It’s true - we are all being disrupted, and we think it’s the Cloud or the Internet of Things (IoT), but in reality it’s our customers and prospects who are disrupting our businesses. The cold hard truth is that they prefer to consume IT Services these days by the glass - our culture is just plain getting used to paying for things monthly and it’s affecting all of us.
I know that most of us are not seeing a cataclysmic shift just yet, however, be assured the shift is happening. Oh by the way it’s going to accelerate and build at a tremendous rate over the next year. Once one company in an industry, a market segment or a geography makes the move to a cloud first strategy, it doesn’t take long for others to follow.
As I’ve said in past writings – eight (8) years ago Amazon Web Services (AWS) did not really exist and now it’s tracking to just north of $6B in annual sales. Imagine if we all just took a little nibble of that pie – how good would it taste?
Now take a look at the revenue gains from other’s like Microsoft, Cisco and Oracle – who are reporting on a quarterly basis and it’s clear to me the world (customers) is beating a path towards consuming IT Services on a monthly basis instead of the big bang transaction model we all know and love.
The good news is that it’s not too late to adjust and take advantage of your customers newly acquired taste to trade CAPEX costs for OPEX costs and lay out cash monthly, instead of all at once.
So, if you believe that your clients and prospects will want to consume some if not all IT Services, over time, on a monthly basis than why haven’t you started making a move to prepare for the inevitable?
I’d argue that with all of the fantastic offerings that are now available from the major vendors like Cisco (@CiscoCloud), Microsoft (@Azure), Dell (@DellCloud) and VMware (@VMwarevSphere) there are no technical barriers to entry – rather the barriers that exist today include several factors that only you can acknowledge and overcome. The barriers we see effecting value added resellers (VAR’) and Solution Providers include:
Organizations that cannot clearly see how they’ll make money in the cloud ~ revenue drops and cash flow is squeezed, this is scary stuff and we’d rather not think about it…
Business models that are overwhelmingly deal centric ~ you can’t deal with monthly recurring revenue (MRR) today…
Sales models are structured to drive transactions ~ your sales professionals are making bank, why would they change?
Sales plans are crafted for the big bang ~ your sales professionals can’t see how they’ll earn the income they’ve become accustomed too…
Systems and processes are geared to product procurement and professional services ~ most organizations are not truly MRR ready…
Although all of these problems are real, they won’t go away until you understand them and then slowly rectify them over time. And as we outlined above the world is moving to a subscription based world so these barriers need to be cleared away.
What was once an annual support contract has gone to a quarterly agreement, which will move to a monthly arrangement. What was once a fantastic data center build, with a refresh three (3) years later is now an $4,800 monthly bill to the customer that will include design, integration and managed services and you’ll earn it out over thirty-six (36) months.
This is not coming – it’s here and your competitors, especially born in the cloud company’s, are more than happy to grab the MRR, if you’re not!
So, what can you do to begin the journey to a true MRR model and a successful cloud services practice that over the course of a few years will be stronger and more resilient than your current business model? We’d recommend you begin the process today and employ these five (5) high-level prescriptions:
Understand your existing and future profit pools ~ how can I maintain or increase margins in the cloud and ensure I survive the journey.
Understand the revenue, gross margin and cash flow ramifications of moving from transactions to MRR ~ ensure you move, but not at a rate that would be harmful to the business.
Understand that your existing sales professionals won’t really be interested in driving MRR ~ look to create a dedicated MRR / cloud services selling team.
Review your current sales plan and ensure it rewards sales professionals for driving MRR and cloud services sales ~ show those willing how to grow their earnings and become the stars.
Look at your existing systems and processes and ensure you can count recurring revenue and reward your sales professionals ~ you need to make sure you don’t get yourself into Excel hell.
Once you get your business into a position to leverage cloud-based monthly recurring revenues, it’s time to craft solutions based on your vendor relationships. Investing precious money and resources prior to creating true fundamental business readiness is a waste of time for both you and your vendors’. The best vendor sales and technical enablement programs will not create value if you’re not really ready to be productive.
It is also worth mentioning that, In addition to the vendors mentioned above, you should look at some of the providers who’ve created some innovative and impactful solutions that are great fits for the VAR and Solution Provider community.
Veeam (@veeam) for instance, has an extremely forward-looking approach that allows channel partners to enter the cloud services arena with minimal to no upfront investment as they’ve constructed a framework that’s put the weight of the investment on themselves and their large Service Providers – thus significantly lowering the barriers to entry for their partners.
So, if your business has a large VMware (@VMwarevSphere) component today and you focus on back-up, replication and disaster recovery solutions you’ll be able to easily leverage Veeam’ (@veeam) Cloud Connect and DRaaS solutions as the core that you can layer your primary professional and support services around to grow your monthly recurring revenue (MRR), while driving increased blended margin rates.
In addition, we’ve found several other providers that are extremely channel friendly. Some great examples include ProfitBricks (@ProfitBricksUSA), Cloud Connect (@CloudConnectSMB),TriCore Solutions (@TriCoreNow) and Intelisys (@IntelisysCorp), amongst others. Shoot, even AutoTask (@Autotask) has entered the fray with its AutoTask Work Place its File Sync and Share (FSS) solution.
They all have profitable platforms you can utilize in crafting your solutions that will differentiate you in the marketplace and allow you to create services that are margin rich.
Keep Calm and Cloud On...
Hope you found this brief insightful and as always, I’d be interested in your feedback. Please stay tuned for my next brief on the importance of decision making and using alternate approaches to making solid decisions.