Can You Afford Not To Offer Cloud Services?
Resellers increasingly are adopting cloud services — but the technology might not be what is swaying the decision. It might be all business. Justin Moore, CEO of Axcient, and Renee Bergeron, VP of managed services and cloud computing for Ingram Micro North America, recently shared their insights with Business Solutions magazine.
Moore says, “Resellers are starting to feel a push from two sides: from end user companies that are turning to them to help select, evaluate, implement, integrate, and manage cloud solutions, and from ISVs looking to increase their channel power to supply solutions to those end user companies.”
Moore quotes a Gartner report, Forecast Overview: Public Cloud Services, Worldwide, 2011-2016 (4Q12 update published Feb. 8, 2013) that anticipates the SaaS market will grow steadily at a rate of 19.5 percent through 2016, with spending projected to increase 143 percent over the same period to $32.8 billion.
He also cites a Forrester Research report As SaaS Goes Mainstream, ISVs Invest in Channel Support Tools that says with the increased adoption of cloud solutions, ISVs are changing their sourcing strategy and are looking to solution partners who can supply and centrally manage their entire end-to-end SaaS portfolio. Forrester estimates that by the end of 2013 the partner channel will account for 27 percent of all SaaS software revenues for ISVs.
“As part of the broader adoption of cloud-based service and maturing of this market, end users need, in particular, solutions providers who can assist with the integration of cloud-based solutions into the business’ other applications and general workflow,” says Moore. He points out that there are two benefits for resellers who realize that the market is changing and that there is “a definite appetite” for cloud-based offerings. One, they will be better positioned to take the role as true business advisors to their clients, and, two, they will also have more bargaining power when deciding which cloud solutions they will choose as part of their portfolios.
Small VARs Lead Cloud Services Pack
Bergeron sees small VARs adopting cloud services faster than large VARs, MSPs, and direct market resellers DMRs. “Of the 4,000 resellers who buy cloud services from Ingram Micro Cloud, 60 percent are small, SMB-focused VARs,” Bergeron comments. “They see cloud services as an opportunity to gain market share against larger VARs, which appear more focused on on-premise solutions.”
She adds that large VARs could be deterred from moving large portions of their on-premise business to cloud services because of the potential cash flow impact of the move. “With cloud services, revenue is recognized over a much longer period of time. You have to prepare your business for this difference in cash flow even though the revenue potential will be the same or greater,” Bergeron says.
Another possible deterrent according to Bergeron is the lack of training and expertise among technical and sales staff. “You cannot sell cloud services in the same way you sell on-premise solutions,” Bergeron explains. “The buyers of cloud solutions are also different than the buyers of on-premise solutions, which means developing new customer relationships with CMOs or line–of-business owners who are looking at cloud solutions and have a budget to purchase them.”
Bergeron adds that VARs could also shy away from providing cloud services over concerns for reliability, data security, and “the simple fear of reselling cloud services and the negative perception of the cloud broker role for some.”
Adapting To New Model Can Mean Higher Profits
Moore lists reasons companies decide to move forward to offer cloud solutions, including lower up-front costs, faster deployment, ease of use, and mobile support. Moore says offering cloud services differs from offering traditional on-premise applications, with their high up-front costs, annual maintenance fees, and predictable release cycles. “In fact, resellers who are able to change their business model to fit within cloud-solution needs are the ones who will end up with higher margins and more profitability,” Moore adds. This means translating lower up-front costs into sustainable profitable relationships, and adapting sales compensation models to reward reduced churn rates.
Bergeron adds, “The most frequent pitfall I see is tied to resellers adopting a cost -plus model to establish their customer’s price. That’s a mistake. In the cloud, resellers can go beyond a traditional cost-plus model, and price the cloud solution for the value it brings to the customers. This will allow resellers to make much better margins than with on-premise solutions.”
Best Practices Should Include Security — For Data And For Your Business
Moore advises resellers to institute best practices for selling cloud services, including service level agreements (SLAs) for all clients, with the level based on the number of customers and needs of the client base. Moore says Axcient recommends a three-tier tech support team. Tier 1 is responsible for technical support and customer service via phone and email, where the majority of client issues originate and are closed. Tier 2 investigates and troubleshoots issues that escalate from the Tier 1 queue. Tier 3 provides an interface between technical support and development teams. Moore adds that resellers may need to work with their vendors for support levels 2 and 3.
It’s Not Too Late
Moore says if VARs have not yet begun offering cloud services, they should not think they have missed their opportunity. “A very small portion of the IT market has been penetrated by cloud services. While there is a huge surge in activity, there is still plenty of business to be had, over $30 billion worth, and it's not too late for a channel partner to participate.”
Before moving to the new business model, Moore says to consider your sales and tech support teams’ training and your accounting department’s ability to bill monthly. “If you do not have the required talent or systems in place, you can either hire new employees that are specialized in these areas or hire a consultant to guide your business through the transition,” he explains. “How smoothly the transition goes will all come down to your staff.”