To quote Isaac Asimov, “The only constant is change, continuing change, inevitable change, that is the dominant factor in society today.” When I started out in IT in the mid-1980s, I was amazed at how fast things were changing technologically. Today, I take the pace of technology change pretty much for granted — what amazes me now is the speed with which business models are created and changed. This brings me to the subject of this column, namely the changes cloud-based services are about to force upon many New Zealand resellers.
In my 12 years with Microsoft I met literally hundreds of channel partners whose businesses benefitted in part from providing business infrastructure such as file storage, email and collaboration tools. It’s not out of the ordinary for a 20-person business to purchase between $15K and $20K of hardware, software and services to secure such services, and for the reseller to make around 15 percent profit overall. (These are ‘pulled from thin air’ numbers and as they say, YMMV — your mileage may vary). So, assuming bills are paid on time, the average reseller selling an average installation to an average customer might bank an average of $1500 to $2000 a month or two after deploying such a system.
Now, let’s look at the same scenario using Microsoft’s Online Services pricing and commission structure. According to the calculator at www.microsoft.com/nz/online Business Productivity Online Standard Suite for 20 users will cost $17.24 per user per month. For the first year the reseller will earn a commission of 18 percent ($745) and in years two and three they will earn 12 percent ($993 in total) for a total profit of $1738 which is spookily near the middle of my numbers above.
So impact number one will be that resellers will have to adapt to managing trickle-fed commissions, rather than up-front profits. But there’s more to it than that — I believe that the move from on-premise email and collaboration infrastructure to online/cloud is likely to be a relatively quick one for several reasons.
For starters, the main players — Google and Microsoft — are executing on remarkably congruent strategies, thereby giving customers more confidence that the online option is a valid and well-supported one. This is an important point in the current climate of recession, reduced IT budgets and “move capex to opex” conversations. Secondly, online services dramatically reduce upgrade, deployment and piracy issues, which increases the chances of vendors promoting them strongly. Lastly, the lower level of technical expertise required to provision online services means that new, non-traditional participants are likely to enter the market to chase the commissions on offer. Add to all of that the fact that Gartner is forecasting that 20 percent of businesses will be using online email by the end of 2012 and I think the future is looking very clear indeed.
So what should resellers do? I believe the answer to that question lies in a piece of advice I was given by marketing guru Mohan Sawhney several years ago: “Keep the cannibals in the family.” In other words, if anybody is going to cannibalise part of your business it should be you.
The time to start thinking about how your company should go about planning to provide online services from one or more of the major vendors was sometime last year. Failing that, now is definitely better than later, or too late.
The next time you have a customer asking about a new or improved email/collaboration solution, run the numbers on a cloud-based offering, if for no other reason than to ensure you are the one who offers it to the customer as an option. If you don’t, chances are somebody else will.
Brett Robertsis Microsoft NZ’s former CTO and director of innovation, and has spent 25 years in technology, sales and marketing roles. He’s also a blogger http://blog.brettroberts.com and a tweeter http://twitter.com/brettroberts