Redefining Channel Value in the Age of the Cloud

It’s tough to add any meaningful value when all your company really does is facilitate a transaction between customers and the vendors they want to do business with. Given the fairly limited set of services needed to support those transactions and the thin margins usually associated with reselling most products, solution providers need to start thinking more about what really defines business value these days.

The phrase value-added reseller (VAR) has been bandied about the channel for years. But the actual definition of value keeps changing. And with the rise of cloud computing, the definition of value is poised to be redefined yet again.

The highest form of value that any IT organization can create is some form of intellectual property that usually manifests itself in a custom application that was created on behalf of the customer. But most solution providers have historically shied away from custom application development projects because the risks associated with developing software are not only high; the cost of creating the application represents a significant investment. Cloud computing, however, is changing the economics of application development.

Instead of having to invest in IT infrastructure to support application development activities, it’s much easier these days to develop applications using any number of platform-as-a-service (PaaS) offerings in the cloud. These PaaS platforms not only reduce the cost of creating the application, they also help solution providers reduce the cost of managing that application on behalf of a customer.

While the PaaS category itself is relatively new, the providers of these services have already come to recognize the critical role the channel will play in helping them compete. For example, Engine Yard, a provider of a PaaS platform for creating PHP and Ruby on Rails applications that can be hosted on multiple infrastructure-as-a-service platforms, this week expanded its channel program to include additional incentives for solution providers that bring start-up companies with new applications to the platform. The basic idea, says Mike Mersch, director of global alliances for Engine Yard, is to give solution providers incentives to work with small startup companies that will create applications that will grow over time.

Companies such as Microsoft and IBM are also relying on channel partners to bring business to their respective PaaS platforms. In fact, competition in the space is so fierce at the moment that solution providers with any PaaS expertise are highly sought after.

The problem is that most solution providers have limited application development expertise, and those that do, have little PaaS experience. At the same time, the number of organizations that want to take advantage of PaaS to create custom applications that will give them a competitive edge over rivals is increasing. When you put all that together it creates a recipe of solution providers to add value in a way that can be very profitable.

The challenge will be either finding organizations with application development expertise to partner with, or acquiring that capability outright. As PaaS continues to evolve it’s almost certain that companies that specialize in application development today are going to be playing a much bigger role in helping determine where applications run than they have in the past. As such, the better part of cloud computing valor for many solution providers is going to be to go out an acquire these companies before they get large enough to either acquire traditional solution providers are simply not need them.

In short, we’ve reached a seminal moment when it comes to application development in the channel. Without some level of core application development capability it’s simply going to become increasingly difficult for solution providers to add any real high-margin value in the age of the cloud. And where there’s no real value, there’s usually not much in the way of actual profits.