Investigating the channel aspects of the cloud

I am currently looking at the extent to which it makes sense for those in the IT channel – VARs, resellers, ISVs, SIs and so on – to get involved with various cloud computing options. I have an opinion piece lined up for CRN Magazine (should be published in the next couple of weeks) that outlines my current thoughts, which are basically that there is too much uncertainly at the moment to ‘bet your business’ on cloud, but that it makes sense to start gaining some experience sooner rather than later if you can do that without distracting from your core business that much.

This is a bit of a generalisation, of course, but with all the rhetoric around channel partners having to ‘get with the programme’ or risk being left out in the cold, I thought something was required to balance the debate.

The truth is that demand for most kinds of cloud based solutions is still pretty limited when you compare it to the IT market as a whole. A lot of the numbers sound impressive when you hear them in isolation, but in relative terms, I am hearing from many of those that are active that it’s still quite hard to find, qualify and close cloud related opportunities (compared to traditional business).

And from a business planning perspective, there is still the difficulty that the street price for many services has yet to settle. Some tell me that prices and margins can only come down, which makes ROI assessment quite hard to deal with. Others say the margins on many of the products they sell are slim anyway, so price/margin volatility doesn’t matter as they would look to do the same with cloud as they have always done – i.e. make money from spin-off revenue lines such as professional services and cross/up-sells.

To illustrate how inconsistent things are at the moment, I have also heard the view that some prices will actually have to go up as there is no margin in some of the early market offerings. I guess if the service provider set their prices originally based on a direct Web-based sales and deployment model, then only later figured out that selling around the channel was very difficult (particularly in SMB), they may have ended up with numbers that don’t add up in the indirect sales context.

Beyond demand and the ability to make profit, the one big concern I am hearing quite frequently is around customer ownership, but it’s more of a question than a problem statement at the moment. The issue is whether the channel partner would be expected to sign the customer on the service provider’s paper, thus notionally passing control of the relationship to the provider. Given that some cloud providers have little or no experience with the channel, and that lack of experience often translates to lack of discipline (e.g. in preventing/managing sales conflict in the field), the issue of whether providers can be trusted is clearly at the back of some people’s minds.

Anyway, these are some of the things that are coming up in my conversations in addition to the usual discussion around the challenges of modifying your accounting models and remuneration plans to deal with the switch to an annuity based revenue model, but I am still very much in investigation mode.

So, if you have experiences, thoughts or opinions in this area, especially if you are working in the IT channel, I would be really interested in hearing your views.


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Dale is a co-founder of Freeform Dynamics, and today runs the company. As part of this, he oversees the organisation’s industry coverage and research agenda, which tracks technology trends and developments, along with IT-related buying behaviour among mainstream enterprises, SMBs and public sector organisations.