Reseller News

Reseller News Distributor Roundtable - Can the channel make serious cash from the Cloud?

The inaugural Reseller News Distributor Roundtable debates whether the channel, in an apparent new age of IT, can make serious cash from the Cloud.

Long seen as an essential cog in the IT eco-system, the channel has placed products and solutions in the hands of the customers for countless years.

Fast forward to 2015 however and the rise of Cloud computing has lead to fears, founded or unfounded, amongst the channel of being cut out in face of decreased relevance of traditional channel roles and revenue streams such as system installation, customisation and maintenance.

Coupled with losing percentages on licences for physical distribution, which disappears altogether, the debate at the inaugural Reseller News Distributor Roundtable moved onto whether the channel, in an apparent new age of IT, can make serious cash from the Cloud.

“Resellers need to ask themselves what were they doing before Cloud?” says Mark Hardie, Senior General Manager, Datacom, when discussing whether reseller business models require adjustment as the Cloud usage grows across organisations. “There’s very little change from then to now in that respect.”

In the era of on premise software, customers have depended on the channel to analyse their business problems, map them to the available IT technology, and to a degree, hold their hands though the entire process of implementation and maintenance.

Yet today, the customer knows more, seeks more and when it comes to value, demands more.

To combat this changing dynamic, and ultimately derive value out of it, Stephen Parker, VP Market Research, Rhipe, believes the approach for resellers is three-fold.

“The key for resellers is to continue utilising the three Rs in sales - Reenforce, Remind and Reveal,” he explains. “Resellers should reenforce what they’ve always done and remind themselves of their history.

“When I talk to systems integrators, initially many of them who were drifting into selling boxes saw Cloud as a threat but now they are remembering their history which was built around integration and advice.

“That’s the real heritage and when you remember that then for system integrators Cloud becomes a massive opportunity because there are more integration issues, more advice required and more challenges to overcome.

“And of course you have the reveal, such as the ‘Oh did you know we have some other new stuff also?’”

Recalling an earlier conversation with resellers, Parker used the upcoming end of support for Windows Server 2003 as the perfect example to illustrate his point.

In making it to the table, the Rhipe chief questioned whether partners should pursue option A - getting the customer to simply upgrade - or option B - engage in a sophisticated conversation about bringing technology into the modern day.

Touching on the need for resellers to become more open minded when it comes to selling cloud, Darryl Grauman, APAC Services and Cloud Director, Westcon believes that from a distributor’s perspective, embracing new ways of solving business issues, chiefly through cloud, is central to reseller success and profitability.

In truth however, there are so many new entrants to the market, those that are born in the Cloud and know how to operate. So what should resellers do to guarantee relevance and ultimately, revenue in the Cloud game?

The premise to become profitable is simple, according to Grauman.

“Long gone are the days of discussing renewals 90 days in advance,” he warns, “this landscape has completely changed because we’re seeing a refresh of quotes and this is a quote to move to the Cloud.

“End-users are becoming more educated and they are now asking questions upfront about the Cloud. They’re seeing all these renewals coming up and are wondering about Cloud and how much it’s going to cost to get there.”

Therefore Grauman concludes the knock-on effect rippling through the market is that the renewals process is “not 90 days, it’s 270 days out and people are now asking the right questions.”

“We’re expecting our resellers and customer base to be asking exactly that question - what does it look like in the future?” he observes.

Based on in-depth analysis of customer business goals and requirements, resellers can help develop and execute a customised, holistic strategy to use cloud to drive not just savings, but revenue and growth.

“What do you want to do?” Grauman adds. “Can we help you with a consultative phase to help you with what you should be doing with this piece of technology? It’s about resellers providing these options and being schooled in it.”

Echoing the earlier point of Stuart Stitt, VP, Managing Director, Fujitsu New Zealand, Grauman acknowledges that the industry at present houses architects that “are good because they are open to Cloud” but conversely, is still made up of those that are really closed to the option, a position which could result in reeducation or reemployment five years down the track.

In hosting a table of distributors and resellers, all operating at the forefront of the channel, it’s typical for the discussion to stir up debate and unsurprisingly, disagreement.

The overriding consensus when it comes to Cloud, irrespective of the best approach to generating a surplus, is that for the box movers still in operation today, “you’re screwed because of the Cloud.”

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“In fact, you were screwed five years ago,” adds Nick Verykios, Managing Director, Distribution Central, who in weighing in on the debate, believes the onus to a degree is also on the distributor to ensure resellers are profitable within the channel.

“The reality is and our perspective at Distribution Central is that as distributors we will always have two areas to perform in,” he observes.

“We will provide technology and options to increase revenue and also we will provide transactional options which will help reduce cost.

“That’s pretty much our role as a distributor and I believe everything falls under those brackets. If the distributor isn’t doing this then they are not going to survive. The last 25 years of the industry proves that correct.”

IT Spend?

As far back as 15 years ago technology spending outside of IT was 20 percent of total technology spending; it will become almost 90 percent by the end of this decade, according to Gartner.

For Verykios, when searching for avenues of revenue streams, the conversation should be focused around the rise in IT spend and budgets, who’s in the control of buying and crucially, how this will impact the channel.

“In my opinion the best part of the whole equation,” he adds, “and the point that nobody is talking about is that IT budgets are increasing and they are increasing because customer problems are being solved more and more through IT, yet everyone ignores this element.”

According to Stitt, in full agreement with Verykios, “more and more IT spend is now being decided by the business as we are seeing more business problems than in years gone by.”

As reported by Gartner, when it comes the rise of Cloud, social, mobile and information, there is serious work that needs to be done across organisations.

In 2015 and beyond IT leaders need to make sure they have policies and procedures in place to respond to the new Nexus-driven threats.

