Cloud Channel Strategies at a Crossroads

Over the past two years, I’ve been chronicling the evolution of the channel in the cloud in my monthly commentaries in this space. Although many industry pundits have predicted the disintermediation of the channel in the cloud computing marketplace, I continue to see signs of success but under a new set of rules.

There is no question that traditional channel companies face serious challenges in the cloud market. The fundamental value proposition of the cloud, as well as its direct delivery model, run counter to channel companies’ traditional business model and positioning.

Most channel organizations — including VARs and systems integrators — have prospered in the past because of the challenges inherent in legacy applications and systems. They made a living helping their customers corral the complexities of raw systems and enterprise applications. Upfront planning and deployment projects typically led to endless customization and maintenance agreements.

Cloud vendors have captured the imagination and a growing share of corporate pocketbooks because they offer a far simpler set of solutions at a much lower upfront cost, which promises a quicker time to value. The ease of deployment and greater reliability of most cloud solutions have made it even harder for traditional channel companies to compete head-to-head.

Tough Economy Spawns New Mindset

The truth is that a growing number of IT and business decision-makers no longer have the tolerance or financial wherewithal to put up with the costly inefficiencies of owning and operating their own hardware and software. As a result, they are increasingly inclined to consider pay-as-you-go, on-demand alternatives.

This mindset is even stronger at the end-user level, where the unilateral and unauthorized acquisition of cloud services is not only circumventing corporate IT departments but their traditional suppliers, the channel companies, as well.

Until recently, most established channel companies had no alternative but to try to compete with the cloud vendors. Most cloud vendors were focused on proving their value and perfecting their delivery capabilities by selling their solutions directly.

Some built channel programs early in their development to achieve their initial success, but they often targeted a new type of channel partner rather than the old hardware- and software-oriented companies. For instance, Intacct found success selling its Software as a Service (SaaS) financial management solutions through a network of accounting firms that recommend Intacct’s solutions to their small and mid-sized business clients.

All About Partnerships

It’s likely that cloud vendors will establish nontraditional channels to market. While the cloud computing concept is gaining broad-based acceptance among organizations of all sizes across nearly every industry, cloud vendors must enlist a broader set of channel partners to penetrate specific market segments and extend their reach geographically.

This imperative has gotten even more acute as we face another round of economic speed bumps that will place new constraints on the amount of investment cloud vendors can make in their own sales teams. Instead, leveraging alternative channels to market will simply make more economic sense.

However, many of these cloud vendors are still struggling with identifying what kind of channels will generate the best new revenue streams, how to package and price their channel sales programs, and how to work with their channel partners to fully support their mutual customers while finding the right balance when it comes to account control.

While progress is being made in developing effective channel programs in the cloud, sustaining the current growth rates in the cloud market depends on building stronger channel partnerships to address the specific needs of particular industries, geographies and users.

Jeffrey M. Kaplan

Jeff Kaplan is the managing director of THINKstrategies and founder of the Cloud Computing Showplace. He can be reached at [email protected].

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