By Pino Vallejo

In the past several years, both Software-as-a-Service (SaaS) and Infrastructure-as-a-Service (IaaS) models have driven evolution of the buying and selling dynamics in the IT business.  With Salesforce.com expecting over $8 billion in 2017 revenue and with AWS run-rates now exceeding $10 Billion per year, the impact of the changes to these dynamics will be felt even more broadly and deeply.

As a company just emerging from stealth in 2016, we had the opportunity to speak openly with end customers, channel partners, and vendors as part of our own due diligence — both to forecast the market direction and to drive our own go-to-market decisions. 

Based on hundreds of conversations, here are our top three predictions and recommendations:

1. SaaS and IaaS will continue to shift the job of Customer Success from the customer and their channel partners to the vendors themselves. 

With traditional, on-premises deployments, software and equipment suppliers provided their goods, and it was up to the customers to actually be successful.  For customers who didn’t have the skills or desire to create success on their own, the channel partners played an important role. 

The most oft-cited element of this role entails technical implementation, integrating disparate hardware and software components.  By managing the SaaS  and IaaS offerings (often in the vendor’s cloud), vendors remove many of the technical hurdles to getting started and expanding.

That said, even beyond technical implementation, vendors with increasing frequency are putting in place “Customer Success” teams that go beyond what traditional Technical Support and Renewals departments did before to proactively develop ongoing relationships in accounts that were often more squarely in the domain of the channel partner.

Recommendation:  Channel partners should learn to collaborate even more closely with vendor customer success teams.  Opportunities still exist to fill in areas where the vendor cannot (e.g., in third party software and integration), but the difference is that these now are often brought forward by the vendor customer success teams, rather than the customer themselves.

2. Consumption models and “pay-as-you-go” pricing will force more “land and expand” motions and compensation systems in the channel.

Both SaaS and Infrastructure-as-a-Service (IaaS) offerings are introducing new economic models – both in the vendor space and that affect channels.  Despite that most workloads are still not “elastic” and remain relatively predictable, customers’ mindsets are shifting toward a utility model where pay-as-you-go pricing is growing in popularity.  Capital commitments are being analyzed in the context of “volume prepay” discounts, much the way Amazon Web Services (AWS) positions their “reserved instances.”

This trend toward consumption models in return-on-investment (ROI) calculations more closely aligns the customers’ spending with their growth in usage and resulting benefit.

The impact on the channel is the mismatch with traditional incentive systems and sales motions.  Most channel partners we spoke to compensate their “hunters” based on a percentage of Gross Profit, incentivizing large upfront deals, while at the same time leaving smaller renewal orders to dedicated backoffice teams.  This incentive system puts often puts the reseller motion at odds with both the vendors’ look at customer lifetime value (LTV) and the customers’ ongoing ROI calculations.

Recommendation:  Re-evaluate compensation systems that incentivize landing customers to set the stage for future expansion with a view to lifetime value (LTV), rather than simply as a percentage of gross profit here and now.

3. Traditional on-premises software and data center equipment sales will continue to decline as a percentage of total IT spend.

Resellers are observing that prepackaged applications are moving SaaS and that custom application development projects are moving to IaaS. Traditional vendors have been slow to adopt this view, often viewing “hybrid cloud” as a way to bridge the old world into the new world – i.e., how to run old workloads in the public cloud, rather than the reverse, which is to take cloud-native workloads and run them on-premises.

With the modern, cloud-native toolsets available to application developers, failure to adopt these new paradigms may cause premature obsolescence of lagging partners.

Recommendation:  Evaluate new vendor partners with cloud-native paradigms built into their models.  “Cloud native” entails not only requiring nothing to buy and nothing to manage but also the whole new toolsets, including object storage, event-driven computing, and architectures that enable microservices.

Overall, we believe in the importance of the reseller channel, as channel partners provide an interesting point of continuity for end customers even as technology vendors come and go.  That said, we believe the growing momentum in cloud will prompt resellers in 2017 to enhance their interaction with vendor customer success teams, revisit compensation models and sales motions to facilitate “land and expand,” and to consider new vendor partners.

Stephen Pao, CMO

Stephen Pao is CMO of Igneous Systems, responsible for all marketing functions, including product management, product marketing, corporate marketing and channel marketing.  Prior to Igneous Systems, Steve was an early employee and executive at two fast-growing technology companies that did an Initial Public Offering (IPO) – Latitude Communications (now a part of Cisco) in 1999 where he was VP of Product Management and Barracuda Networks (NYSE:CUDA) in 2013 where he was SVP and GM of the Security Business.  In addition, Steve is a veteran of several other Seattle and Silicon Valley companies in their early phases, including Oracle Corporation, Visioneer (now a part of Nuance), Asta Networks, AskMe Corporation, and All Star Directories.  Steve is a graduate of MIT, with Bachelor’s and Master’s degrees in Electrical Engineering.