CLOUD COMPUTING CHALLENGES THE CHANNEL

dizzyeyedfourwayInternet and Web Development

Nov 3, 2013 (3 years and 9 months ago)

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APER




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Channel

Perspectives

CLOUD COMPUTING CHALLENGES THE
CHANNEL




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Cloud Computing Challenges the Channel

Contents


Background


3

Challenging the Channel Structure


3

Challenging the Channel Competencies


6

About Techaisle

7

SMB Channel Partner Reports

7



Figures

Figure
1
:
Old Distribu
tion Value
C
hain

3

Figure
2
:
New Cloud Services Delivery Value Chain

4

Figure
3
:
Old Distribution
Compet
encies

5

Figure
4
:
New
Cloud Services

Competencies


6















Executive Summary

The White Paper examines Cloud Computing's
impact on the existing channel structure. A lot has
been written about the pros and cons of various
Cloud Computing
technologies
but very little has
been talked about the impact on the
SMB
channel.

The white paper

also

clear
l
y
outlines the changing
roles,
responsibilities

and capabilities of channel
partners comprising of VARs, SIs, SPs to compete in
an SMB market th
at is driven to cloud, mobility,
virtualization and managed services; sometimes
directly with the vendor
.









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Cloud Computing Challenges the Channel

Background


All leading IT companies
-

Microsoft, HP, Dell, IBM, Sun, Oracle, Salesforce.com and Amazon are driving
towards providing a variety of cloud based platform and application services. Complementing them are
a whole host o
f new companies that are aggressively developing solutions for this space. No doubt over
the next 5 years cloud based services will be the new arena of intense competition. A lot has been
written about the pros and cons of the various services so we will n
ot try and address them.

However,
very little though has been talked about the impact on the channel.

The channel comprising of ISV partners, Systems Integrators (SIs), dealers, resellers and retailers form
the essential cogs of an IT vendor’s eco
-
system th
at puts products and solutions in the hands of the
customers. This is particularly true in the small and medium business market (SMB) where the vast
majority of the opportunity can ONLY be addressed through the channel. Selling direct is not
economical. IT

companies such as Microsoft and HP are particularly dependent upon the channel to
maintain their position in this market. So it makes complete sense that these companies are trying to
find ways to engage and involve the channel in their cloud computing ef
forts
.

Challenging the Channel Structure


The first issue to tackle is Cloud Computing’s impact on the existing channel structure. For decades the
packaged product industry has survived on a two
-
tier system consisting of master distributors such as
Ingram Micro and Techdata and a large r
eseller base. In the case of SMBs, this reseller base is very large.
While master distributors aggregate products and handle the logistics of distribution and promotion to
resellers, the resellers themselves handle the final sale to customers and provide i
nstallation,
integration, customization and maintenance services.

The exception is a handful of customers that a vendor sells directly to (typically very large strategic
customers such as NASA, Pentagon, GE,
etc.
). How does this hold up in the era of Clou
d services?


Figure 1: Old Distribution Value Chain



S
ource:

Techaisle, www.techaisle.com


Customer needs and customer scenarios will likely drive the change in channel structure in the era of
cloud services. Three scenarios come to mind depending upon the extent i.e. the number of cloud
services and
applications a customer uses:


IT Vendor

Master
Distributor

Reseller

Customer



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Cloud Computing Challenges the Channel

Customer Scenario 1




Customer needs a single cloud application or very few cloud applications
-

for very small
businesses this is a viable scenario. it is likely that a really small business will not use more
than 4
-
5 Cloud
services. These will likely be very basic such as email, web conferencing,
collaboration etc. Integration and customization needs are minimal at best.

Customer Scenario 2




Customer needs few services but integration with existing systems and customizatio
n are
paramount. Resellers of cloud services can capitalize on such opportunities

Customer Scenario 3




Customer needs multiple cloud services and subscribing to them on a one
-
off basis,
managing multiple vendors is an administrative burden and perhaps an

inhibitor to greater
adoption of cloud services. Integration and customization needs may or may not be
important. This scenario will likely emerge over time as SMBs and enterprises dive deeper
into cloud computing. This scenario is also potentially the mo
st disruptive for the channel. It
suggests the need for a Cloud Services Aggregator (CSA) that has the capability to aggregate,
integrate and syndicate cloud services to resellers and customer.


The interesting thing here is that a CSA could be an IT vendo
r such as Microsoft or HP or an
entirely independent entity. IT vendors that act as CSAs (Microsoft, Salesforce) will be
subject to some form of “cloud nepotism” i.e. their priorities will always center on their own
services rather than third party service
s.

