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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