The Changing Channel
How 'Cloud' Isn't Helping the Cloud
What changes with the cloud is very simple. Instead of just hardware and software, we now integrate hardware, software and services. So why don't many partner companies believe in it?
It's possible that the one thing that has clouded up the whole view of "the cloud" and cloud computing is the word "cloud."
Why "cloud"? Why not "utility," which HP used a few years back and was much more descriptive of what the strategy was meant to accomplish? What about "remote" computing? Or "hosted"? Cloud is so open to interpretation, so vague, so...cloudy!
I spent almost a year blogging daily about how VARs, integrators and solution providers should plan to bring the cloud into their businesses for one of the largest distributors in the industry. During that time I spoke with dozens of channel partners about the cloud. I learned a lot, but perhaps the most telling experience came when I was presenting "Cloud for VARs" to the New York chapter of the distributor's channel community and someone in the audience stood up and said, "I just don't believe in the cloud."
This one moment defined the problem for me. I told this non-believer I had good news for him -- that the cloud was not a religious or mystic experience. I then asked if he believed in making money, to which he readily assented. I assured him he'd have no further problems with the cloud.
The change in our business brought about by cloud computing is simple, yet profoundly impactful. For decades, no matter what we've called ourselves, companies in the customer-facing side of the channel have always been integrators. We've basically integrated hardware and software components from various manufacturers and developers to create superior solutions for our clients.
What changes with the cloud is very simple. Instead of just hardware and software, we now integrate hardware, software and services. These services are usually produced and provided by companies other than our own mainly because these providers can achieve economies of scale that we cannot achieve by ourselves. These economies pass through to our clients as substantial and compelling reductions in price and ongoing operating cost. We can deliver similar or superior solutions at much lower costs. That's good, right?
For most channel companies the answer has been yes, and no. Lower cost to the client will translate to lower revenue for the integrator. So much lower that many have gone into a mild panic. Some refuse to even consider incorporating the cloud into their business because it will so damage their revenue stream.
Some vendors suggest that VARs will have to double the number of customers they attract to maintain current revenue levels. Others suggest that the profitability of services sold are so much higher as to more than offset the reduced revenue.
One thing is certain: We'll have to work harder and smarter to create new ways to serve our clients and earn their trust -- and their spend.
In the earliest days of the IBM PC, back when margin erosion was new, I had the good fortune to encounter David Bossi, an IBM Services marketing director. As IBM introduced its first Dealer Service Option program to underwrite (undercut?) reseller customer service contracts, I complained to Bossi that IBM, our own partner, was competing with us for service dollars. Bossi's response was honest, direct and insightful. It has, in fact, been part of what has guided my entire career.
"You'd better get used to it," Bossi told me. "The good news is that our entry into your markets will help to validate your offerings. In smaller markets you should always beat us on price. But make no mistake: You will always have to be innovating new solutions and new offerings to stay ahead of us."
These remote computing and service delivery strategies we collectively refer to as cloud computing are here to stay. They work well and deliver great cost-efficiency. If you don't introduce your clients to them your competition certainly will, and you'll likely lose deals. Then you might lose those clients altogether. Embrace the same reality, the same opportunity the channel has always faced. Lean into the wind with your creativity and your innovative inspiration at your back, and rise through the clouds to clearer skies ahead.
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Howard M. Cohen is a consultant to IT vendors and channel partner companies and a board member of the U.S. chapter of the IAMCP. Reach him at firstname.lastname@example.org.