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Cloud Solution Provider Paradox: Promise and Problems

 
 
By Michael Vizard  |  Posted 2016-04-29
 
 
 
cloud transformation

The cloud solution provider faces a complicated paradox: There is no shortage of opportunities—or obstacles—in this burgeoning field. This irony, though common in the business world, is particularly pronounced in the channel.

The movement of workloads in the cloud challenges business models that many solution providers have relied on for decades.  A key issue for companies in the channel, including cloud MSPs, is finding the spots where they can add value.

However, as cloud computing continues to mature, those spots are becoming more apparent. Although spending for "the greater cloud"—including software as a service (SaaS), platform as a service (PaaS) and MSP cloud solutions—is projected to exceed $500 billion by 2020, IDC reports that more than half of cloud service revenue is now generated indirectly via one channel or another.

Rather than merely reselling Microsoft solutions, such as Office 365, or infrastructure-as-a-service (IaaS) offerings from Amazon Web Services (AWS), cloud solution providers are becoming more sophisticated about where they can add value. In general, cloud solution provider opportunities fall into two main categories. The first is to combine products and cloud services in a way that creates a unique solution. The other is to help customers integrate a broad array of services.

Cloud Solution Providers: Differentiating Their Offerings

Differentiation is crucial to the success of cloud MSPs, distributors and other solution providers.

When it comes to combining products and services in a unique way, Data Resolution, a provider of managed services stands out. Rather than simply ceding the Microsoft SharePoint in the cloud market to the tech giant, Data Resolution created its own Microsoft SharePoint service running on AWS.

Data Resolution CEO Jim Pathman explained that as it turns out there are lot of companies that prefer to standardize on AWS rather than Microsoft Azure in the cloud. "It's cheaper to run Microsoft SharePoint in the cloud, but it's not necessarily easier," Pathman said. "We help do the migration and integration and then charge a premium to monitor the system."

At the other end of the spectrum, it is also clear that organizations are starting to look for external help once they subscribe to their third or fourth cloud service. Integrating multiple cloud services and existing on-premise data winds up being too big of a challenge.

For that reason, distributors, such as Ingram Micro and Tech Data, are betting heavily that cloud solution providers will be more relevant than ever as long as they do not focus only on reselling low-margin services.

Cloud Solution Provider Investment Needs Are Less Daunting 

Some financial pressures have eased for the cloud solution provider.

"There's going to be more profit at the middleware and application layer," said Renee Bergeron, vice president of global cloud for Ingram Micro. "The good news is the level of investment required for solution providers to operate in that space is not what it used to be."

For example, the cloud solution provider no longer has to stand up its own integration platform because it can now leverage integration platform-as-a-service (iPaaS) offerings made available as a cloud service.

Stacy Nethercoat, vice president of TDCloud for the Americas at Tech Data, said the distributor has seen a marked increase in the sophistication that solution providers are bringing to the cloud. For that reason, Tech Data recently agreed to resell the CloudConsole developed by ConnectWise to provide access to a professional services automation, or PSA, service hosted in the cloud.

"The maturity level is definitely greater," Nethercoat said. "You're seeing a much greater solutions focus."

Cloud Solution Provider Business Model

In many instances, moving to the cloud also means combining multiple products into a single offering. Cloud solution providers are taking the lead in this area.

Case in point is Intermedia, which recently launched a revamped version of its SecuriSync file synchronization and sharing service that includes backup and recovery software.

"It's a full integrated solution," said Bojan Dusevic, director of product management for Intermedia. "Everything is accessible via one control panel."

At the same time, solution providers would also do well to take note of new players entering the channel ecosystem via the cloud. GE Healthcare, for example, is signing up both systems integrators and independent software vendors (ISVs) to drive cloud programs aimed at specific vertical industry.

"We're looking for partners that can add value on top of our stack," said GE Healthcare's Software Chief Technology Officer Evren Eryurek. "This allows them to get into the health care vertical without having to make a heavy investment."

Yet, for all the opportunities cloud programs afford, the biggest challenge for traditional solution providers may wind up being cash flow, said Michael O'Neil, principal analyst for boutique research firm InsightaaS.

"A lot of partners, when selling an on-premise solution, collect revenue from the customer and pay the vendor off later. In the meantime, they operate off the cash flow," O'Neil said. "In the cloud, all that goes away."

For that reason, it is critical for solution providers to get their business models aligned with the cloud.

"It's easier for a newer company than it is for legacy VAR," said Aric Bandy, president of Agosto, a solution provider that specializes in cloud applications. "But the most important thing to remember is to just get going."

Michael Vizard has been covering IT issues in the enterprise for more than 25 years as an editor and columnist for publications such as InfoWorld, eWEEK, Baseline, CRN, ComputerWorld and Digital Review.