The Cloud Channel Challenging

Posted on October 1, 2010

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It is no mean task pulling together a vendor channel of any significant size, and then having established your channel to have to re-structure it. The cloud is challenging the established channel modus orperandi stimulating a revaluation of Vendor / Reseller interactions and power balance if the impact on the core business models of their clients is not enough into the bargain.

CHALLANGE – it’s Not a Technology!

Cloud Computing is not technology or set of technologies or packaged solution, but a state of Business Operational transformation as technology and economics converge in a dynamic confluence of forces reaching into all areas of the Business and supply chain.

Shifting the focus and opening up the Vendor / Reseller (Partner) interaction will involve re-writing many traditional business and behavioural models.

Cloud Computing is a very appropriate marketing moniker, the cloud metaphor is as amorphous and indistinct as it is clear. Cloud Computing like its meteorological simile means different things to different people. A characteristic that reflect its flexibility and adaptability but does little to help provide any definitive clarity when it comes to Vendor / Channel relationships and to the core of the issue – is Cloud and opportunity or a threat to the Channel?

One thing that drives this is the unquestionable influence Cloud Computing is having on IT consumption and Business strategic planning. If you’re not seeing it yet in your clients, then you have either the opportunity to be that trusted advisor and corner that piece of business or you have been interfacing at the wrong level in the business and someone else has already stolen a march on you. Cloud Computing is not an option it is a case of degree’s. Degrees of change that will reshape organisations faster than we think and once transformed they will be beyond recognition.

If AMI Partners recent research is anything to go by the challenge is going to be seismic here in the UK with over 200,000 SMB organisations in the channel having to adjust to factors such as SMB vendors leveraging the Cloud model to go direct to market and cut out the revenue friction with its channel

In reality this is unlikely to be the case, and AMI Partners are not the only research organisation that has got too engrossed in their own figures without paying enough attention to practical realities. It is more than likely that this 200,000 figure is churn as much as direct bottom line impact. So the channel should be ready for change or should I say disruption, as the change is likely to mean the landscape of Reseller lead names will be disrupted by more agile and less legacy weighted resellers who will leap frog their sector dominators and become the new dominant forces. For most resellers where there is a will there is a way, and for some who are too inflexible there will be the exit!

The fact that the challenge is not a more familiar technical one should not be too worrisome. Once resellers and vendors take the time to evaluate their business models with a view to Cloud Computing they will find the concepts around cloud economics are all well known. It will be the re-education challenge to the way they adapt their sales and marketing and customer engagements that will impact more widely.

(I covered off the dangers from ill-informed Sales and Marketing practices being peddled by marketing companies professing to know how to show IT companies the way in an earlier blog – Dangers from Hyping ‘The Cloud’).

CHALLANGE – Unconventional Change

Cloud Computing is imposing more than a traditional update to an IT vendor channel. Traditional updates would be new product, or new version iterations or solutions that their resellers would then need to get to grips with, building on the familiar foundations of know technologies in a linear evolutionary way.

This is a move from staged step changes, that can be planned for in a predictable way to a dynamic rolling model of continuous evolution to match the new delivery models and adaptions to an online service based consumption model. A service based on smaller real time updates, no longer confined to version release event horizons, but the slipstreaming of new feature and service value in real time. Windows Azure and Microsoft Online Services are perhaps the market leaders in demonstrating the incredible benefits of this dynamic model of service evolution.

This Channel Challenge is complicated by the fact that the transformation is duplexed; Vendor and Reseller are co-dependents in the activities that will determine the success or failure of their ecosystem or individual participation. This will not simply be a Vendor driving a new agenda down through their channel, but a two way engagement that will demand the Vendor to adapt to the feedback loop from their resellers (partners) who are at the customer coal face.

Vendors that find their channel not adapting will influence and force change with the cold reality that natural pruning will unavoidably upset some traditional resellers (partners). Resellers in turn will either be in on the act or will need to find another play.

