IT and Business Insights for SMB Solution Providers

Competing with the Cloud

If you're still not buying into the cloud’s positive message, learn to compete on your own terms. Here’s how. By Megan Santosus

As a model of computing, the cloud certainly promises a lot of benefits that are hard to beat. Fast and easy deployment of applications, reduced capital expenses, and payment based on usage are among the top reasons proponents say that cloud services will transform the IT industry. Yet there are still channel partners that aren't buying the cloud's positive message. For many of these partners, the cloud represents yet another competitor that threatens to erode their margins and lure away long-standing clients.

To counter the cloud's considerable pull, channel partners should not bury their heads in the sand or deny that the cloud has any merits outright. Instead, channel partners need to play to their strengths to effectively go head-to-head against cloud services. Cementing personal relationships with clients, emphasizing a client's individual business needs, and yes, even offering up cloud services via a hybrid model, can enable channel partners to profitably coexist alongside cloud service providers.

"A lot of people are realizing that the cloud is here and real. There is a sense among channel partners that it can't be avoided or ignored." Paul Burns, Owner and Analyst, Neovise LLC

As a new way of delivering and procuring IT services, the cloud naturally garnered industry resistance when it first appeared on the scene, as does most anything new. Yet wide-scale skepticism of the cloud appears to be fading, according to Paul Burns, owner and analyst with Neovise LLC, a boutique IT analyst firm in Fort Collins, Colo., that focuses on cloud computing. "A lot of people are realizing that the cloud is here and real," Burns says. "There is a sense among channel partners that it can't be avoided or ignored."

Nor should it be. According to Neovise's research, 54 percent of organizations are using public or private clouds. With 46 percent of responding organizations not using the cloud, there is plenty of room for growth.

Still, Burns acknowledges that there are holdouts among the channel partner community. The idea of the public cloud—through which organizations can provision applications and computing capacity in a self-service model—is undeniably scary to channel partners that make their living helping customers select the right server, build the right infrastructure, install the right operating system, and implement the right applications.

As Burns sees it, resistance to the cloud is often correlated to size: The smaller the channel partner and the smaller the customer, the greater the resistance. "When you start getting into the midsize businesses, they are likely going to have significant investments in IT infrastructure," Burns explains.

For these customers and the channel partners that serve them, legacy IT infrastructure provides something of a built-in buffer against the cloud's appeal, as they may already have their own data center or server room. This is why resistance to the cloud is most entrenched among the smaller channel players, Burns contends. Partners that are focused primarily on reselling also tend to balk at the cloud, Burns says, because cloud computing poses the biggest disruption to their existing business model.

The reason behind the resistance is more than just the fear of something new. The hype surrounding the cloud has contributed to a significant amount of confusion among channel partners and customers alike. "More widespread is uncertainty about the cloud and how to get started with cloud services," says Chris Phillips, a principal with channel consulting firm Seventh Wave Services in Mission Aliso, Calif., and an authorized channel instructor for CompTIA, the IT industry association based in Downers Grove, Ill.

According to CompTIA's 4th Annual Trends in Cloud Computing study, there is still considerable confusion between cloud and hosted computing models: The same percentage of respondents, 44 percent, say there are minor differences between cloud and hosted computing as those who say there are major differences, while 12 percent say there are no differences or that they are unaware of differences.

Adding to the confusion about the technology are the bottom-line benefits. With cloud, "revenue opportunities aren't seen very clearly yet," says Philip Elder, owner of MPECS Inc., a St. Albert, Alberta-based provider of IT services that specializes in Microsoft solutions for SMBs. "It's hard to see a vision, when the constant message from the big vendors is that they are going to take away your job," he says.

Despite the misgivings, those channel partners that resist are likely to be pulled to the cloud anyway. "The skeptics are going to be forced into delivering these services because their customers are asking for them," Phillips says. In effect, then, channel partners would do best to see the cloud not so much as a threat but as an opportunity—provided that they can embrace change and adapt their business models.

Adapting to Change
Adapting in response to business changes is not a new concept. "Channel firms have been making the transition to managed services in their desire to move to a recurring revenue business model," says Carolyn April, director of industry analysis at CompTIA. "Plugging into cloud is just another way to take advantage of new ways to deliver solutions to customers, especially those that are demanding IT that embraces mobility."

"Plugging into cloud is just another way to take advantage of new ways to deliver solutions to customers, especially those that are demanding IT that embraces mobility." Carolyn April, Director of Industry Analysis, CompTIA

Of course, making this transition will take time, and channel partners concerned about customers flocking to cloud-based solutions now may be compelled to take action to prevent wholesale switching. The first step in this process involves learning as much about the cloud-both its upside and potential drawbacks-as possible. "Channel partners should go through an education process themselves to make sure they understand cloud and where it helps their customers and where it is not right," says Neovise's Burns.

The education process should also enable channel firms to better position on-premises solutions against certain cloud services. "If you are going to offer email, backup, or other popular cloud services as on-premise options, you have to focus on why on premise is better than a cloud solution," says Phillips. Sell the benefits of the on-premises solution, Phillips advises. In the case of email and backup, for example, emphasize the security and reliability benefits of an on-premises versus cloud solution.

