How Can the Channel Build a Profitable Business Selling Cloud Services?
Today, public cloud providers like Amazon keep a very tight rein on the amount of margin that a channel partner (for example, managed service providers, VARs and resellers) can earn on reselling their services. Single-digit margins and the commitment to volume selling can make building a channel business on those public cloud resources a difficult proposition at best or a losing proposition at worst. The basic problem with the existing industry model is that these services are really targeted toward the end user, and that creates an inherent conflict between the public cloud provider and the channel.
At Egenera, we have heard the concerns of the channel partners as they try to figure out how to transition their business model to cloud services. We have heard the need to provide a flexible service with no upfront costs or commitment–one that allows the channel to design, price, build and deploy IT services in real time while maintaining control over the services it offers and the margin it makes on those services.
Wholesale Cloud Services Business Model
To address these concerns, the industry needs to embrace a wholesale cloud services business model where the cloud service provider is not selling its services to the end user.
In this model, the cloud service provider is singularly focused on providing the best-of-breed physical infrastructure, cloud management and services in order to help drive a competitive wholesale price. And competitive wholesale pricing is exactly what is needed for channel partners to gain control over the amount of margin they can make on those services.
A wholesale model also frees the channel partners from having to build out and support cloud infrastructure. That freedom helps maintain focus on building customer relationships while developing the technical expertise needed to keep their customers’ businesses running smoothly. Ideally, a wholesale cloud solution would even help automate the back-end business processes, like providing quotes for services designed, invoicing for resources consumed and managing currency conversion for larger channels that are likely doing business in multiple geographies. This approach avoids the fundamental conflict between the cloud service provider and the channel partner. Instead, it creates a synergistic relationship that makes great economic sense, which gives channel partners the ability to build a profitable cloud services business.
The Egenera Xterity Cloud Service is purpose-built to address these concerns and provides a wholesale cloud business specifically for channel partners. It is the industry’s first global wholesale cloud business that allows the channel to sell cloud services using their own brand, set the margins they need to build a profitable business and do it with no investment in infrastructure or upfront costs. Just pay-as-you-go —like the cloud is supposed to be. We believe the channel partners own the customer relationships, are the experts in what their customers need, and provide the first point of contact for their customer. I think that is an important philosophical point in building a synergistic relationship between the cloud provider and the channel.
Ultimately, I believe a wholesale cloud service is really just what the industry needs to allow the channel to seamlessly move into the new cloud-based economy.
Scott Geng is CTO/EVP Engineering. Guest blogs such as this one are published monthly and are part of MSPmentor’s annual platinum sponsorship.