In cloud, it’s everyone for themselves

This article appeared in the June issue of CRN as part of the main feature "The infrastructure conundrum: build, borrow or buy?"

What happens when vendors who now sell direct continue to lower their prices? In the old world we would make margin on selling hardware or software licences, but in the new world we generally find ourselves taking a commission or similar form of remuneration in exchange for handing the customer over to the vendor.

Partners are being marginalised and many are shutting their doors. While more and more cloud service providers, solutions and distributors launch with ‘cloud’ in their name, the reality is that this boom is short lived. Like any previous adoption of mainstream technologies, such
as the PC, internet or mobile devices, we will see a growth of solutions and vendors before the inevitable rationalisation comes through and leaves just a handful.

Usually only the giants remain.

So what does the competitive landscape look like for partners? How can we survive and retain profitability? Currently the gold rush is around cloud deployments – moving customers to software-as-a-service (SaaS) and infrastructure-as-a-service (IaaS) solutions. This only goes so far, and unless you’re moving customers to your own solution, how can you ensure that you will continue to earn a sustainable revenue stream from them?

Recently, Microsoft was mired in a lot of negative press for its change to how it handles ‘Partner of Record’ fees, the commissions it pays partners for signing up and servicing customers. The reality was that the change was not so great or unique – they’ve done it before – but more so that they had published a rate card in which little was left over for the partners. 

Both Amazon and Google have also dropped their pricing across various solutions and services.

As partners, we need to change our frame of reference, as do vendors and top-tier providers.

Six months ago, I was at a partner function where two words stuck out like a sore thumb: ‘reseller’ and ‘channel’. Reading into this, I could not help but think that the vendor saw us as simply a means to an end, a way to sell their product for them.  Like it or not, this is the reality and always has been. I said to members of the vendor team that referring to us in this way made the relationship seem very transactional. Perhaps they could refer to us as ‘partners’. At the next event, neither ‘channel’ nor ‘reseller’ were even mentioned.

Our world is changing. As partners we can no longer simply resell solutions and services, we must create and provide them ourselves. We cannot expect the tech giants to always have our backs: their job is first and foremost to their own shareholders, which ultimately means they are looking out for themselves.

What’s the answer? It really depends on your industry and what you do now. If the solution you provide is commoditised, such as IT services or even a hosted service built on a common platform, such as hosted Exchange or virtualised servers, start your exit plan now. The grim reaper is at your door.

Loryan Strant is the founder of Melbourne-based cloud integrator Paradyne