Cloud has become an imperative for anybody in the IT ecosystem. ITPV takes a look at how an increase in cloud portfolio impacts the channel business.
It’s been more than a decade since IT vendors and channels alike have been talking and doing cloud. Many amongst the channel community, especially in India, took a cautious and conservative approach to hop on the cloud bus, even as vendors were eagerly pushing cloud services. Channel players retained many parts of their traditional portfolio even as they added cloud services. Even today, not all channel partners will confidently say they have managed to move from reselling (and services on systems they have sold) to a subscription revenue model for cloud services.
Change in revenue model
Traditional channel businesses in most domains, including IT, are used to reselling physical goods and offering services (or value-adds) on top of the sale. The investments required were mostly in manpower (and the nature of the channel business make it fairly efficient manpower wise), and logistics. The cloud’s revenue model, being subscription based, is diametrically opposite to this. The size of the deal is dependent on the length on the contract, with little guarantee on contracts extending. Traditionally, the deal size was visible upfront. For channel partners who wish to go the whole hog taking on managing their customers’ cloud infrastructure and / or applications, along with any consulting, the change in topline and bottomline behavior can be a challenge. While they are typically assured of a longer contracts with recurring revenue, they will have to make investments in skilled manpower, something that is both, expensive and not easy to acquire and retain.
There are other needs revolving around cloud that channel partners can fulfill without undergoing sudden changes to their revenue model. Instead of being a one-stop-shop for a cloud service for their customers, channel partners can fulfill contained roles in the cloud chain. For example, they can sell hardware (something they are familiar with) for customers (or other cloud providers) who are building private clouds. Software providers who are looking to cloudify their offering are ideal candidates for such a sale. Going a step further, channels can resell SaaS offerings. They can either generate leads and pass those on to the vendor, or they can white-label services.
We spoke to Pranav Pandya, Co-Founder and Chairman, Dev Information Technology Pvt. Ltd., on challenges and opportunities for channels in cloud computing. Pranav explains the different opportunities for channel partners in cloud computing by the following classification:
Referral partner: A referral partner is like an affiliate program, in that the partner recommends its audience to buy a cloud vendor’s product / service.
Authorised or value-added reseller (VAR): In the cloud, a VAR acquires the vendor’s solution at a discount and resells the product to their customers for a profit.
Managed service provider (MSP): An MSP typically has a more advanced understanding of the cloud vendor’s product than a referral partner or a VAR. Instead of building a special department in-house, many businesses rely on MSPs to figure out their IT needs. This puts MSPs in a very special position vis-à-vis the vendor and buyer. They represent the cloud vendor’s product and act as a dedicated consultant/maintenance team to the buyer.
Cloud adoption will mean changes to all organizations inside of the channel organization. Business teams will focus on ways to keep costs in proportion to revenues. Customer satisfaction will be a key metric since the revenue will be directly impacted by renewals. Engineering teams will need to focus on accelerated deployments and iterations of the product / solution. All of these, too, have direct and indirect bearing on bottomline.
Be a consultant, not just a provider
For a channel partner who plays any role greater than just reselling, the future lies in building closer relationship with customers, to understand their business requirements, and recommend how IT can enable business processes. In short, play a consultative role. The channel partner should strive to be seen as an on-call expert on best practices, architecting for present and future, and be called upon to advice on technology solutions for operational bottlenecks. Many of these solutions are likely to be delivered by cloud, given how nearly every new software is available as-a-service. If customers see value in engaging with a channel partner who adds value with such consultation, in addition to providing and managing any cloud solutions, the retainer and subscription fee over the length of the contract should exceed the one-time fee they previously were paid up front.
Since such a channel partner is actually performing more tasks in a cloud scenario, their revenues too should be higher. Customers,of course, demand a high quality of service from providers, in addition to being able to deliver an application environment that enables business agility.
Harsh Vardhan G, Executive Vice President – Global Marketing & Alliances, Ramco Systems, opines, “A Channel Partner is an extended arm of the enterprise delivering cloud solutions. With the broader adoption of SaaS solutions, channel partners today are taking a measured approach by adapting their services alongside the cloud. This approach offers a competitive edge to
the partners, by ensuring operational and resource flexibility, and dramatically improving organizational agility.”
Given the increased demand for greater expertise and on-going service from their customers, as well as by the very nature of the cloud business, those partners who wish to increase their cloud portfolio, or get into cloud now need to first plan for such a move meticulously. A system integrator (SI) or independent software vendor (ISV) who starts offering a cloud service typically needs to go through the following steps:
- Understand and definethe customer’s business process flows
- Customize and integrateas required the cloud offering, with other legacy and SaaS applications
- Extend the SaaS application to deliver value-added offerings, in a continuous improvement model
- Continue exploring new areas for expansion or improvement, even if only reselling
On the last point, Pranav explains, “Traditional channel partner philosophy of software and hardware channel sales goes for a toss. The channel partner infact will have to play the role of account manager when they are acting as reseller of pure play cloud players.”
