Every time there is a major disruption in computing models the impact on business models in the channel is profound. The ongoing shift to cloud computing is no exception. At this point it’s not really a question of whether solution providers will be participating in the cloud, but rather finding the least disruptive approach to getting there.
The major source of the disruption is not necessarily the technology itself. There’s really not that much difference between selling an application that sits stand alone on a managed hosting service and an application that is hosted on a shared multi-tenant architecture.
What is different is how solution providers and their sales staffs are generally compensated. With an on premise sale the solution provider and the sales person get immediate compensated based on the profit margin of the sale. In the cloud, solution providers are generally being compensated across the life of the contract, which can be as long as anywhere from one to three years.
Many salespeople are not too excited about that model, and for solution providers that model can have significant implications for how they finance their operations. What solution providers in the cloud really need, argues Craig West, vice president of channel sales for NetSuite, a provider of a suite of enterprise business applications that are delivered as service, is a much less disruptive way to make the migration.
To that end NetSuite has been compensating solution providers for the “box sale” in addition for the revenue generated over a multiyear contract. In effect, West argues that solution providers should not be forced to reinvent their business models overnight just to embrace cloud computing. Over time they may choose to do so, but right now solution providers are often looking for the path of least resistance to the cloud.
Rather than leading to the disintermediation of the channel, West says cloud computing gives solution providers a way to cost-effectively expand their business. In contrast, other application providers are using the cloud as an excuse to rationalize their channels by forcing some solution providers to buy cloud services through a “master VAR” rather than through the vendor. That means that not only are the payments to the solution provider going to be extended over several years, the margins for the solution provider will ultimately be thinner because there are just that many more companies trying to share the same amount of revenue.
West says there is nothing inherent about cloud computing that requires rationalization of the channel. If anything, it’s easier than ever for the vendor to deliver applications via the cloud than it is to ship software in a box.
When it comes to the shift to cloud computing in the channel there are obviously a lot of competing agendas at work, not the least of which is the battle for account control. Long term many of the larger vendors view cloud computing as an opportunity to roll up a lot of application and IT infrastructure under a subscription model they directly control. For the most part those assumptions tend to ignore that fact that most businesses need multiple applications that are never going to all available from the same provider.
In short, the path to the cloud for many customers is still going to be through the channel; it’s just the mechanisms by which those technologies are delivered is going to be different is all.