The tech business has undergone tumultuous change in the last three decades. But if there’s been one constant as we moved from mainframes to smartphones, it’s that channel partners’ profit margins always wind up getting squeezed.
History teaches hard lessons about what happened to partners who made the mistake of relying on selling commodity products. Spoiler alert: The story doesn’t end well.
The ongoing commoditization of hardware and software has left IT vulnerable to rapid price deflation – a trend powered by Gordon Moore's famous prediction about the explosion of processing power and the inevitable decline in the prices of computer functionality. That doesn’t leave a lot of margin to support a thriving channel.
But there are always new technologies on the horizon that do provide rich opportunities for savvy partners who know how to add value - and cloud computing is one of the biggest to come our way in decades.
Consider the size of the overall market opportunity.
According to IDC market analysis, the “total IT market will grow at only a compound annual growth rate (CAGR) of 5.2% from 2015 to 2020, while the public cloud (SaaS, PaaS and IaaS) will grow at a CAGR of 21.5%.” In addition, more than half of IT organizations say they’ve devoted over 15% of their budgets to cloud, while nearly 80 percent either have implemented, piloted or are planning for future cloud-based deployments in their companies.
The numbers underscore how far cloud computing has moved - and in a relatively short span of time - beyond the early adopter phase to the point where it now rates as a mainstream necessity.
When deployed successfully, the cloud offers companies a myriad of benefits. Besides reducing IT operating costs, the cloud features prominently in increasing efficiency, improving the ability to innovate and freeing current IT staff for other projects. Despite these needed benefits, cloud can be a big and complicated move. As more businesses seek to migrate their data, they will need guidance. Here’s where the channel can play a critical part in facilitating the transition. In the process, partners can also generate profitable - and more predictable recurring - revenue streams for themselves.
Just as they did in an earlier era, successful partners can demonstrate their expertise by supplying needed value-added services to clients - only this time we’re talking about areas such as value add services including assessments, migration assistance, integration or custom application development. Here’s where they can leverage their skills to provide much-needed higher-value services.
There are different ways partners can insert themselves into the cloud conversation. They might white label a solution that includes multiple vendor cloud offerings or couple a Software-as-a-Service (SaaS) cloud product with their own extra support. Or they might opt for a manage/support model where they assume responsibility for the client’s cloud-based services. In each case, they can charge recurring fees for these managed service products.
At the same time, they can offer vital guidance on how to migrate to the cloud and how to choose technologies and processes to help clients best leverage and secure applications in the cloud once there.
The good new, with organizations leaning on their partners for help over extended periods, these more “sticky” arrangements with customers are relatively immune to the forces of commodity price pressure. For example, the lifetime value of a SaaS customer can average several years depending on the service. All throughout, partners can generate commissions over the time that the customer remains subscribed to the service.
In certain respects, this ought to be old hat for the channel as it marks a logical progression in the history of partners helping build solutions that advance their customers’ business goals. If they tool up in time, partners can take advantage of a golden opportunity. If they don’t, rest assured that their competitors certainly will.
To better understand the market created by the evolution of the cloud – and how you can succeed – please download Westcon-Comstor’s Voice of the Customer: “Cloud in the Channel” survey.
About Rhys Shannon: As the Director of Cloud and Service Solutions for ANZ Rhys goal is to provide our customers with the solutions they want and need to better their business in a fast paced environment.