Finding another play is less of a threat today as it was in the past, as such Vendors need to walk a tightrope of nurturing change through their channel, or risk their resellers and partners loosing focus in favour of competing solutions which offer lower cost or adoption disruption to their businesses.

CHALLANGE – Communication

Understand and communicating an understanding that the buying process is evolving. The technology is moving out of the debate, the demand on the channel is becoming Business and Domain centric. Visibility of this to the market is going to be a differentiator for Vendors and a challenge where they have traditionally played on their technical competencies.

There are different models for different markets and an awareness of the market and a clear communication of strategy from Vendors, with assistance in engaging that strategy with clear visibility of the go to market benefit exchange is important. A resellers insight into the customer retention periods for a product and churn is core to satisfying the Channel of the subscription and annuity benefit models.

This clear communication is not always happening, and when it does it appears that the Channel may not have been engaged as much as it should have been. Partly because vendors may regard their channel now as direct competition, with the opportunity of going direct, but this is a short sighted approach.

For example the Consumer market is the market that is probably best served by the direct Cloud sell as there is little room for a value layer from the Channel with the Business market representing the biggest opportunity for the Channel.

The Channel is the surface area that the customers interface with and with whom the trust relationships are formed, ranging from Domain Expertise to localisation and availability for onsite support etc.

The reality is that the Channel has to adapt but not as much as they think and the benefits are significant:

ü  Reduction in low margin high friction (labour on-premise) activities such as installation and maintenance upgrades.

ü  Increase in service revenues through better economies of scale, cloud systems are designed to be multi-tenanted and adapt well to Partners developing IP around tools and code that can be leveraged repeatedly.

ü  License sale revenue’s where many previously received none. Furthermore this is often part of a continuous annuity revenue model.

ü  Greater opportunity for support retained business as customers reduce on premise IT labour.

Microsoft has one of the most mature and compliant (for EU) offerings in the Cloud space. It is however challenging as the engagement models are still fluid and causing uncertainty and concern in its partners.

CHALLANGE – Education

Traditional IT Vendor channels will need to adapt internally at a strategic level to embrace new disciplines in terms of a business’s engagement with customers, and that intent translated into customer transformational activities across the organisation, no exclusions, and not confined to a technology box or solution sale.

Education of the market can only meaningfully take place with an education of the channels that service that market. Current exposure across a number of key IT channels would indicate to me that this is woefully lacking and immature.

Whilst some pundits will argue we are over this hump, I would politely disagree and suggest that whilst Cloud is in people’s minds, there is a lack of clarity as to what it actually means in business terms and the degree of investment required training sales and marketing staff as well as fulfilment teams.

What does not help is the absence of a new generation of training in this space. Yes we have marketing and sales and technical certification as well as business management. But this is a new paradigm, demanding a new approach demonstrable to the customer, an approach that addresses the move of Vendors and resellers from IT product suppliers to integrated parts of a customer’s IT department and therefore business. Few IT companies are capable of articulating the value of such a proposition, a value that extends beyond an IT ROI but drives deep change into a customer’s business.

The Education for and of both Vendor and Channel Partners will be an on-going activity as the market matures and the underlying technical delivery and integration methodologies evolves.

Both Vendor and Partners having to take the responsibility to build an understanding of the positive impact potential Cloud Computing can have on their current business so a meaningful discussion can be had to evolve their mutual positions in response to the market shift.

The Channel needs educating and the prime conduit of that education is their partner ecosystem and the communication back up the channel to Vendor as to what customers are saying and how they are projecting their needs. Nothing new here, it’s should and is happening in all Channels with any aspiration. If the senior partner in the relationship lacks the clarity of what the Cloud means to their product or solution then how can the Channel be expected to?

Roles have not changed; Channel partners are still the product/Solution knowledge experts and executors for Vendors, and trusted suppliers to the client base, but the methodologies and balance of influence are changing.

With the Cloud comes opportunity for many Channel partners to re-energise their business with a fresh approach. The opportunity does not come often, don’t miss it, or mess it up!

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