IDC: Public clouds and channel opportunities

The analyst firm’s research director outlines the pros and cons for channel partners dealing in the cloud market

By Spandas Lui, Sydney | Wednesday, 28 July 2010
IDC has emphasised the importance of selling value-added services on top of cloud offerings and identified emerging business models for channel partners interested in the public cloud market.

“The business opportunity for [the channel] in the short term is delivering consulting types of services on the back of new delivery models,” says IDC Australia research director, Philip Carter.

Services include readiness assessment services, cloud strategy development, multivendor support and implementation and transformation services.

“There is a shift for lots of vendors and value-added resellers [VARs] moving into the services category and even ISVs are starting to wrap services around products they are developing to ensure they can be put into a cloud-type environment,” says Carter.

Channel players concerned about being cut out by the public cloud due to the ease of directly provisioning services to end-users shouldn’t fret too much, according to Carter. But he warns resellers not to view the public cloud as just another stock-keeping unit (SKU) to sell.

“You have to start showing some value-add or some solution-type play otherwise the margin discussions are going to continue down the negative route,” says Carter.

According to IDC, 77 percent of resellers want a cut of the ongoing subscription fees to public cloud-based services while 17 percent want the traditional one-time referral fee. Carter said most players aren’t ready for a subscription-based go-to-market strategy.

“Most of the channels you see out there use transactional type environments… and there is no renewal, no subscription so even though a majority wants their proportion of a monthly subscription fee, their sales teams are not set-up to go after customers in that respect,” he says.

“There needs to be a significant amount of change in terms of the way they go to market and it needs to take place before they can actually get some return on those investments.”

IDC saw three different channel models emerging:
Referral fee model: Customers identifies a VAR when placing orders to cloud vendor directly. The VAR is registered to a distributor so the distributor gets paid. Distributor pays the VAR and all technical support is provided by the vendor.
It is easy to do business with this model but there is no recurring revenue.

Subscription model: VARs can deal directly with cloud vendor or a distributor can get involved as well.
There is recurring revenue involved but business margins are low.

White label (OEM) model: Channel partners essentially appear as a managed service provider with the service provided by the vendor through its infrastructure.

This provides a quick entry into the cloud provider market for channel partners but they assume more risk and the technical support model is more complex.