VAR Strategies for Cloud Computing
If you’ve made the decision to offer cloud computing services like hosted applications, you must next decide how to go about establishing and maintaining this new line of business. As I have previously mentioned, the first and foremost decision VARs will have to make along these lines is whether to become a reseller for an existing service provider or to develop and manage a hosted offering themselves. Here are some key options worth considering.
A variety of white label reseller and affiliate solutions are available, and the core benefit to this approach is there are virtually no Capex or Opex costs because you are leveraging another company’s systems and platforms. This is an attractive value proposition for VARs that are unsure about the importance of cloud computing to their business but still want to have an offering available. Naturally, minimal risk mean minimal return, and the margins associated with these types of reseller programs tend to be rather thin. Additionally, some other risks to consider include:
- Limited flexibility and lack of differentiation: Reselling another vendor’s services typically means giving up any say over pricing, margins, and product configuration. You also look basically the same as other companies that resell this vendor.
- Potential loss of brand equity: Many hosted application vendors don’t provide a complete “white label” option enabling you to brand a hosted service with your own corporate identity, thereby diminishing your influence over your accounts.
- Third-party billing: Many hosted software vendors insist on billing clients directly. However, if a vendor you recommended does a poor job of responding to questions and resolving complaints, you will end up taking some of the blame.
- Channel conflict or shutdown: Third-party vendors can potentially use their billing relationship with your clients as an avenue for marketing additional services, some of which may compete with your own offerings. Furthermore, the same vendor that resells hosted solutions to your firm today could potentially switch to a direct-only sales model tomorrow.
If offering cloud computing solutions like hosted applications is an area you consider important – if not critical – to the future success of your business, a more strategic approach to getting to market is creating and supporting your own hosted offering. This approach offers several key advantages to a reseller model, including:
- Greater control: IT companies that sell their own managed solutions are free to determine their own policies, choose their own product configurations, and set their own pricing structure.
- Higher margins and profit: Control over pricing translates into control over margins as well. Some hosted software vendors offer margins as low as six percent to their partners. Companies that host their own solutions, however, routinely earn margins as high as 50 percent.
- Account ownership: Companies that host solutions themselves can attach their own branding and handle their own billing. That means no need to share account ownership with a larger third party. It also means you are free to cross-sell or up-sell complimentary offerings and services as you see fit.
Let me know which route you ultimately take — and why.
Joshua Beil is director of market strategy and research for Parallels‘ Service Provider Business. Monthly guest blog entries such as this one are part of The VAR Guy’s sponsorship program. Read all of Joshua’s entries here.