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Cloud disrupts, creates channel opportunities

Thanks to the cloud, many revenue streams for the VARs and resellers of the world are going to be severely impacted...but the coming opportunities might be even more lucrative.

If you are a value-added reseller or systems integrator today--a member of the so-called "channel"--you are keenly aware of the new reality that cloud computing is bringing to bear. In cloud, your traditional technology suppliers are now interfacing directly with the customer, and the channel's "value add" of customer relationship management, technology delivery, and solutions development is being seriously threatened.

Geograph: Derek Harper

Or at least so it seems on the surface. Thomas Bittman, a vice president and distinguished analyst covering cloud computing at Gartner, wrote a post recently that I thought summed up the reality facing direct and value-added resellers.

Bittman wrote one of the most concise descriptions of the channel's situation that I have read to date:

Two things are becoming increasingly clear to me: the channel will be critical in broader adoption of cloud computing (and private cloud), and the channel is not ready to do this. The channel needs to be rebooted. Until [it is], the midmarket, in particular, will leverage cloud computing in a slipshod and hit-or-miss manner. Likewise, channel partners who don't reboot and adjust to the new reality (that more and more IT capabilities purchased by the midmarket will be coming from the cloud, and not through hardware and software sales) won't survive for long.

The days of the VAR as a general contractor for IT systems construction aren't going away, but they are changing significantly. Relying on a model where you simply mark up the cost of hardware units and software licenses for a significant percentage of your revenue are fading. (Unless you are selling to cloud service providers, of course, but I think then you'd better watch out for the hardware and software manufacturers themselves, as that is a relatively small pool to swim in.)

This isn't new news, of course. I talked about VMware's realization that this was an issue for its channel three years ago. Carl Eschenbach, then vice president of worldwide field operations, now co-president of the company, pointed out that VMware was struggling to find a way to keep the channel strong even as its core business models were starting to change:

"We think there's a potential [that our channel will be affected]. And we're doing some studies right now with some of our larger solution providers, looking at whether there's a possibility that they not only sell VMware SKUs into the enterprise, but if that enterprise customer wants to take advantage of cloud computing from a service provider, that our VARs, our resellers, actually sell the service providers' SKUs. So, not only are they selling into the enterprise data center, but now if that customer wants to take advantage of additional capacity that exists outside the four walls of the data center, why couldn't our solution providers, our VIP resellers, resell a SKU that Verizon or Savvis or SunGard or BT is offering to that customer? So they can have the capability of selling into the enterprise cloud and the service provider cloud on two different SKUs and still maintain the relationship with the customer."

Jump forward to today, and we hear that those relationships are still being worked out. On the Cloudcast podcast recently, guest Steve Kaplan, VP of DataCenter/Virtualization practice at INX, who in turn is a VMware channel partner, noted that it was indeed seeking partnerships with service providers. However, even as it does so, some providers like Microsoft are threatening to take over ownership of the customer relationship, the channel's bread and butter.

So, what is a channel company to do about it? There are several options, actually, but all pretty much require disruption of existing skill sets and business models. Bittman lays out three:

  1. Doing solution assesments for SMB and midsize businesses to help them navigate the complex cloud marketplace

  2. Helping businesses and IT organizations transform to take advantage of the agility and cost models of cloud computing

  3. Acting as a broker or aggregator of multiple cloud services on behalf of a geographic region or industry vertical

I would simply add two more:

  1. Providing ongoing application operations services for customers across one or more service provider offerings

  2. Providing data center design and operations expertise to service providers looking to move to new high-efficiency models, like the Open Compute model announced by Facebook yesterday

In the end, cloud will force the channel to think of themselves more as software integrators and developers than system architects and administrators. However, there are still some great operations roles left in cloud (see my earlier post on that subject), and there are plenty of businesses out there that need help evaluating how to utilize cloud services, and then executing. Oppotunities abound.