Channel Finds Cloud Seeded with Cash

Despite much hand wringing over the
impact of cloud in the channel, many companies are beginning to gain a clearer
– and more relief-tinged – picture of what the model means to the industry at
large and their own business roadmaps.

Clearly for the channel, the devil is
in the details. Companies today are determining the role they will play in the
cloud evolution and how they will implement steps needed to make the transition
and overcome obstacles. This holds true whether they are planning a minor shift
in portfolio offerings – the hybrid approach – or a wholesale change to this
new business model.

A
year ago, the channel’s embrace of cloud was fairly
tepid. Beyond confusion about their role, companies worried about vendors
providing cloud offerings in a direct model and end users sourcing more of
their IT needs in a self-service fashion via Amazon, Google and other cloud platform
providers. Flash-forward a year and the outlook is substantially
brighter. According to CompTIA’s 2nd
Annual Trends in Cloud Computing
study, released in August, four in 10
channel companies both sell and use cloud offerings, compared with just 15
percent of companies last year. A mere 13 percent cite zero involvement with
cloud in any fashion. Consider one channel segment: VARs. Three quarters of
traditional VAR-based companies, a population that has expressed substantial
concern over cloud’s potential to undermine channel relevance, nonetheless
characterized their involvement with cloud over the last year as “heavy.”

Among channel types, systems
integrators had the highest incidence of cloud involvement (selling and using)
at 57 percent. That likely stems from the fact that end-user cloud adoption and
investment – also growing year over year – is spurring demand for myriad types
of integration work. The channel will play a critical role in tying cloud-based
offerings back to on-premise solutions in customer environments, cloud-to-cloud
integration and customization needs for specific industries and application
types, as well as security management. All told, that’s a far cry from having
no seat at the table as feared.

Greater adoption of cloud by
the channel is also reflected in the investment levels that companies are
expected to pursue. Nearly half of channel firms in the CompTIA study said they
plan to bump up their investment in cloud business by between 10 percent-15
percent in the next 12 months. That compares to less than a third that said
they were upping their investment to that degree the year prior. Investments
span capital outlays for new infrastructure and systems, along with softer
investments in hiring new staff and training both new and existing employees.
Willingness to invest is further proof that the channel is realizing that cloud
is not a fad and that now is the time to lay the groundwork to make it a
component of their businesses.

Yet while the CompTIA study
clearly shows that cloud is gaining in adoption across the channel and
investment levels are going up internally at these firms, are companies making
money? The short answer is yes.

Nearly half (46 percent) of
companies selling cloud solutions today reported deriving 50 percent or more of
their annual revenues from cloud-related products or services in the last 12
months. Not content to stop there, the majority said they expect their cloud
sales to grow in the next 12 months.

Yet as with any significant
shift in the industry, challenges exist. For
many channel companies, moving to a cloud-based model – in part or whole –
presents a considerable adjustment, in many cases driving significant change to
long-standing business operations. There are myriad considerations, from
choosing whose cloud services to offer and which types, to decisions around
branding, training, sales compensation plans and customer pricing models. On
top of it all, it’s critical for companies to make sure they are capitalized
sufficiently in order to weather the cloud startup period when expenses can
soar higher than recurring revenue coming in.

Not surprisingly, about half of companies in the CompTIA study
cited the following business-oriented items as “very significant” challenges
when transitioning to cloud:

·        Determining appropriate revenue model

·        Time/cost investment for cloud-based training for sales/technical
staff

·        Deciding which vendors to work with

·        Cash flow/financial considerations

·        Initial costs

The impact on how to conduct
sales looms as one of the more significant adjustments that has to be made. Sales
compensation plans are different, training for cloud-specific selling is
required and the length and size of deals is impacted.  In some cases, individual sales reps won’t be
able to make the switch from transactional-based product selling to the type of
negotiations involved in a cloud deal. This will mean some tough personnel
decisions for channel company owners.

And yet, the internal
challenges the channel will face will, in many cases, be offset by the
opportunity that diversification brings. Customers appreciate choice. By adding
cloud offerings, different delivery models and payment options to existing
services, companies will find some doors opening that might not have budged in
the past.

Carolyn
April is director, industry analysis, at CompTIA, a non-profit trade
association advancing the global interests of information technology (IT)
professionals and businesses
. April
can be reached at
CApril@comptia.org.

 

 

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