News

Report Finds Where Partners Are Falling Short in Cloud

• By Gladys Rama
• August 08, 2017

Most partners are not investing enough resources to take full advantage of the cloud opportunity, despite owing an ever-growing proportion of their revenues to cloud-based sales.

That's the upshot of a recent study conducted by research and consulting firm 2112 Group, in partnership with Microsoft and Ingram Micro. The company polled nearly 350 U.S.-based solution providers for its July "State of the U.S. Cloud Channel" report, and found indications that "solution providers aren't ascending into the cloud with strategic direction or forethought."

Instead, the report contended, "the data points to their cloud development as being opportunistic and more a result of blind luck than strategy."

The good news is that cloud products and services are steadily growing as a percentage of solution providers' total income. In 2016, solution providers attributed, on average, between 11 and 15 percent of their gross revenue to cloud sales. That's up from a scant 5 percent in 2014. This year, cloud sales are on track to make up 16 to 20 percent of partners' average revenue.

At this rate, according to the researchers, cloud sales will become the biggest source of revenue for solution providers (accounting for 40 percent) by 2022.

On the other end of the scale, a vanishingly small number of partners do not count on the cloud for at least some of their revenue. In 2016, just 6 percent of solution providers reported zero income from cloud sales. That figure is expected to shrink to less than 1 percent by the end of 2017.

The bad news, according to the report, is that solution providers are investing an insufficient amount of their earnings -- under 10 percent, on average -- into cloud development, limiting their ability to grow their revenues and client bases.

Among the biggest partner shortcomings the report found:

• A reliance on "low-maintenance services." According to the report, cloud products that have easily recognizable on-premises counterparts and lower technical requirements are also the most likely to be sold by solution providers. Such products include productivity apps like Microsoft Office 365, which are sold by nearly 90 percent of solution providers, as well as backup/disaster recovery, endpoint security, network monitoring, storage and e-mail. Meanwhile, more complex products -- such as business administration apps, CRM/ERP apps, Platform as a Service (PaaS) and desktop virtualization services -- are underrepresented.
  
  "Solution providers largely undersell cloud services with more complexity and higher professional and support services revenue potential," the report found. "The survey responses suggest that solution providers continue to gravitate to the path of least resistance when adopting cloud services."
  
  
• A lack of dedicated cloud sales teams. On average, solution providers reported just two dedicated cloud salespeople on their staff, and just 25 percent have four or more. A lack of investment in sales capacity typically leads to smaller client pools and, therefore, limited revenue growth, the researchers argued.
  
  "After removing outliers from the equation, the average solution provider's sales capacity is anemic and stunting revenue potential," they wrote.
  
  
• Little focus on pre-sales services. Over 60 percent of the partners surveyed provide post-sales services, namely consultation and support, which are helpful for building ongoing revenue streams. In comparison, less than half said they offer pre-sales cloud services like needs assessments and architecture design.
  
  While pre-sales services are admittedly hamstrung by shorter timeframes, they can still increase the value of the total cloud sale. By ignoring them in favor of post-sales services, partners may be missing out on major revenue opportunities, according to the report.
  
  
• A widespread lack of long-term plans. The report found a disproportionate number of solution providers lack long-term strategies for sustaining their cloud businesses, despite their increasing reliance on revenue from cloud sales. For example, less than 30 percent of those surveyed have a defined framework for managing cloud customer relationships, while less than 40 percent have marketing plans aimed at creating new sales opportunities.
  
  In addition, less than 30 percent have established cloud revenue sales goals. Just over a quarter of respondents reported having operational structures in place for their cloud business, while just 43 percent reported having any kind growth roadmap at all.
  
  The report's authors described the general dearth of strategic planning among solution providers as "sophomoric."

The full report is available here at no cost with registration. The report's release coincided with the announcement of 2112's "Cloud Altimeter," a Web tool developed with Ingram Micro and Microsoft that lets individual partner companies compare their metrics against those of other partners in their region or industry.