Vendor companies expect their channel partners to have technical and domain related expertise. Harsh says “channel partners should invest to build capabilities and expertise around the functional domain (consultants who can successfully anchor client relationships) and technology domain (technical consultants who can successfully deliver cloud based services).”
On the support front, the cost of support needs to be managed as part of the complete subscription fee. This often means enhancing the self-help functionality available to customers to minimize support requirements. Operations will be a new area for many, and this may be a shared responsibility with the cloud provider.Operations focuses on areas like hosting, metering, availability, security and capacity planning.
While businesses now have access to many of the common business applications delivered via SaaS, there are applications developed by small independent software vendors (ISVs) that are not yet available as an on-demand service, despite massive customer demand.
Power of PaaS: A key trend enabling the ISV transition from on-premise to the cloud is Platform-as-Service (PaaS). PaaS enables building a native cloud business solution;deploying an existing solution to the cloud;and integrating a cloud solution with other solutions that may be also be cloud or on-premise behind a firewall. PaaS offerings not only enable development, testing and deployment of Cloud business solutions, but may also include the middleware necessary to operate them, where charges are on a usage basis for database, storage and other services. Alternatively, PaaS providers may collaborate with one or more Infrastructure as a Service (IaaS) providers to enable the efficient operation of cloud solutions through middleware and services offerings.
Harsh says “While Infrastructure as a Service and Software as a Service have been the most basic and sought after cloud services, the next technology wave that’s catching up is Platform as a Service (PaaS)”.
Cloud opportunities for channel partners
While there is no denying that those channel partners who took to offering cloud services early on have first mover advantages, given the sheer size and growth of cloud services, there is still ample opportunity for new entrants as well. Murali Ramalingam, Country Head- Sales, Ixia, says, “Over 80% of organizations plan to invest in cloud services this year and we believe that for partners who are willing to offer cutting-edge managed services, this is a perfect time. The software-defined security, cloud-based security, and SD-WAN fields, are some of the most promising areas for channel partners to capitalize. With Cloud no more an enabler; but the driver of all businesses, channel partners must realize the significance of integration between cloud security technologies to get the most out of prevailing infrastructure investments and correlate threats across platforms.”
Harsh agrees, saying there is a surge in the demand for cloud services, with cloud computing moving to mainstream technology.
Software as a Service (SaaS): SaaS is a rapidly growing market as indicated in recent reports that predict ongoing double digit growth. This rapid growth indicates that SaaS will soon become commonplace within every organization and hence is an opportunity for ISVs to make their software available in a subscription model.Since an ISV may need to host the application such that the customer doesn’t have to invest heavily in infrastructure (servers, storage, networking, etc.), there is an opportunity for traditional hardware resellers too, in catering to such ISVs
Platform as a Service (PaaS): Platform as a Service (PaaS) brings the benefits that SaaS bought for applications, but over to the software development world. PaaS is differentiated from IaaS by the addition of value added services. PaaS is usually proved by large cloud companies, and can be used by ISVs to develop and deploy solutions efficiently for the end-customers.
Infrastructure as a Service (IaaS):Any provider of IaaS and PaaS (for the matter SaaS, too) will have constant requirement for higher storage, compute and networking hardware. Identifying such opportunities with IaaS providers and striking a deal could mean recurring orders.
Pranav predicts that the demand for white label service providers will increase in future (though currently the demand is higher for pure-play resellers) amongst mid-sized customers. The aggressive marketing by large vendors will help build greater awareness as well as acceptance. At the same time, in the case of large enterprises, and public sector, hybrid cloud becomes the norm, needing both, the principal cloud provider, as well asthe white label service provider to meet hybrid needs.
With improving high-speed internet connectivity; an emerging SMB segment investing in IT infrastructure; and increasing enterprise data centre expenditure; businesses have more reason to shift their IT to cloud, making for a large market in India, adds Pranav.
Spending on cloud services is expected to cross $10 billion by 2020, driven by factors like investments to set up local data centres and a rapidly growing developer ecosystem in the country, according to research firm Zinnov.
IT/ITeS vertical accounts for 35-45 per cent of the total public cloud spending, while massive investments in data centres by technology vendors for banking, financial services and the insurance segment, is driving cloud adoption.
Inputs collected and summarized by Kailas Shastry