decision is left to IT alone, cloud is not likely to be the favoured option as it is as much a threat for IT staff as for the channel. “I’ve seen internal reports to CFOs saying “no, the finance doesn’t stack up,”” Miller reveals.
It’s as much of a challenge for customers to get their heads around as the channel and it’s up to partners to “provide them with a clear and correct direction.” They also need to ask the right questions, whether it’s for a particular application or the entire infrastructure. It should really be “business as usual for the client” even if the technology architecture has changed considerably.
When it comes to vendors, Miller says the role of the channel is “one we all won’t talk about.” A partner with a strong vendor relationship won’t really want to be saying they might not be providing revenue to the vendor because they could be renting infrastructure from a data centre in future. For their part, vendors are “struggling to figure out they maintain channel partners with the same level of business,” although there will be some compensation in sales to data centres.
For partners like Unity it’s still a question of providing managed services, desktops and servers but the business has shifted to a different way of getting to the same result. “The tools, mechanisms and the way you deliver have changed.”
Ahead of the game
As someone who worked at Mimecast, John Sheridan, cloud services development manager at Datapac, has experience with cloud-based services. He believes that experience places him “ahead of the curve slightly” because he knows what customers want and what they’re asking. Resellers have been used to selling solutions but the sales team are probably not accustomed to selling where there’s nothing tangible. “Effectively, you’re selling a SLA which is hard for the sales team to get their heads around. A change of mind set is required.”
But Datapac is taking a considered response to cloud-based services, choosing to focus on up to five core services. “We don’t want to bombard our customer base,” Sheridan says. “We want to have a clear version for it. We’re not going to bamboozle them with different offerings for everything.”
Michael Conway, director at Renaissance, says that people are changing focus and stepping back because of their “lack of success” in selling BPOS and because they question why they should be giving away all their business for a very small amount of money over a very short period of time. Instead they’re going back to delivering what the customer wants, which is often a range of services, possibly some which resellers can deliver through the cloud themselves.
Chatter
It’s also noticeable that there is a lot of talk around cloud at the larger vendor end and very few people are delivering cloud-based services targeted at SMEs even though that is probably the best market. SME resellers in Ireland need help and guidance and a business like Renaissance can deliver cloud-based services to them, such as an archiving solution that can be put into a data centre or run from their own systems and sold through the cloud or not. The distributor’s role is to provide products and services to channel partners and that does not necessarily change with the shift to cloud.
As for the reliance on recurring revenue, Conway says Renaissance has a lot of that type of business already. Resellers are also interested in getting to a recurring revenue model because it removes the peaks and troughs which are such a challenge to their existing cash flow by giving them a regular source of income. The biggest challenge most of them have is getting paid, he added, a problem the recurring revenue model would help redress.
James Lynne, senior technologist at Sophos, says that for the channel it’s a question of trust and clear policy. Over the years there have been many cases where vendors have made changes to policy to the detriment of the channel. Some vendors are “infamous” for it, leading to conflict and a lack of trust. There has to be clear policy from vendors on how they continue to manage relationships through the channel.
Opening doors
Partners give vendors reach into the market, they find customers, engage with them and bring them onto the vendor’s platform. All technologies and products need services wrapped around them and the customer needs support and guidance through the lifecycle of the technology. “Vendors would be very very foolish to assume the channel is only useful for opening the door for them.”
He argues that “forcing direct billing is a mistake” and there is “undoubtedly still value in having a channel in place for the customer and the vendor.” Lynne adds: “I don’t think [the cloud] is “an opportunity to throw away the channel and denigrate the value it brings.” It represents a fundamental change in the way technology is delivered commercially and technically and it’s time for partners to be getting to grips with the model and evaluating it carefully. “We’re on the beginning of the curve to the turning point,” he says. “Don’t panic now, but start thinking about it.”
Back to the market
Lynne agrees with Conway that cloud is well-suited for the SME market. “If channel partners are creating a strategy for SaaS and cloud they should definitely be putting their focus around SME as an initial priority.” While larger businesses will be hung up on issues such as compliance, smaller companies will be far more open to the chance to gain access to technology in the cloud they don’t have (and possibly never could afford to have) onsite.
Damian Saunders, director of the Datacentre and Cloud group at Citrix, says it’s about adding another level of complexity to the IT ecosystem and making it look like a joined up system. “It’s about implementation, which is the traditional business for a VAR, adding value in implementation and ongoing support.” There is a missing link at the moment of resellers that can help enterprise customers shift onpremise workloads into the cloud. “We’re interested in finding partners that are interested in extending their competencies from Citrix into cloud migration. It gives them a chance to begin to differentiate themselves.”
He argues that all the barriers to adoption for cloud are with the customer. Cloud adoption is less about the technology and more about commercial aspects, such as licences. Moving to a pay-as-you-consume model is a big change. COMPUTERLINKS is a distributor that has set up a cloud aggregating service, ALVEA, essentially to provide a number of different services for channel partners through a central portal. It is designed to cut through the requirement for investment in infrastructure for services. “We’ve pre-built a portfolio of services they can take to market,” says head of ALVEA services Mike Worby. “We’ve done the due diligence, weeding out vendors to ensure we have best of breed.”
Embracing the cloud
He says the distributor picked the services resellers wanted. “Lots of partners have services offerings, we’re not looking to compete, we’re looking to help them develop their portfolio.” The distributor’s role is “to turn partners into infrastructure providers.” As for billing, it bills the partner and the partner bills the customer. Paul Kelly, head of the Irish business, says it’s important to maintain close relationships and the trust between distribution and resellers. “A lot of infrastructure will be moving to the cloud but without relationships and trust, it’s not going to happen.”
One company which provides a catalogue of cloud-based services, such as desktop, server, storage or voice, for partners is ThinkGrid. CEO Rob Lovell says it provides partners with an “immediate jump” to the cloud that is “risk-free.” He stresses that while a lot of people “falsely think cloud computing saves buckets and buckets of money,” it doesn’t necessarily result in a massive cash saving but it’s more about giving customers high availability and access from anywhere. VARs don’t have the capital, experience or time to build their own cloud and ThinkGrid can “provide it from them at the click of a button.”
Like so many others, he warns partners that if they don’t embrace cloud and change, they “will have no business.” There is a massive opportunity for the channel now to help customers migrate. Returning to the direct billing controversy, he also suggests that Microsoft’s long-term play may well be to get rid of the channel. “At the moment, it can’t.” Something like BPOS doesn’t need the channel because partners can’t add value. Microsoft has marketed to customers, told them how much it costs and “stung the guys it’s relied on.”
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