Once, there was much gnashing of teeth over public cloud providers, viewed darkly as the beginning of the end for the channel. That wariness has given way to a more accommodating, collaborative spirit.
But while channel conflict still plagues public cloud as customers find it easier to buy direct and as partner services become features of their platform, cloud vendors have slowly woken up to the channel’s value in accelerating their own success.
Why partner with an ‘everything-as-a-service’ (XaaS) vendor? Some offer little or no price discount, but have exten-sive application programming inter-faces (APIs) to help partners develop intellectual property. Other XaaS vendors are more traditional, preserving margins and offering fiscal incentives. Many are somewhere in between.
There’s no right or wrong cloud channel program, says Don McLean, managing director of Fronde Australia – a partner of Google, Salesforce, Amazon Web Services and NetSuite. He advises partners to “start with the customer and plan backwards”.
“We do an analysis that’s really quite simple: can we make money?” McLean says. “Go to the end: what do I want to achieve, then what’s the value I want to give my customer? Why do customers want to go to the cloud, how can I provide that, how can I make money from my expertise?”
McLean illustrates the point by comparing NetSuite and Salesforce. “NetSuite is absolutely serious from a [traditional] resell perspective and is absolutely committed to the channel. Salesforce [says it] won’t resell through solutions partners, but will give you access to a rich API and you can put it on AppExchange [Salesforce’s app store], make revenue there and through managed services and delivery as well.”
In Australia, Salesforce mostly sells direct to customers but has engaged in a more traditional indirect-reseller model in emerging markets, says its senior VP for partner programs, Neeracha Taychakhoonavudh. Salesforce Australia splits its partner ecosystem into consultants, such as Accenture, Infosys and Deloitte, and software makers that develop on Salesforce’s platform.
“On the edge, we have partners that don’t fit cleanly like digital agencies such as WPP, Omnicom and management consultancies like McKinsey and Bain that act as influencers,” Taychakhoonavudh says.
She points to Cloud Sherpas – which was bought by Accenture in 2015 – as a model. Using Salesforce’s ‘Fullforce’ initiative and open APIs, Accenture built systems for its customers in verticals such as healthcare and wealth management.
“Leveraging their experience doing such an implementation, they bring it forward, use the APIs, add their own IP and market it as a Fullforce solution,” Taychakhoonavudh says.
“We targeted industry solutions because that’s a way to get closer to the client and address common problems in industry.”
Show us the leads
While partners such as Fronde and Accenture maintain multiple vendor relationships, Tquila ANZ is a pure-play Salesforce consultancy. Chief executive officer Jo Masters says this guarantees vendor loyalty. “Salesforce is not worried that we will pass the lead on in another direction. They know we’ll completely support it, so there’s no conflict of interest. That puts us in a very strong position.”
Masters says Salesforce provides training to keep Tquila current and is rigorous about deal registration to ensure clients don’t slip between partners.
She says Salesforce was instrumental in a recent $3 million Queensland win: “We brought the lead to Salesforce; they were very supportive”.
However, John Orrock, a veteran of the Salesforce channel, suggests the cloud CRM company has more to learn about partnering. Orrock has set up two highly successful Salesforce consultancies, first Okere then Cloud Sherpas, both of which were sold. With his latest venture, Barhead, he snubbed Salesforce to focus instead on Microsoft Dynamics. Speaking to CRN in Toronto in July at his first Microsoft Worldwide Partner Conference, Orrock contrasted the two vendors’ partnering strategies, saying the “difference here is Microsoft allowing entrepreneurs to be entrepreneurs. Interacting with Microsoft, you are still in control. Whereas the Salesforce model, you are not so much – you are limited by what they allow you to do.”
His business partner, Ken Struthers, who runs Barhead in Australia, agrees. “At two keynotes, [Microsoft said] we are and always will be a partner company. When you have the CEO and other execs saying that, it certainly gives you a level of confidence that it’s their way of thinking.”
Of the leading public cloud vendors, AWS has been particularly active in recruiting enterprise partners in Australia. Head of channels and alliances Stefan Jansen, a veteran of Microsoft, now oversees a channel that spans myriad flavours of partner, from consultancies Deloitte and PwC, to software developers MYOB and Atlassian, to solution providers such as Datacom, SMS Management & Technology and Bulletproof.
