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.