OPINION – Channel providers are particularly vulnerable to losing customers from key challenges that they face: their lack of expertise surrounding cloud management; the cost to build and manage their cloud, as well as the requisite investment in sales and marketing; and the ability to compete with a differentiated offering. That’s why the IT channel starts to embrace a tiered cloud distribution model.
Author: John Humphreys, VP of marketing at Egenera
It’s clear most enterprise customers prefer to purchase cloud services from a local partner or managed service provider (MSP). A recent Tech Target survey of over 1,000 enterprise customers found that 55% want their services to come from their local partner as these partners have forged close relationships with their customers and are viewed by the customer as the trusted advisor. Because of these strong relationships, MSPs are uniquely positioned to provide:
- Intimate hands-on knowledge of their customers
- Understanding of their local issues to help them make the transition
- Added personal touch and in-person support
- Tailored proposals to help customers understand application and workload perspective in addition to overall strategy
The challenge for these partners and MSPs is maintaining profitability while tapping into this opportunity. A recent survey of nearly 300 cloud providers highlighted that 44.8 percent of them listed ‘profitability of cloud services’ as their main business challenge.
Reselling Public Cloud
One option for the partner is to resell public cloud services. The challenge with this approach for partners is maintaining the necessary profit margins. Public cloud prices are visible to all and reseller discounts off these prices are minimal. In the end, the margins are simply too low for most of these organizations to make the margins they need.
Alternatively, MSPs could build their own cloud. The problem with this approach is that it’s too capital intensive for the partner community to do alone. To build their own cloud, a partner needs to invest a minimum of $500,000 and plan to spend an additional $100,000-$200,000 per year in operational costs per cloud location.
Finally, from a competitive perspective, the market for cloud is about localization. End customers want their applications and data to reside in country and close to the end users. This only increases the burden on the partner and makes building a profitable cloud service that much more out of reach.
Value Added Services
Taken together these dynamics help to explain why so many organizations are beginning to embrace a tiered cloud distribution model. I think of this as ‘Cloud 2.0’ – the next chapter in the evolution of the cloud. In this chapter, rather than focusing on the technology to build a cloud, the market players are concentrating on the business model, the value chain and carving out clearer roles for the channel to layer on their unique value proposition.
At a high level, this structured model essentially replicates the existing manufacturer-distributor-reseller value chain of today but rather than moving product through these channels, it’s about selling services. As such, one of the key ways these emerging cloud wholesales will differentiate is by providing services in many local markets so resellers can meet their customer performance, latency and data residency requirements – and do so at a wholesale price point.
This will allow not only the reseller to make the margins it needs, but it also allows them focus on their value add services. These value added services vary depending on the partner and skill sets. They may be the consultative approach the partner employs when helping the customer plan their cloud migration, they may be the migration and transformation services provided to end users or it may be things like the ongoing support, monitoring and compliance services the partners provides. The point is, the cloud is one of the raw ingredients in the IT value chain.
By embracing the wholesale model, MSPs are able to quickly enter the cloud services market with no up-front costs and with the ability to add service offerings that complement their particular skills and added value. It is very important for MSPs to look for white-label offerings which give them the ability to put their brand front and center, and partner with wholesalers whose management capabilities are required to provide strong levels of customer support. This is the best road to profitability and growth for MSPs in the coming years.
Today, every industry uses the cloud in the some form. MSPs are in a prime position to actually profit from it more than any other space, and have already conquered the hardest part: building key relationships with their customers. Embracing the transition to the cloud will drive a strong and profitable line of business for the foreseeable future.
About Egenera, John Humphreys
Egenera is a provider of cloud and data center infrastructure management software. Egenera’s PAN Cloud Director and PAN Manager software would provide a simple yet powerful way to quickly design, deploy and manage IT services while guaranteeing those cloud services automatically meet the security, performance and availability levels required by the business. The company is headquartered in Boxborough, Massachusetts.
John Humphreys is Egenera’s VP of marketing. He brings more than a decade of technology experience to his role and has global responsibility for brand awareness, lead generation, sales enablement, product marketing and channel development. Prior to Egenera, Humphreys was senior director, data center and cloud marketing at Citrix Systems. Prior to Citrix, Humphreys founded and was vice president of the virtualization practice at IDC.