When Ryan Walsh was a vice president at cloud vendor MX Logic, a SaaS vendor acquired by McAfee in 2009, he noticed a significant gap in the market. Despite the clamor over the new cloud-defined IT channel and the proliferation of born-in-the-cloud companies, traditional distributors just hadn’t been able to keep up. Some of them had tried to incorporate elements geared toward the cloud into their existing programs, but they were too big and too set in their ways to pivot quickly enough to address the new pay-as-you-go, subscription-based market. They were Yellow Cab trying to succeed in an Uber ecosystem.

So along with a couple of colleagues, Walsh decided to build a born-in-the-cloud distributor that’s nimble enough to focus on helping partners sell cloud offerings for the new IT channel. Today, Walsh is SVP of partner solutions at Pax8, a cloud distributor that wants partners to rethink everything they thought they knew about running a channel business.

As-a-service Economics 101

Nicholas Heddy, VP of sales and the head of Pax8’s Cloud Solution Advisors group, is responsible for the distributor’s education efforts. If a partner comes to him with a specific business problem—the need to manage a remote workforce or establish efficient data analysis practices, for example—Heddy will work to help devise a solution comprised of offerings in Pax8’s marketplace that addresses that unique need. He makes an effort to learn each cloud solution the company offers so he can provide expertise and guidance to partners. “Our reps for the most part know more than a lot of the vendors do,” says Heddy. And that approach is paying off. “We’re approaching 1,000 partners, and we’re adding about 50 per month.” Heddy grins. “So yes—we’re hiring.”

But for VARs looking to establish a managed services, cloud-based practice, technology is, arguably, the least of all they need to learn. “I think a lot of times we’re talking about the marketplace, the cloud products and why you need to buy them,” Walsh says quietly. But how do partners pay a sales staff on a recurring revenue basis rather than a one-time sale? How do they bill managed services? How do they build lasting relationships with customers? “When you’re going to these regional association trade shows, that’s the conversation that we have.” He gestures at Heddy. “He gets asked about that all the time.”

Walsh says the trick is to figure out the long-term customer value of a recurring sales model. The economics of the cloud is very different than that of box sales, but the mentality partners want in their sales teams is the same. “People will refer to [the revenue stream] as the insurance agent model, where partners sell a service, bill a certain amount every month and the base grows over time,” he explains. “But the problem from a selling perspective is you still want hunters, not farmers.”

LeafTech, a provider of outsourced IT services, wasn’t looking for a distributor when Pax8’s sales team called them. The reluctance from partners to move to the cloud, Walsh says, is very similar to the objections he hears from end users. “I don’t want to buy a server, install the software, manage the updates, make sure everyone has the right updates—those partners are experiencing the same pain that their customers do.”

But Walsh and his team saw that adding hosted email to the company’s service offerings would be a win-win for both distributor and partner. Pax8 hooked LeafTech up with a vendor that provided hosted exchange and handled all of the heavy lifting. All the service provider had to do was turn it on. Now, LeafTech is a dedicated Pax8 partner that, Walsh says, has purchased most of the distributor’s line card.

“They’re not somebody who just had it all together,” chimes in Jeremy Yoder, VP of marketing at Pax8. “They’re somebody that was just looking for a solution. Cloud happened to fit the bill pretty well.” LeafTech has become a poster child for the kind of partner Pax8 wants to work with. “They aren’t just an example of a good partner. They’re an example of the trajectory you can take even if you weren’t a cloud shop to begin with.”

It’s a whole new world

Because success in a cloud-based channel is defined by achieving complex business outcomes instead of selling SKUs, everything is different, says Walsh. Marketing strategies have to change from eye-catching advertising to thought leadership content marketing. Because partners are selling solutions instead of products, they have to know how to bundle and bill offerings from two or more vendors. And the delivery of a cloud product requires an online marketplace where customers can order as much or as little as they want, not a warehouse stacked with inventory.

“Our marketplace is built with integrations in with other vendors so when we hit the Submit button, the product is provisioned or turned on for the customer,” says Walsh. “It’s not pick, pack and ship. It’s click, click, submit. It’s a whole different paradigm."