It’s not quite as dramatic or as clearly evident as the Great Land Rush of 1893, however the Great Cloud Land Grab is well underway. What you ask is The Great Cloud Land Grab – I define it as the great rush that’s underway to capture the hearts and minds of VAR’ and IT Solution Providers (ITSP) by the legacy vendors and distributors who rely heavily on their channel partners to produce an inordinate amount of their sales.
The funny thing is that not many of the participants in The Great Cloud Land Grab understand it’s going on right in front of their very eyes. Also, it truly is upon us, however, most participants have not factored it into their strategy of winning the cloud wars.
Even though I hear over and over from VAR’ and ITSP’s that the cloud is not affecting “me”, there are five (5) things I know to be true:
50% of those who stated that several months ago have come back and recanted their view – they’ve looked at those data center deals in their pipeline that hadn’t moved and found they were not on budget hold, but rather had moved to the cloud…
Major legacy vendors that only two (2) years ago had $0 in cloud sales are now reporting that cloud revenue is 7 – 10% of total revenue. Think Oracle, Microsoft, IBM… If you’re not capturing a minimum of 7% of your revenue from the cloud you are lagging the market.
Amazon Web Services, Inc. (AWS) did not exist prior to 2006 and now it’s on an annual revenue run-rate of $7.2B and most, if not all of us has not made a dime on this juggernauts rise.
The customer is driving the market for the first time in years (perhaps ever…) and we’re all trying to catch-up to where the customer is taking us and it’s to an OPEX world that demands we have something of value that can be consumed and paid for on a monthly basis.
We’ve hit the inflection point and there is no going back, however, we do have time to adjust and change so that we thrive 12 – 18 months from now – but you need to prepare now and incrementally move to alter your current model (business, financial, sales and operating).
So with the conviction and clarity of thought that allows you to see that the cloud is affecting all of us to varying degrees. It’s time to truly begin the process of getting our models aligned to the world described above and ready ourselves for the transition to growing a sustainable recurring revenue business.
With all that said, I’d like to frame-up how The Great Cloud Land Grab will affect the distribution and vendor models we currently embrace. In addition, I believe the decisions VAR’ and ITSP’s make regarding cloud vendor and distribution partnerships will be made over the next 6 – 8 months, will significantly determine the winners and losers of the battle for the cloud.
Keep two (2) things back of your mind as you move through this brief. They include:
Traditional buying model à switching costs are low to non-existent between providers …
Cloud buying model à switching costs are high and prohibitive in moving to new providers…
Over the next few pages I’ll endeavor to outline the evolving Distributor | Vendor à Channel Partner relationship and how the dynamics of the cloud are significantly altering those relationships.
So, what is The Great Cloud Land Grab?
From a distributors perspective the effects could be catastrophic. The traditional buying behavior of a VAR or ITSP has been to set-up several buying relationships (3 – 5 distributors) so they could ensure buying flexibility based on - credit line limit, product availability, price points and terms offered based on “the deal”. Trust me I had my favorite distributors, but the loyalty level on a day-to-day and week-to-week basis certainly ebbed and flowed as I looked to pack more margin or backend $’s into my deals..
At face value it looks like a chaotic approach for both the VAR and distributor, however, it actually led to a fairly predictable flow of business to at least three (3) of our distributors. Over the course of a quarter or so the distributors were able to earn a chunk of our business and most likely by the end of the year they were close (+ / -) to achieving the amount of business flow from us that they had forecasted. In other words, several distributors benefited even though no one had the majority of our business.
Trust me this micro-view of the world plays well even at the macro level. Business transactions are moved in a fluid manner, however, over time distributor’s benefit from the model and approach. In other words - some days you’re the windshield – other day’s you’re the bug, but you’re not always the bug…
Now enters the cloud buying scenario where VAR’ and ITSP don’t have the time, energy or resources to deal with 3 -5 buying sources. They’ll most likely (>90%) choose a single primary buying source at the distribution layer. Perhaps they’ll add one or two boutique cloud services broker s to obtain specialty or niche solutions as they construct their cloud solutions stack.
See the problem – there is only one (1) winner instead of several on the distribution side of the equation, ergo it’s imperative that you lock-in any and all suitable partners in today, (those willing to invest and transform their business to make it cloud / recurring revenue ready) before your competitor beats you to the punch - because once they’re gone, they’re probably gone forever.
If you didn’t realize this movement was underfoot, you should quickly evaluate its impact on your business and adjust your partner acquisition strategy to reflect its importance and adjust your level of urgency accordingly.
Although the effect of The Great Cloud Land Grab on the vendor community is not as dramatic (VAR’ and ITSP’s will chose at least 3 vendor partners…) as that of the distributors, many of the same elements are at play and the time for vendors to lock-in critical channel partners is now.
Similar to the distribution scenario outlined above a partner architects a solution and bases it upon their key vendor’s technology. But then the customer, who always gets the final say, outlines their budget constraints and preferences – well low and behold it’s not too tough to switch out the server platform, PC model, routers, switches or storage devices we’d initially spec’d to meet the customers need.
In this case, the preferred vendor might have suffered on this deal, however, they understood that the lion’s share of our deals will have their offerings baked in. Again, the oscillation and heartbeat of the business, over time, benefited all of our preferred vendors. You lose today, you win tomorrow – in the end you typically get your share of the business.
Now, once again, enters the cloud solution scenario – much like the distribution framework described above, its highly likely that the first 4 or 5 cloud solutions crafted by a VAR | ITSP will feature one of their primary vendors and that flow into the cloud services business will set the tone as to how my cloud practice solution-set will be built-out and who I’ll partner with for the long-term.
The reality is that a small to mid-size VAR or ITSP can’t afford to create the number of relationships they held in the transactional world. It’s just not practical…
Think about it in these terms – an IBM server looked a lot like an HP server, which looked a heck of a lot like a Dell server… Pretty easy for me to leverage my server experience against a multitude of vendor offerings.
The cloud solution-stack is incredibly complex and once a VAR or ITSP is wed to a primary vendor, I believe it’s going to be incredibly tough to pry them away and gain a share of their cloud services business. Can you imagine dealing with 4 – 5 cloud provisioning or orchestration engines – yikes!
So, you need to position yourself to win The Great Cloud Land Grab today – because if you don’t you’ve most likely lost that key partner for life.
Are we all Doomed?
Two (2) pieces of good news. First, the winners will have a much more loyal and stickier partner ecosystem than they’ve ever had before - which will yield incredible revenue and margin growth for years to come.
Second, The Great Cloud Land Grab has just begun and most vendors and distributors are much further along the path of transforming their business, than their channel partners. You have a little time to look at the latent and underlying needs of your channel partners and why they’ve yet to become productive in the cloud.
You can come up with innovative approaches to help them cross the chasm and begin to leverage your sales and marketing enablement programs.
You have these partners today, it’s your game to lose! The cannon has just sounded and The Great Cloud Land Grab is on. Good luck staking out your claim and grabbing your share of the territory.
Keep Calm and Cloud On and do get ready for the Internet of Things…
Hope you found this brief insightful and as always I’d be interested in your feedback. Please stay tuned for my next brief entitled “A CEO’s Tale – How I really Screwed-up a Business” on the importance of dealing with issues and change.