Gartner reported that worldwide IT spending was projected to total $3.76 trillion in 2019, an increase of 3.2 percent from 2018. With those figures in mind, one question before our industry is: “What part of that growth is attributable to cloud?” And, for those of us working with channel partners, the next logical question is: “What is the impact of the cloud on the partner landscape?”
The End of the Channel?
Some industry experts predicted “the end of the channel” as a result of the trend to the cloud. I for one however, am not so gloomy. But I do believe that the channel as we have known it, has, and will continue to evolve in response to this game changer.
The diagram below illustrates my thoughts on this. As the communications tech market matures, the partner ecosystem required to serve it evolves from partners with technical competence in the early stages of growth, to those with logistical expertise as it matures.
But…big market innovations such as the cloud don’t operate on the normal growth curve of an existing market. They come crashing through and precipitate a need for both partner and vendors to re-tool their business models. Typically, when this happens, we find three paths available for partners, because maintaining the status quo is no longer an option:
- Evolve back to a more technical business model, delivering new types and levels of technical and/or consulting value
- Strip out cost and compete on factors such as ease of doing business and everyday low prices etc. or
- Exit the market.
But why is the impact so radical?
Firstly, let’s have a look at all the factors impacted by the shift to the cloud, which is essentially a shift in purchasing behavior – from communications as a capital expense (CapEx) to an operating expense (OpEx). Consequently, selling patterns are transformed.
Primary Cloud Partner Functions and Who’s Performing Them
The above powerful dynamics are triggering the following partner responses. When profiling the key players in the cloud partner landscape, it’s easiest to get clear on the key functions they perform first – and then apply this understanding to the traditional industry partner “labels.”
There are Four Major Player Types
1. Cloud Providers
Cloud Providers (ex. Amazon, Microsoft, Google, Alibaba). These players provide platforms and infrastructure (IaaS and PaaS). Increasingly, these cloud “giants” are developing and using their own highly customized hardware, locking out traditional hardware vendors. They are, however, extremely interested in moving SaaS providers to their cloud, as a rich software portfolio directly impacts differentiation and brand power.
Resellers can be divided into two major groups:
– Sales Agents provide a level of management and front-line customer support on behalf of the cloud provider. However, they do not take title to anything. Well-designed incentive programs that reward their efforts, can motivate them. They have many characteristics in common with the old telecom sales agents deployed by the carriers.
– Aggregators who buy capacity and resell it, often under their own private label branding. Their requirements of vendors are different from those of sales agents.
The following partner types deploy the reseller function: carriers, Systems Integrators (SI’s who can integrate their own cloud offering with offerings from multiple cloud providers into a managed service), Managed Service Providers (MSPs), hosting companies who are transitioning their services to the cloud, and some traditional solutions resellers who have the financial strength to make the necessary changes to their business models.
3. Service Partners
Service Partners sell soft services on top of the cloud and help the end-user develop and implement along a clearly definied path. These services include:
4. Technology Partners
Technology Partners sit on top of the cloud and can be categorized into three main business types:
– SaaS Developer: develops specifically for the cloud, or transitions traditional offers to the cloud environment
– Marketplace Partner: typically small companies that have been collected into a marketplace (think Apple) so customers have easy access.
– Interconnect Partner: The interconnect function has been compared to the next generation of the central office switch, serving as the intermediary between the customer and the cloud.
4 Key Challenges to this New Partner Landscape for Cloud
1. It’s hard to assess the migration timeline
The actual evolution to the cloud is different for large enterprise, SMB’s, etc. Best estimates predict that the fastest movement is occurring now – “planting the seeds” so to speak. Therefore the challenge for partners is how to time the evolution of their business model to capitalize on the cloud opportunity without crashing the economics of the business. I personally like to see partners create a separate P&L for cloud business, so they can understand the nature of their risk and reward. Not every partner however does this.
2. The “end state” of evolution is not binary – CapEx today; OpEx tomorrow
Instead, there is a blending of models – subscription, licensing, on-premises equipment – that is focused on creating and optimizing a seamless performance for the customer. This type of “integration” is a new capability. Who will teach it? Who has the talent and financial bandwidth to learn it and deploy it?
3. Many players in the cloud partner ecosystem also have separate businesses and partner ecosystems of their own
Think SaaS developers, carriers, global systems integrators (GSIs), managed service providers (MSPs). Eco-Partnering, the practice of identifying, qualifying and working with “your partner’s partner,” will be a critical next generation skill.
4. The sales model for driving ongoing consumption is still being perfected
Options include: building migration paths into the offer, using data analytics to feed performance back and best practice profiles as a service, engaging the customer service organization as the primary sales team responsible for continued optimization. Partners will need to chart their paths based on their unique capabilities.
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Working with partners who play in this new landscape requires a depth of understanding and respect for the partners’ business models and evolution timelines. As such financial guidance and payment plans more closely aligned to the partner’s revenue recognition, are good complements to traditional partner programs. But, ultimately, it is up to the partners to decide when/how/if they will play.