Staying Ahead of the Cloud
Not only are cloud services here to stay, but they'll likely be mainstream among SMBs in just 18 to 24 months. Learn what you can do to get ready.
By Carol Hildebrand
The technology industry is undergoing massive change, as vendors reinvent technology strategies with offerings such as Software as a Service (SaaS) or Platform as a Service (PaaS.) Loosely known as cloud computing, these new services promise cost-cutting opportunities that strongly appeal to SMBs-the primary market for many channel partners.
"Cloud and hosted services have disproportionately high benefits for small companies because the cost of in-house IT, support, hardware, and the like really hurts their operating expenses and bottom line," says Paul DeGroot, an analyst at Microsoft-focused research firm Directions on Microsoft.
Offloading those chores to cloud vendors may be a smart choice for SMBs, but that cost reduction will mean lost revenue to many VARs. "Our research shows that as more and more software technology moves to the cloud, it becomes of greater concern to VARs, particularly in the SMB market," says Tim Harmon, a senior analyst at Forrester Research Inc. "All the on-premise stuff that gets eliminated in the cloud takes away from VARs' pocketbooks."
There's no question that cloud computing will affect many channel partners that currently depend on back-office work for their bread and butter. But what are the real ramifications? Will the cloud prove toxic to traditional VARs, or does it provide a promising new business opportunity?
A SHIFTING BUSINESS MODEL
The channel's major concern about cloud computing is that of revenue replacement. Cloud vendors will depend on the partner channel to sell cloud services, but the revenue model differs-most VARs will receive a percentage of the sale for bringing the business to cloud vendors, and will essentially serve as go-betweens; cloud vendors will take care of all the hosting.
"Say a VAR receives 18 percent of the deal for the first year, and 6 percent ongoing after that," says Darren Bibby, program director for software channels research at analyst firm IDC. "On the negative side, this model takes away opportunities for software resale and makes things simple enough that some of the services work around the technology has gone. On the positive side, you get an ongoing revenue stream."
One thing is certain: Cloud computing will bring change, and channel partners must respond. "Offering cloud solutions from companies including Google, Microsoft, and Amazon is a necessity," says Robert Dempsey, CEO of Atlantic Dominion Solutions, a channel partner in Winter Park, Fla. "By adding cloud services, the average channel pro can offer highly scalable, on-demand solutions that don't require large cash outlays."