Jansen says that when it comes to partnering with AWS, “the conversation is not about margin per se. That is the wrong conversation. It is about how you [the partner] can add value on top of a platform that is becoming so broad and available on a global scale. It is changing the traditional, linear vendor-distributor-reseller model.”
Price vs value
Public cloud promises customers the utmost flexibility, so holding onto clients might mean winning them back day after day. That’s tough when prices are falling and your vendor competes with you. The answer could come from investment oracle Warren Buffet, who said: “Price is what you pay, value is what you get.”
Stephen Parker, formerly of distributor Rhipe and now an analyst with 1 Vision OT, says this principle should guide local cloud resellers as they compete with deep-pocketed vendors that seek to buy market share. “Price is easy to beat,” Parker says. “While price has to be in a right range, people’s buying decisions are rarely price-driven.”
Partners that understand their customer’s needs intimately and are easy to trade with, differentiate on services and IP and offer unique value, will hold on to their customers, Parker says. This is important because subscription models require partners to provide detailed, timely and accurate reporting against costs and future plans essential.
While traditional vendors often make tentative steps into public cloud, they’re still dominated by a big-bang, lock-in approach. Gaps in vendor channel programs include sclerotic internal processes, conflict between traditional and cloud sales groups, commissions and incentives, and an inability to spur IP creation, he says. Smart partners will use cloud to deliver business outcomes: “It might be billing-as-a-service or marketing-as-a-service; it’s all about time to customer value, and speed to reseller revenue”.
Next: Cloud cannibalism
New Zealand cloud software maker Xero started life going direct to micro and small businesses with a simple proposition: put your accounting on a simple, monthly plan rather like a mobile phone subscription and leave at any time. In reality, once a customer puts their business data in a cloud service, they resist pulling it out. Xero also appealed to those with limited or no bookkeeping experience. The ability to access it on any device also did away with software-protection headaches such as dongles and licence limits.
Like its perpetual-licence competitors, Xero quickly gathered accountants to its flag, but the IT channel of value-added resellers was a lower priority and hence grew more slowly.
Xero Australia managing director Trent Innes says cloud integrators are becoming more important to the company’s growth and customer satisfaction especially as small businesses grow and their needs become more complex.
Xero is focusing on helping its channel create solutions for vertical markets and linking accountants with integrators such as Accodex on complex projects. Xero’s App Marketplace will play a bigger role in providing the building blocks for such solutions, Innes says.
“Where the cloud integrators become really important is when a small business is putting together solutions for a particular industry,” Innes says.
Michael Macolino, chief technology officer of Accodex, an Adelaide Xero gold partner that straddles IT reseller and accountancy domains, says Xero is becoming more attuned to the needs of VAR partners. But Xero still has a habit of “cannibalising” its partners that upsets its ecosystem, he says. It’s a danger that is common across cloud vendors as they bake in functionality that may have been a lucrative revenue stream for an IT service provider or even the core business of an independent software vendor.
“On one side they [Xero] encourage startups to build add-ons, then at Xerocon they announce features that cannibalise offerings in their ecosystem,” says Macolino, citing a conflict between Xero’s move to measure business performance “in flight” and the likes of CrunchBoards’ business forecasting software.
He says this partner conflict diluted CrunchBoards’ commitment to Xero. It now offers its wares on rival platforms.
Macolino also despairs that, more generally, cloud software providers’ “greed” – driven by a need to meet venture capitalists’ demands for higher quarterly revenues – saps the channel and frustrates customers.
Having a cloud partner program is more than just selling software, he says: its primary purpose is to “provide the best experience possible” to the end customer.
Case study: Ingram Micro
Distributor carves out its place in the cloud
Disties have been the channel’s intermediaries, the link between vendor and resellers. They’ve been forced to innovate as the cloud wrought havoc on the physical supply chain. Now, the likes of Ingram Micro are finding a role connecting vendors and channel partners with end customers. The glue in this relationship is the marketplace platform – which in Ingram’s case was Odin, supplied by Parallels.
Last December Ingram acquired its platform supplier and up to 500 software engineers for an undisclosed sum. Now 600 Australian partners transact on the platform, says Ingram Micro Australia’s national manager of cloud solutions, Craig Bovaird.