Dismissing the cloud outright as a fad, or discounting entirely its potential to deliver economic and functional benefits to customers, is not an effective communications strategy, Burns contends, because it is simply not an honest assessment of the market.

Manny Lloyd, founder and CEO of Manuel W. Lloyd Consulting, an IT service provider in Alpharetta, Ga., agrees, adding that the cloud is just another evolution in a long and never-ending list of IT innovation. "Those channel partners that can't adapt will be seen as unknowledgeable by the customers," he asserts. "The channel needs to figure out how to take advantage of the cloud without scare tactics."

And herein lies what may be the biggest opportunity for channel partners vis-à-vis cloud services: knowing customers' needs and business priorities personally and recommending the best and most appropriate solutions-whether cloud, on premises, or a combination of the two. As a self-service model, the cloud certainly facilitates a streamlined way to provision IT services, but this invariably will not suit every customer in every situation.

"Getting up and running in the cloud may not be an easy process for someone who is not technically savvy," asserts Elder, nor, he adds, is it necessarily the best fit. Many cloud-based services tend to be uniform rather than specific and customized. "As soon as we start looking at a real business that needs to have IT work for it in the way that the business works, the cookie-cutter solution doesn't work as well," he explains. "This is an aspect of the cloud that isn't communicated well."

The View from Inside
It turns out that channel partners have the best vantage point to advise customers on whether the cloud will work for them, and if so, how best to implement cloud-based services into the existing IT operations. Recommending cloud services-or not, as the case may be-is not as simple as many cloud vendors would have potential customers believe. "The cloud is a complicated space, with many price and price/performance considerations," Burns says. Not every application will be more cost effective in the cloud; in addition, many organizations may have data security and data sovereignty issues that make cloud services impractical. "You really have to know what is best for your customer," says Lloyd.

For small channel partners, knowing what is best for the customer is something that big, anonymous cloud service providers just can't match, and it's an advantage that should be emphasized in sales and marketing efforts. "The reality for small businesses is that face-to-face contact is still essential," says Elder. "We spend a lot of time on the ground, visiting clients and working with them; there is a level of trust and a business relationship which is missing with the cloud." Meeting regularly with clients enables Elder to offer more specific perspectives on when the cloud makes sense and when it doesn't. "The on-premise applications we have deployed are completely stable," he explains. "Many cloud services have more downtime and hiccups, and we know where clients need the stability of the applications we offer."

When facing cloud competition, "the least persuasive kind of discussion is starting with the technology first," says Phillips. "You don't want to start out telling clients why they need on premise and why they don't need cloud." Instead, hone in on what your clients need and want from IT and proceed from there. With more options-cloud, on premises, or hybrid-there are many more opportunities to advise clients and provide clarity on an ever-changing IT market.

Channel partners "have greater value now to add consulting and implementation services," says Lloyd. It's important to note that channel partners shouldn't aim to compete against the many vendors offering cloud services based on a "set it and forget it," model, such as online backup. "You can offer managed backup services that are different," Lloyd says.

Cloud and On-Premises Combos
One area that should be of particular interest to the channel is hybrid offerings that utilize a combination of cloud and on-premises solutions. Such a combination offers the channel an attractive-and in some areas the optimal-solution for clients. "IT is going to remain in a hybrid setup for the foreseeable future, so we will see a mix of cloud solutions and services alongside on-premises infrastructure," says April. "It's the channel's job to help determine which pieces of a customer's environment fit best into which model, and then to do the integration work between all the parts."

For small companies in particular, certain hybrid services can be the most appropriate option. Take backup. According to Lloyd, having a backup solution that is entirely on premises or entirely in the cloud is not advisable. "You can put a device on-site that is synchronized to the cloud and synchronized on premise," he explains. "This kind of hybrid solution is the best option for small- to medium-sized businesses, and it is the easiest way for channel partners to move their customers to the cloud."

Hybrid is also one of the most prevalent computing models. According to Neovise research, 71 percent of organizations using public or private infrastructure as a service (IaaS) use hybrid clouds. And while the majority of these (86 percent) are large organizations with more than 1,000 employees, 59 percent of organizations with fewer than 1,000 employees use hybrid clouds.

Hybrid computing is also an area where channel partners can get a lot of help and guidance from others in the industry. "Distributors provide a ton of cloud offerings, and vendors will help solution providers sell into the cloud," says Phillips. For channel partners that are resistant to the cloud, hybrid is the ideal way to ease into the market.

"Utilize your distributors, learn from other solution providers, and pursue partnerships," Phillips says. "If you're not comfortable with hybrid solutions, there is probably someone who will help you with them." According to Phillips, channel partners can expect higher start-up costs with a vendor; to get started with a single customer, distributors can provide a more cost-effective option.

With the trend toward the cloud seemingly unstoppable, channel partners bent on survival will ultimately need to see the cloud less as a threat than as yet another available option. CompTIA's April concedes that the channel will realize some downsides to the cloud, but overall has more to gain than to lose. "Some customers are going to self-provision cloud apps and other services directly from major providers such as Amazon," she says. "But the long view is that cloud offerings, like other IT, will need to be managed and monitored over time, which is precisely the role that many in the channel are finding themselves in today."

About the Author

Megan Santosus's picture

Megan Santosus is a Boston-based freelance writer and frequent contributor to The ChannelPro Network.

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