Cloud computing has helped growing numbers of enterprises transform their IT practices—and we’re still in the opening innings of an historic shift. Consider the following:
IDC expects cloud computing spending to increase at more than six times the rate of IT spending through the end of the decade.
The cloud computing market is projected to reach $162 billion by 2020. That would mark a compound annual growth rate of 19 percent since 2015.
That’s a big opportunity for the channel. Even if you’ve been watching from afar until now, it’s not too late to get off the sidelines. But it’s a transition that impacts every aspect of a reseller’s operations, from billing to sales and marketing.
“It’s a completely different business model,” said John Scola, SAP Vice president of cloud channels and strategy. “The value proposition that the partners offer their customers is the same—they’re trying to solve their customer’s business problems. But how they go about doing it and the economics around cloud are very different than when someone used to sell on-premise.”
How different? Let’s take a closer look.
Get Ready to Change...Everything
A successful transition starts at the top, whether that be the CEO, the founder or the general manager. The leadership must drive the new vision and stay involved in its execution. Too much is at risk and there are too many moving parts to leave the task of becoming a cloud reseller to a trusted lieutenant.
Organizations now view cloud as an opportunity to actually increase revenue or increase operational efficiency. So establish agreed-upon key performance indicators to set expectations with customers. It could be about lowering customer acquisition costs. Or it could be about keeping renewals or retention as high as possible. Also, set the right expectations and articulate how long it will take to get there.
Change management is a given. Don’t assume you can engineer this transition with 100 percent of the same organization. Your KPIs are changing. Your vision is changing. It’s only realistic that your organization will have to go through some changes as well. Some employees may or may not make it in the cloud, so you may need to be able to backfill. Even if the current staff learns to sell and support cloud services, it’s still likely that new DNA with particular cloud expertise will be needed.
Dealing with recurring subscription services means cloud resellers will have to be able to handle billing on a monthly or quarterly basis, as opposed to receiving single lump sum payments. The calculations can get complicated, especially when cloud vendors provide volume-tiered based discounts based on the number of users.
“It’s very different from someone writing a big check up front for a big project or a one-time amount,” said Ryan Walsh, SVP of Partner Solutions of cloud distributor Pax8. “Now you need to collect this money on a recurring basis, the power of the model is that it’s recurring revenue. But the challenge of the model is how to bill on a recurring nature and make sure you get that money from a customer when it’s due so you’re not left holding the bag.”
One of the great attractions of the cloud is its flexible scalability. But customers are not interested in buying and then stocking virtual inventory on the shelf. They want to buy a certain quantity at the time that they need it; whenever they add more or take more away, they want you to add more or take more away.
Line of business (LOB) customers will have considerably more influence in IT purchase decisions. That’s going to require a different method of market outreach when it comes to selling them on the cloud. It’s hardly uncommon to find LOB buyers who regularly work their way through the sales cycle without ever calling in a reseller until the last moment.
Own a niche, whether a geographic niche or a business vertical or a technology that you’re really good at. Whatever it is, make sure that you’ll be on a short list when customers are looking for you when the need arises. If you can’t say that you’re one of the top three choices when customers think about a particular area, then you don’t own it. So either acquire the expertise or change your focus.
Above all, be ready to shift the customer dialogue. The cloud is about selling solutions, not just technology. The challenge for resellers is to redirect the customer conversation away from the traditional focus on products and instead focus on the outcomes.
“The dialogue with your customer has to focus on understanding what the technology solution is going to solve,” said Walsh. “If you're not having that conversation about outcomes, then you’re not going to be as effective—not only in satisfying the customer’s needs but also in identifying their future needs.”
What’s Your Value Prop?
There’s clear incentive for resellers to move to the cloud, a niche that’s protected (at least for now) from the forces of commoditization that have battered other parts of the technology food chain. For instance, a recent IDC report noted how cloud resellers can command 70 percent profit margins selling IP-packaged offerings. By contrast, reselling services alone only generates margins in the range of five percent to 20 percent.
But this assumes that resellers can articulate a clear value proposition, one that differentiates themselves from their competitors.
You would think this would be standard operating procedure - that a partner would have that unique value proposition and that everyone would crisply be able to deliver it. But, as Scola notes, there’s still a lot of work to do on that front.
“Vendors are obviously responsible for enabling the partners on the technology, understanding the value proposition of the technology, how to best pitch it, how to best implement and sell it. The vendor also plays a significant role in providing air cover, such as brand awareness. But the partner is still very much responsible and they should be doing their own marketing and coming up with their own value proposition,” he said.
“There’s always a requirement that the partner gets engaged from a services standpoint and provides that extra service or value-added aspect. It’s there where I think there’s plenty of room for them to differentiate, w