The platform manages subscriptions, customer billing and monitoring. It started with a heavy Microsoft and Office 365 weighting and has expanded to include vendors such as Cirius, Connectwise, Skykick, Nomadesk, Acronis, Bit Titan, IBM Softlayer, Dropbox Business with Ingram’s own Service Desk tying it all together. Bovaird says that while early vendor partners allied to Office 365, Ingram Marketplace is expanding to include more vendors in areas such as information security. “We’ll see that ramp up in cross-sell and it opens up a new partner base for us.”
Greg Kieser, Dropbox’s head of ANZ partner sales, says distribution is accelerating its path to market and putting its APIs in the hands of more software developers and value-added resellers. “We came from a self-fulfillment heritage, but we found that working with distribution makes it much more valuable for partners,” Kieser says.
“Ingram has all the tools we need through Odin and Marketplace to round out the journey for the traditional reseller. We started with Ingram only two months ago and now have well north of 200 reseller partners.”
Case study: Microsoft
Channel-loving vendor loses its way, then finds it again
Microsoft always had tight, two-way bonds with its partners, whether software developers, resellers, systems integrators and other solutions providers.
Then Microsoft’s cloud broke and its resellers, accustomed to healthy margins, were offered cents on the dollar; beloved platforms such as Small Business Server were replaced with as-a-service alternatives. To partners’ vocal frustration, Microsoft went direct.
It took a few years, but Redmond heard partners’ howls and, by some accounts, returned to a more balanced channel relationship with more points on which partners sell, add value and compete than just price. The company’s cloud solution provider partner program has answered many partner concerns, in particular the fear of losing their direct billing and support relationship with their customers.
Microsoft says CSPs whose revenue splits 50:50 cloud and other services have twice the growth, 50 percent more gross profit and nearly double the recurring revenue of “less-cloudy peers”. And Microsoft says they attach 40 percent more revenue to the sale of Microsoft products.
Microsoft director of partner development Phil Goldie says its channel model has been “smashed apart” in the past year as cloud migration gathers pace. To prosper, partners of either stripe must develop their own IP, Goldie says. Relying on vendor incentives and refresh cycles stymies partner growth. And while he acknowledges that not everyone agrees, he says customers want the channel to change.
“You have to build a business around value creation that grows your bottom line,” Goldie says. “In the cloud world, you need something that’s uniquely valuable that customers will ask of you.”
He points to one of its award-winning partners, MOQdigital, as an exemplar for the channel. The company has grown through buying the likes of Skoolbag and Tetran and developing its own IP in Cloud Manager. He says recurring revenue “transformed the business” and “created much richer revenue streams.”
Microsoft will further build out its platforms such as Azure, Office 365 and AppSource to encourage partners into developing their own, higher-margin IP, Goldie says. “It’s important to have this end-to-end commercial model of partnering. That’s a ton of work and engineering effort when you take monstrously big platforms and solve complex licensing, commercial transition and e-commerce engines. That’s not easy to do on platforms where there are millions of users.”
History 101
Why public cloud needs smart channel providers
Last decade, early movers in public cloud such as Salesforce and Google stripped value by going direct to business customers and eating IT service providers’ lunch. They rode the wave at a time when IT project costs were unsustainable and just as more reliable, high-bandwidth and low-latency broadband internet systems were rolling out.
End customers only had to surf to a friendly website, use their credit card and moments later had compute, storage or an application whirring away in a data centre somewhere. No messing around with partners, disties, pre-sales checks or installation and configuration of software that often needed hardware upgrades (and shh! No need to tell the CIO, either).
Any conceivable flavour of IT app, infrastructure and platform was soon available online in an instant, usually through a web browser or lightweight client, for a fraction of the traditional cost.
But it didn’t quite work out like that. Smart partners weren’t just ticket-clippers picking up a lazy 10-15 percent as the sale whizzed through their paws to the suppliers. The best of the breed were deep in their customers’ networks and writing their business plans, advising on how technology would make them more profitable, resilient and innovative to serve their end customers.
Paradoxically, the welter of options confused customers, so a trusted advisor to recommend and integrate cloud with heritage systems, provide security, trust and governance services to mitigate risk was a lifesaver for many businesses.
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