They must counter cyberattacks, and anticipate new attacks from new sources at a high scale. They will need to respond to “reputation” warfare and defend against social media “mercenaries”. They will also invest in new technologies that support employee-owned devices such as mobile device management, containerisation and virtualisation.

The list goes on.

But as Michael Lamont, Account Manager, Open Systems Specialists acknowledges, the marketing team is also having much more of an influence on where spend goes.

“The marketing team is much more of an influence on the where the spend is now and that is what we are seeing,” he explains.

Speaking from experience, Lamont says when marketers want to take a product to market, suddenly they are main the drivers and they are the divisions pushing the CIO and the IT team to deliver.

“At OneNet we’ve also found that the marketing team go off with the credit card, subscribe to Salesforce or Microsoft CRM and set up their own CRM system because they are fed up with waiting for the IT department to get around to it,” adds Steve Victor, National Sales Manager, OneNet.

“Today IT departments have other things to address which means marketers just go off and do those things and it could be happen in other departments also.

“At OneNet we sell Microsoft CRM in country and receive many inquiries from resellers, or direct, with customers subscribing to the services themselves with their own credit card.”

Victor’s observation of IT spend in business and how it is impacting the channel begged the key question of whether the role of the traditional IT buyer has now changed?

“It hasn’t completely changed but there are now more decision makers than just IT managers,” he claims.

In taking a consultative approach based around understanding customer needs and providing the appropriate infrastructure on a cloud platform which is consumed as a service, Deidre Steyn, General Manager A/NZ, ICONZ-Webvisions admits that in selling cloud and cloud only, educating the market can be difficult.

“We’ve spent the time and it is difficult,” she admits. “We’ve found that the sell is not to the IT departments and that you have to start high first.

“It’s imperative to get the business owner or the department end buying cloud and referring down. And that’s where a hybrid cloud approach actually starts the conversation, teaming up with the IT department instead of taking control away from them, we’ve seen that shift happen.”

Where is the cash coming from?

For Parker, the buying patterns of organisations and IT departments revolve around a natural cycle but for Verykios, when asked directly on the monetary value of resellers selling the Cloud, he believes partners should consider the technology as an enabler.

“To be clear, new sales wouldn’t have happened without the Cloud,” he explains. “The enablement of traditional technologies is absolutely huge without that 2 per cent of Cloud - that’s what we are seeing.”

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Just a few years ago, Cloud was all about reducing costs whereas now, according to industry feedback, it is considered to be a strategic business enabler.

“The majority of new revenue for resellers is not Cloud revenue but driven by the cloud and that can’t be ignored,” Verykios adds. “And because of this, what we are seeing is a spike in something completely different.

“If we for example finalised a million dollar sale, 2 percent of the sale is Cloud revenue, the rest is either on-premise or hosted in a data centre.

“But crucially, without that 2 per cent the other 98 per cent wouldn’t have happened. We are seeing a spike in that kind of transaction and it is our current customer base.”

The customer trend in New Zealand for Datacom, observes Hardie, is that customers are not moving to the cloud immediately, rather they are “dipping their toe in the water”, usually through a hybrid model.

“We are not seeing a wholesale move into Cloud,” he adds. “We are seeing organisations moving their core financial systems and dumping them into public Cloud but it comes back to what I said at the start, if you go back to what the customer wants it does vary.”

A key question Lamont believes resellers should consider asking when approaching customers is; “How many applications and models do you actually want to manage in the Cloud?”

“And that’s where some of the value of aggregating the different vendors into a single billing model is going to be key,” he claims.

“Because if you’re a CIO trying to cost centre manage how many different applications you have running up there then good luck as it’s going to be a nightmare.”

Unless born in the cloud, Parker agrees, acknowledging that the Cloud “isn’t the answer to everything, it never has been and it’s about having that sensible hybrid conversation.”

Circling back to who is in control of IT spend, Parker says organisations have system legacies scattered across the business leading to chaos in the ranks and a desire for the IT department to “please return and help us.”

“But it’ll be a new CIO,” he warns, “it won’t be the CIO who was employed five years ago just to get the cost down to drive service levels up.

“The outgoing CIO is being asked to be innovative when their whole skill set is about keeping costs down, SLA up. But now the game has changed and the role will be reversed.”

At Datacom, widely recognised as a blossoming Kiwi IT company, Hardie says the business structure involves two groups, one focused on product, the other on Cloud.

“These two groups within the company are effectively competing with each other but the product group is absolutely successfully and has just outdone their budgets and recorded a perfectly good year, which shows people are still buying infrastructure,” he explains.

Cost of Cloud?

But as Cloud computing gets more competitive, will market leaders and newcomers continue to push pricing downward?

While cloud providers have incrementally cut prices for some time, the mounting price war among leading providers of public Cloud services looks set to take on a whole new meaning in 2015 and beyond, leading the channel to question; how low can you go?

“Is it a race to the bottom?” Lamont speculates.

“There is a ground zero cost,” responds Grauman, alluding to the role of market leaders Amazon, Microsoft and Google.

“If you look at Amazon, they have got a book store, a Kindle store, a content delivery network and AWS all running off the same compute block so they can make a blended margin across all of those business lines. The result is that they can make smaller margina across more business lines.

“But when you get a single function organisation such as Rackspace, where they have one product in infrastructure-as-a-service, they have to make all of their margin out of just that.

“So do I think there is a race to the bottom? No. It can get cheaper but absolutely there has to be a ground zero.”

To read Part One of the inaugural Reseller News Distributor Roundtable, Defining Cloud, click here or to read Part Three check back to Reseller News next week for more details.

This roundtable was sponsored by Distribution Central, Rhipe and Westcon. Photographs by Jason Creaghan.