Figure
2
:
New Cloud Services Delivery Value Chain


S
ource:

Techaisle, www.techaisle.com



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Cloud Computing Challenges the Channel

This makes room for an independent entity whose primary function is to integrate and
deliver services that best serve their customer base. It is possible therefore those CSAs that
focus on a particular industry or deliver a specific competency (and clo
sely related
competencies) will appear in due course of time. In many ways CSAs replace master
distributors in the old value chain.

This emerging structure does much more than shake the foundations of the current channel
structure. Indeed, it impacts channel competencies at a deep level.

Challenging the Channel Competencies


Broadly speaking the current channel responsibilities can be divided into two
-

distribution and
imp
lementation. Clearly this works well for packaged products but breaks down to some extent when it
comes to cloud services. The logistics of packaged product distribution are replaced by delivery of
services over the web. Similarly, implementation can furth
er be divided into 3 sub
-
tasks:

1.

Installation,

2.

Integration and Customization and

3.

Maintenance

Installation is replaced by “Provisioning”, Integration and customization needs will be service
dependent. Some services will offer limited customization w
hile others will offer extensive
customization capability. Maintenance is all but gone except in cases where customization has been
done by the channel. These channel activities are a significant and indeed primary source of revenue for
the channel. In the

SMB space, in particular, channel members do not make much on the products they
sell but depend on time billed related to the above activities. The severity of the challenge increases
considering that channel revenue now takes the form of an annuity rathe
r than a lump sum payment.

Figure
3
:
Old Distr
ibution
Value Chain
Competencies



S
ource:

Techaisle, www.techaisle.com



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Cloud Computing Challenges the Channel

This suggests that over time the channel must develop and indeed be trained in new competencies.
These encompass service provisioning, billing, data center management, customer support and a whole
host of related competencies tha
t the channel did not have to deal with before.

Figure
4
:
New
Cloud Serv
ices

Value Chain

C
ompetencies



A parallel to this emerging structure can be drawn from the telecom industry. Large telcos such as
Verizon would be the equivalent of an IT vendor that also acts as service aggregators. Large telcos also
support an eco
-
system of “virtual telco operators”
-

who essentially resell telco services without having
to invest in their own telecom facilities or lines. Similar competencies are observed among these
players.

The coming change in competencies is critical if Cloud Computing is to succeed. At this stage
the onus
rests largely on IT vendors such as Microsoft and HP to aid existing channel members to rework their
business model, retrain for new competencies and deliver profitability to sustain the channel.







S
ource:

Techaisle, www.techaisle.com



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Cloud Computing Challenges the Channel

About Techaisle

Techaisle is a global SMB ICT market research and industry analyst organization dedicated to tracking
the Future of SMBs and Channels. Techaisle conducts surveys with SMBs and Channels to understand
market trends, opportunities, buying behavior, purchase i
ntent, and IT priorities. Besides delivering
forward looking analysis on emerging technologies like SMB cloud computing, managed services, and
mobility, the company’s channel reseller research tracking provides an in
-
depth understanding of
resellers and di
stribution channels. Techaisle is consciously focused on bringing reliable data and
accurate analysis to its clients. Techaisle is committed in providing major services for IT market sizing,
channel research, reseller partner sizing, syndicated research, c
ustom consulting, segmentation and
predictive modeling. For more information, visit
www.techaisle.com


SMB Channel
Partner

Reports

The main objective of the study is to understand the issues being faced by channel partners (VARs, SPs)
in addressing the Managed Services, Cloud and Mob
ility Solutions needs of SMBs.

Key Questions Answered
:



What are the current and planned managed services
, mobility

and cloud offerings?



What percentage of revenue is derived from different types of managed services offerings?



What are the biggest challenges faced in offering cloud
, mobility

and managed services
solutions?



What do vendors need to do to improve their experience of deploying

solutions?



What are the top reasons for offering such solutions?



What methods are used to justify investment in a solution?



What sales messages are most often being used?



Who initiates the discu
ssion, channel or SMB?



What is universe of channels by channel type?

Methodology
:

Phone bas
ed Primary Research conducted with Senior Executives using a Structured
Quantitative Questionnaire

Countries Covered:

US, UK, Germany, Brazil, Australia, India

Deliverable Format
:

Individual
country reports delivered in P
owerPoint

To purchase send an email to
inquiry@techaisle.com

or call 408
-
459 7751