Cloud Services: Who Owns The Customer?

By Chris Talbot  |  Print this article Print

Hardware resales provided clear lines on who owned the customer, the vendor or the VAR. These days the question is more complicated, especially as Microsoft prepares to launch Office 365 and move vendors offer the option of direct cloud sales.

As the proliferation of cloud services continues and more channel partners are getting into reselling the services of others, there’s a big question mark forming, and there’s no real answer yet: Who owns the customer?

In a traditional hardware or software resale deal, resellers make their money off of resale margins, hopefully followed by service and support for continued revenue. If a customer chooses to break off the relationship and go to another reseller, they own the hardware/software, and they can sign a contract with a different partner. In a hosted environment, partners that own the equipment that lies in a data center can lose a customer, but it’s up to the customer’s new MSP to have the equipment and migration tools necessary to take over the business. Cloud services makes the concept of customer ownership a lot more fuzzy, said Gordon Squires, president of Computerized Business Solutions (www.cbsunified.com), an MSP that offers hosted services through its data center.

During a Q&A period at the Synnex Varnex conference in April, Squires posed a question to a panel of vendor representatives that included Microsoft, Lenovo, HP, Symantec, EMC and value-added distributor Synnex: With cloud services, who owns the customer? Only two members of the panel addressed the topic, and only one actually answered the question. Greg Lissy, director of SMB channel strategy at Microsoft, simply called channel partner selling Microsoft’s cloud services "trusted advisors," but didn’t actually address the concern, whereas Terry Richardson, director of OEM sales at HP, said the customer belonged to the channel partner. Of course, HP has chosen to stay out of the cloud services game, so far, instead focusing on being the provider of the hardware on which partners can build infrastructure to host their own cloud services. The rest of the panel was silent, which Squires noted was concerning.

Tiffani Bova, vice president of sales and channel strategies worldwide for technology and service provider research at Gartner, who followed the panel with a discussion on the cloud market, kicked off her presentation by addressing the question of who owns the customer.

"Nobody owns the customer. The customer owns the customer," Bova said.

Although understandable that the customer has final say in what VAR, MSP and vendor it deals with in the end, Squires later told Channel Insider that it was more complicated than that.

"Anyone who won’t give you a clear answer or says the customer owns the customer wants to make you go away and not talk about it, because it’s not that simple," Squires said.

Not all vendor (or distributor, such as Synnex’s latest CloudSolv line) cloud services are alarming, as many of them are available to channel partners as private label services and the billing is done by the partner. From that perspective, the customer likely has no idea who the actual provider of the cloud service is. In some cases, such as Microsoft’s Office 365, the vendor insists on putting its own name on what the customer sees and won’t give up billing to the partner. Microsoft calls the reseller of its cloud services the "reseller of record," but according to Squires, who sat in a discussion with Microsoft about Office 365, the reseller of record can be changed by the customer, enabling the vendor to either go direct or make it incredibly simple switch to another reseller.

"In the hosted world, all the Microsoft stuff, I register it, I bring the customer to them, Microsoft refuses to bill me and bills my customer directly," Squires said. As long as the reseller’s name remains on the account, then they’ll continue to get the ongoing revenue from the service, but Squires said all it takes is for the customer to call Microsoft and change the name of the "reseller of record" to find all the up-front sales work and the closing of the deal suddenly have no revenue attached to it.

It’s a matter of creating conflicts between vendors and channel partners, or between channel partners themselves. Either way, it creates the possibility for customer poaching, leaving the costs for the original sale to one and letting someone else reap the benefits.

"They’re enabling and facilitating that change. In no way would I hold a customer hostage ... but it’s the difference between being amenable and helpful to the customer and being stupid and doing the work for the next guy to get the money," Squires said.

Not every VAR and MSP is as concerned about customer poaching, though. According to Sean Kline, president and CEO of Turbotek Computer, an MSP that offers its own cloud services as well as those by vendors (although its primary business is in hosting its own cloud services for customers), he’s heard concerns about cloud service customer ownership from other VARs and MSPs, but he doesn’t share them. He agreed with Bova’s "nobody owns the customer" mentality.

"If someone wants to go off and kind of nickel and dime me on particular aspects of agreements or price, I frankly don’t want them as customers and will ask them to go elsewhere under those circumstances. Personally, I don’t have any fear of that," Kline said.

The term "trusted advisor" gets used a lot when discussing channel partners of all types, and that’s the differentiator – and the reason why partners shouldn’t be concerned about customers being poached over a vendor’s cloud service.

"Our goal is to have relationships with a customer such that we are their trusted advisor so that we are their expertise as it relates to IT, and so it doesn’t really matter what the logistics are of a particular agreement in that context," Kline said.

He said he didn’t want to minimize the concerns that others in the channel have around customer ownership because customers don’t want confusion and they don’t want complexity.

Especially in the SMB market, customers want one bill and one throat to choke, said Sumeet Sabharwal, senior vice president of strategic alliances and operations at NaviSite (www.navisite.com), which builds its own cloud infrastructure and partners with others in the channel to take those services to market.

For channel partners that are concerned about being poached by direct sales or through actions of their own customers, Sabharwal suggested working strictly with vendors that allow for private labelling of cloud services and who will allow them to bill the customer on their own.

"What Microsoft is realizing is all those VARs have options. They don’t have to sell Office 365," Sabharwal said. There are plenty of private label cloud services available, much of them from smaller vendors that are easier to work with than the big vendors, he added.

Squires, whose business is mostly focused on providing his own hosted services, noted that the best vendors to work with are those that enable the channel rather than compete with it, but he did say there are several vendors that compete directly with their own channels. When the vendor has contact with the customer through billing or its own brand on the service, then there’s always the possibility of having the business pulled away by the vendor directly or indirectly.

"So who owns the customer? It’s an easy question. It’s an easy answer that no one wants to touch," Squires said.