IT and Business Insights for SMB Solution Providers

Making Money in the Cloud

Making margins from cloud services is simple: Don’t sell cloud like a product or SKU. Satisfy the client’s business need with a bundled solution that can’t be shopped on price. By Dave Seibert

Cloud services have been around for more than 10 years—think website and email hosting. Cloud is a buzzword, yes, but it’s not a fad; it’s just the name we give services running on someone else’s infrastructure located across the Internet.

Eight or nine years ago when IT Innovators started offering managed services (or more accurately for the time, monthly services or structured pricing) through our sister company, Vertical Web Design, our “cloud” services included website hosting, email hosting, and spam filtering. We started with the few services that were available. We did it because they provided stickiness with clients and the monthly revenue was a good business model.

Today, we would probably have started with similar low-hanging fruit: spam filtering, off-site backup, and email archiving—and website and email hosting are still good ones too. Most businesses need these services, so they are a win for clients and the IT provider.

But not all partners are the same, and would not offer cloud services the same way. There are what I call “mature” partners, for example, that may provide on-site solutions or managed services, but have not jumped into cloud yet. Then there are the “born in the cloud” partners that started their companies by offering cloud services—and that’s all they offer. The third type of partner takes a hybrid approach, perhaps providing managed services; on-site services such as networking (PCs and switches), security (firewall), and storage; plus cloud services.

IT Innovators is in the hybrid camp, acting as a trusted adviser, providing managed services and on-site infrastructure, and offering cloud services. But 100 percent of our clients have some cloud solution. So every single client has a series of solutions in place, and every one of them has a piece of the cloud.

For the partners that have not embraced the cloud, I say it is inevitable. They only can deny it so long. Now, that doesn’t mean they have to convert their business to all cloud services—after all, they probably didn’t convert to all managed services when they adopted that business model. It just means they need to include the cloud as part of their regular offerings.

Sell a Bundled Solution, Not Products
Partners that have not yet begun offering cloud services may be resisting because they fear low margins. In fact, the cloud services we offer provide some of the highest margins that our company makes. When resellers say that there’s no money to be made in the cloud, they’re viewing a very vertical solution stack. They are giving their opinion based on a specific product or solution. They need to expand their horizons and realize that the cloud has a lot to offer—not just one or two solutions that may not have good margins.

So how do partners make money? With any sale, they first find out the client’s business need. Second, they put together a solution that satisfies that need. And finally, they quote the solution. They don’t quote the parts of the solution, but the solution as a whole.

For whatever reason, cloud partners don’t do this. Cloud partners sell product. Now, that’s a generalization, but it makes an important point. Too often solution providers selling cloud go to their clients and say, “Here’s SKU item E1, $9.95 per user,” and on down the list. And by doing so they turn cloud services into a commodity—anyone can go online and look up the same E1 SKU and buy from anybody, and the solution provider makes whatever small percentage on it.

So if partners already quote clients on a complete solution when not selling cloud services, why wouldn’t they apply that same three-step process with cloud services? Instead they sell cloud like a product or SKU, and that’s why they are not making margin on it. To make margin on cloud services, partners must follow the process: Identify the business need, determine the solution (made up of various services, some of which offer excellent margins), and then quote the solution as a bundle.

And that’s really important, because clients can’t price shop on a bundle.

 

Dave Seibert
CIO, IT Innovators Inc.

LOCATION Irvine, Calif.

FOUNDED 1996

NUMBER OF EMPLOYEES 10 full-time staff, plus 10 consultants/contractors

WEBSITE www.itinnovators.com

COMPANY FOCUS We are an IT company with a passion for technology that knows how to leverage it to benefit our clients’ businesses.

FAVORITE PART OF MY JOB IT is my passion. I not only like the technology, but using it to help other businesses grow. When they grow, we grow too.

LEAST FAVORITE PART Supporting end users : )

WHAT PEOPLE WOULD BE SURPRISED TO KNOW ABOUT ME I am the founder of several technology businesses and organizations.  I also won a regional gold medal in skating.

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