Among all the volumes written about the disruption caused by cloud computing models, its impact on distribution is a complex and little understood footnote.
Yet for anyone interested, New Zealand offers a front-row seat on efforts to reshape distribution and, in the process, help to reinvent what it can mean to be an ICT managed service provider (MSP)
At the beginning of August, fast growing global cloud marketplace start-up Pax8 swooped in to buy Auckland-based Umbrellar as part of its efforts to build scale and nab market share from traditional distributors.
Umbrellar had built a very similar business model to Pax8, creating a marketplace (MyCSP) and ecosystem of local partners, velocity, revenue and scale, Umbrellar CEO Dave Howden told Reseller News last month.
As well as a credible services team, Umbrellar was a strong local partner of Microsoft and brought that to the global Pax8 playbook.
Now the name of the game was to unlock as much value to the local ecosystem by bringing Pax8's capabilities to market.
Howden said Pax8’s approach was to build a community and provide the tools to enable differentiation and to make that "sing".
"Within the traditional channel it’s only about the tool," Howden said. "But it only works when partners are engaged and helping each other. It's collaborative, for the benefit of the end customer."
Pax8 was well funded, seeing a lot of partner acquisitions and building a strong baseline for 2023 when the gas would be fully turned on in this region, he said. Locally that would mean adoption of the global brand and preparations to build a professional services centre of excellence in NZ.
"Umbrellar has the critical mass for that, particularly when it comes to Microsoft," Howden said. "There are other centres of excellence but not with that Microsoft lens."
Pax8 is aiming to modernise how partners, and particularly MSPs, buy, sell, and manage cloud. In that cause it also built a marketplace to manage cloud billing and provisioning and to deliver resources such as training to partners.
That effectively enabled traditional MSPs to build new businesses reselling and servicing cloud applications to existing and new customers.
Pax8 chairman and CEO John Street had been "doing startups" for years after time at Arthur Andersen. In the early 1990s he discovered a "new fangled thing" called the internet while working in telecommunications.
As chairman and CEO at USA Net, he effectively launched web-based email, a clear predecessor of SaaS applications, until Hotmail came along and “smoked our ass”.
Other startups followed, such as cyber security company MX Logic, later sold to McAfee. It was at MX Logic he first tried to leverage a channel ecosystem to sell a new SaaS project. That became a "poster child" for Ingram Micro's Seismic programme.
Along the way, Street learned a few hard lessons and developed some financial smarts, experience which went into the launch and funding of Pax8.
“I really couldn’t figure out what distribution could do for SaaS vendors," he said. "In 2011, I was trying to come up with a new idea: traditional distribution is not made for the cloud, and we can fix this problem."
Where is value created?
That was the genesis of Pax8, built on the idea that true value was not from distribution, but a virtual marketplace.
So, if you are a buyer in the marketplace what do you need? MSPs, for instance, had great relationships with their customers but didn’t know how to "schlep products".
"We are almost marketing as a service for the MSP to sell product," Street said. "They resell Saas products to clients and we provide the billing and reconciliation layer and completely automated the process."
Street saw that for many SaaS vendors, the cost of customer acquisition was prohibitive. A marketplace was needed to aggregate products and make selling and adoption frictionless.
"It's not about the size of the catalogue, but deep integration into provisioning and billing to make it easy for vendors," Street explained.
As the IT department of many small businesses, the MSP was key to the whole concept.
Chris Sharp, Pax8's senior VP Asia Pacific, most recently came out of a company not so different from Umbrellar, Rhipe, and also has a bit of a Microsoft "lens".
Street said Sharp and Rhipe had conceptualised the same ideas but "pivoted to public too soon". Pax8 doesn't have that pressure.
Umbrellar boosts Pax8's engineering
"We are very excited about Umbrellar and what they’ve thought through, the pieces in their platform," Sharp said.
"The team behind the MyCSP product are now part of our engineering team and we’ll be taking the best and rolling it into the Pax8 platform as we move forward."
That means some of those features will be delivered into Europe, the US and the rest of the world.
"We are charged with delivering the right services to our partners," Sharp said. "One of the challenges is scale, not just around the financial piece but around the vendors you can attract.
"Umbrellar was not of the size where you could attract the attention of some of the vendors to the level that our MSP partners need to have within their portfolio."
Pax8’s portfolio was a lot deeper did a lot more for the MSP to help and allow them to bring new skills and technology to the market.
Some other key hires, such as former Datto Asia Pacific VP James Bergl, are also part of Pax8's growth strategy. Datto's major market is also among MSPs.
"MSPs are not a monolith," Street said. "There are a lot of different categories and emerging MSPs."
These are segmented into proficiencies and focused on building their cloud practices.
"At the high end they are very good at that and find us to be supplemental."
From MSP to ISV
Some MSPs have also become software vendors, having created products of their own. At some point they can become a SaaS company and no longer an MSP.
In a sense, therefore, Pax8 can be thought of as a specialist fintech servicing MSPs.
For now, the aim is to dominate the small business market through the channel and build scale before moving up market to target enterprises, working through their internal IT departments.
"We are making sure we are a great choice for partners, making sure they get the right products and are able to use them and making the money themselves, not just putting the money into other people’s pockets," Sharp said.
That's another area where Umbrellar could help grease the wheel of growth: Pax8's Kiwi acquisition is already an established ICT professional service provider.
That could become a cornerstone of how Pax8 grows into Asia, Sharp said.