IT Channel must look at the Cloud

The Cloud is the next step for the IT channel but many companies are still slow on the uptake.

Ian French, managing director at Siceo Ltd, gives ChannelBiz the lowdown.

“The Cloud is becoming of massive interest but adoption of the underlying technologies and mythodologies in IT channels has been very slow.

“Most people that are adopting this are small, agile companies who can just about get their heads around this technology and make investments and plans without having to consult accounts, shareholders etc.

“Bigger companies on the other hand struggle with latenc in management thinking and fear of impacting current revenues and business models and therefore upsetting investors.

“A lot of companies miss the opportunity therefore because they are too slow to understand or invest, while bigger companies such as IBM, Cisco and HP find it hard to identify what they can actually do with Cloud offerings. Are they a supplier of products to Cloud hosts and services providers,  hosts in their own right,  brokers of other services and hosted offerings and what can they actually offer?

“This is compounded by conflicts with existing channels and also the associated cost models which are based on products buy/sell relationships and were never designed to accommodate services.

“The lines are blurry in terms of what they are actually doing and offering and if what they do conflicts with clients or is relevant to their target user audiences.”

There’s a new US term coined from this confusion.

“It’s called Coopetition. It means that a company can be a supplier and supply their clients with things but also use products from companies who also want to offer clients a full package. The challenge for the channel is who ends up owning customers. There are already cases where things are getting confused.

“Telcos have been getting competitive in the consumer space but they are now moving to the SoHo and SMB space so they all vying to own the customer and we now see operators such as Amazon and Google targetting the corporate public cloud market as well as hosting shared / private clouds.

“The key question is, can you have more than one owner in a cloud environment?

“Cloud could make much of current IT channel redundant and the distributors in particular are desperately trying to work out what value they can add and whether they dare risk direct touch and ownership of users, thereby potentially alienating their resellers.

“Big companies need to visibly add some value to their services to be seen as more than an introducer now or are consigned to be agents in the future for bigger, more competent aggregators.

“It is even possible that the new generation of cloud brokers will become the next layer of distribution for services and software leaving legacy channels to try to survive on low margin products.

“Traditionally you had a model that worked well. You had your big companies HP, IBM, MS etc – the manufacturers. They largely went to the distributors who went to the reseller who went to the user.

“All good until people like Dell came along. Selling directly forced some VARs to turn into super VARs and the System Integrators mushroomed as organisations embraced managed services and outsourcing of IT but  Cloud potentially challenges all these layers. Unless you have value services that will benefit your customer, your role as a supply chain partner turns into a retailer or e-tailer and we all know what’s happened there.

“The internet has also made it cheap to find products at the cheapest possible prices meaning that users may not go to a reseller for tproducts either. This is why the channel needs to provide knowledge based services. Some already do this very well but others do not and because the Cloud is accelerating this the gap grows.

“The research ChannelBiz did, found that less than 10 percent of resellers see cloud as important and that is scary.

“The juggernauts that are already playing, such as IBM, Google etc won’t be slowing down in this space and wont wait for smaller companies to catch up so channels need to find a way to monetise their services, add some value and partner with the players already operating in the new space.

“This also opens up the challenges of annuity revenue streams instead of capital revenues which in turn challenges cash flow and funding models and also challenges compensation and commission models. That’s not something that will be fixed in a weekend.

“People using the Cloud may also want their services coming from one supplier (pipe). All the services and applications from one company makes sense and is efficient and also opens up the need for consumptive billing (pay by usage) instead of time billed tariffs or pay by data.

“This again changes roles within the channel. We are already seeing bigger telcos and mobile operators such as BT, Vodafone etc who will manage their supply chain relationships with vendors and publishers that in turn questions the distribution involvement and potentially sidelines many low value, high revenue resellers.

“I’m not predicting Armageddon, just the beginning of World War 3. And it won’t happen immediately.

“But it will happen soon. We are looking at a serious lack of understanding and education and honesty from vendors and distributors, if many in the channel believe that the cloud isn’t important.

“This needs addressing and education and practical help is needed. Unless you’re sophisticated with services, understand your customers’ business needs and can add value to your client then you’re not important to anyone.

“Channel companies need to invest in this massive opportunity and get real about understanding technical issues and resource, knowledge sharing and exploring new models and values for their customers  instead of employing flash salesmen and PR people – they will not be much use when their customers have migrated to the new world.”